Traction Hygiene: Say the Number You Actually Keep
Never say ARR when you mean run rate, never say revenue when you mean GMV — state net revenue first, then everything else.
- Difficulty
- Starter
- Time to result
- ~days to results
- Steps
- 6
- Confidence
- 80%
Taking notes on a whiteboard through the pitches, Sam Parr names the two metric abuses that reliably irritate him. The first is saying ARR when the business does not have annually recurring revenue — founders stretch it to mean 'annual run rate', and Sam's response is that nobody uses the term that way. The second is presenting GMV as revenue: a marketplace can accurately say it sold $4.2 million of product while keeping only a fraction of it. The group-airfare founder did both at once, leading with $4.2 million in sales that turned out to be aggregate gross bookings across five months, against roughly $150,000 a month in actual revenue. Sam's prescribed order is unambiguous: lead with what you actually take home per month and per year, call that your current run rate, and then — separately and clearly labelled — give gross volume if it is relevant. The underlying logic is that the sophisticated investor will decompose the number anyway, so the only thing an inflated headline buys you is a credibility hit at the moment they work it out. Shaan applies the same discipline elsewhere, pressing another founder on whether $3 million meant the bundle or the company's share, and getting $1.5 million.
Origin
Sam kept a running whiteboard through the Demo Day pitches and wrote 'revenue presented weirdly' against the group-airfare pitch, then articulated the two metric abuses he sees repeatedly from founders.
Core principles
- 01Lead with the number you keep, not the number that passes through you.
- 02ARR means annually recurring revenue — not annual run rate.
- 03Gross volume is a real metric, but it is not revenue and must be labelled.
- 04A sophisticated investor will decompose it anyway, so inflation only costs credibility.
- 05Clarity about small numbers reads as confidence; ambiguity about big ones reads as evasion.
How to run it
- 1
Separate gross from net
Work out what flows through the business versus what the business keeps. The group-airfare business sold $4.2M of airfare at a 10-15% margin.
- 2
Lead with net revenue per period
Sam's instruction: 'just say how much revenue you have, make that the first one — we do this much per month, per year, that's our current run rate.'
- 3
Use the correct label for run rate
If it is not recurring subscription revenue, call it run rate. Sam is blunt that stretching ARR to mean annual run rate does not wash.
- 4
Give gross volume second and label it
'In terms of GMV we've done this much.' Gross volume is legitimate context once it cannot be mistaken for revenue.
- 5
Never present an aggregate as a rate
$4.2M across five months is not an annual figure. State the window explicitly whenever you give a cumulative number.
- 6
Pre-empt the decomposition
Show the take rate and net figure before you are asked. Shaan had to press Nickelpass twice to establish that $3M meant the bundle and ~$1.5M was theirs.
In the wild
The pitch led with $4.2 million in total sales January to April and $1,700 revenue per group. Under questioning it resolved to roughly $150,000 a month in actual revenue at a 10-15% margin.
→ Sam wrote 'revenue presented weirdly' on his whiteboard and called the fix a big improvement — despite otherwise rating it the strongest pitch of the day.
The founders stated $1.2M ARR and $3M by year end. Shaan pressed on whether $3M was net or the bundle value, and on what share they kept.
→ It resolved to roughly $1.5M net at a 44-55% gross margin — a real number that only emerged after two rounds of questioning.
Common mistakes
Stretching ARR to mean annual run rate
Sam's reaction is immediate — 'dog, come on, none of us use that word that way.' The term has a specific meaning and misusing it signals either ignorance or spin.
Presenting GMV as revenue
Technically defensible and practically fatal. Sam's eBay analogy: you can say you sold a hundred billion of stuff while capturing a small percentage of it.
Quoting a multi-month aggregate without the window
$4.2M sounds like a rate and was actually five months of cumulative gross bookings. The ambiguity forces the investor to do work that only ever lowers the number.
Is it for you?
Best for
Marketplace, agency and services founders whose gross volume dwarfs the revenue they actually keep.
Not ideal for
Pure subscription businesses where net revenue, recurring revenue and run rate genuinely coincide.
From the transcript
“one is when they use arr and it's not actually annually recurring revenue and they're like well it means annual run rate i'm like dog…”
“the second thing is when they say revenue but it's gmv which stands for gross merchandise volume so it's like if you're ebay you sell…”
“dude just say how much revenue you have like make that the first one we do this much per month per year that's our current…”
From the episode
MFM Demo Day: 5 Startups Pitch Sam & Shaan and Raise $1.7M
MFM Demo Day