Definition
Capital efficiency reflects how much output (revenue or ARR) you produce per dollar of capital invested or burned.
Formula
Capital efficiency = output metric / capital invested
Example
If $5M of capital produces $3M ARR, capital efficiency is 0.6x.
How to use it
- Define the output metric clearly (ARR, gross profit, or revenue).
- Use consistent time windows when comparing efficiency.
Common mistakes
- Mixing equity raised with debt financing without context.
- Comparing efficiency across stages without normalization.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Capital Efficiency" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Unit economics hub: CAC, LTV, payback, and runway (a practical stack)) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- Investment Decision Calculator: Evaluate an investment using NPV, IRR, discounted payback, and profitability index from simple cash flow assumptions.
- Profitability Index Calculator: Calculate profitability index (PI) from discounted cash flows and estimate the max investment for a target PI.
- WACC Calculator: Calculate WACC (Weighted Average Cost of Capital) from capital structure, cost of equity, cost of debt, and tax rate.
- Equity Value Calculator: Convert enterprise value (EV) into equity value using cash, debt, and other adjustments (optionally per share).
- Pre-money vs Post-money Valuation Calculator: Convert between pre-money and post-money valuation and estimate investor ownership from a financing round size.
Guides
- Unit economics hub: CAC, LTV, payback, and runway (a practical stack): A practical hub for unit economics: CAC, fully-loaded CAC, LTV, payback, margin impacts, burn multiple, and runway planning.
- Fundraising & valuation hub: pre/post-money, SAFEs, notes, and liquidation prefs: A practical hub for startup fundraising and valuation basics: pre/post-money, pro rata, option pool shuffle, SAFE/note conversion, and liquidation preference outcomes.