The Fund Pool Glossary: The Language of Financial Performance
A Technical Reference for the Foundational Terms Behind Every Key Metric
Every metric in a pitch deck is built on a layer of foundational financial vocabulary. Misusing these terms, or conflating them, is one of the fastest ways to diminish credibility with an investor. Before analyzing unit economics and margins, this entry defines the building block terms that sit beneath every primary performance metric.
COGS (Cost of Goods Sold)
The Definition: The direct costs incurred to deliver a product or service. For SaaS: this typically includes hosting, third-party software licenses, and direct customer support. For hardware: it includes manufacturing, materials, and fulfillment. It does not include marketing, sales, or office costs.
The Impact: COGS defines the ceiling of the gross margin and is the starting point for every profitability calculation. Failure to distinguish it clearly from operating expenses raises questions about the reliability of every other figure in the deck.
Operating Expenses (OpEx)
The Definition: The ongoing costs of running the business that are not directly tied to delivering the product: typically including sales and marketing, R&D, and general and administrative expenses.
The Impact: Investors separate COGS from OpEx to understand where capital is being deployed and whether the cost structure is appropriate for the stage of the business. Disproportionate OpEx relative to revenue signals either over-investment in growth or cost misclassification, both of which affect how burn rate and runway are assessed.
Gross Profit vs. Net Profit
The Definition: Gross Profit is revenue minus COGS. Net Profit is what remains after all costs, including OpEx, interest, and taxes. A company can be gross profit positive while remaining deeply net profit negative.
The Impact: Conflating the two is one of the most common errors in early-stage decks. Investors expect startups to be net profit negative: they do not expect founders to present gross profit as evidence of overall profitability.
Revenue vs. Bookings vs. Billings
The Definition: Revenue is income earned and recognized when delivery has occurred. Bookings are the total value of contracts signed in a period, regardless of delivery. Billings are amounts invoiced, which may match neither.
The Impact: These three figures can look dramatically different for the same business in the same period. Presenting bookings as revenue is a red flag that surfaces immediately in due diligence.
Fixed Costs vs. Variable Costs
The Definition: Fixed Costs, such as rent and software subscriptions, remain constant regardless of output. Salaries are often treated as fixed but are more accurately semi-variable, since headcount tends to grow in steps with the business. Variable Costs, such as payment processing and usage-based infrastructure, scale directly with revenue.
The Impact: The ratio of fixed to variable costs determines operating leverage: the degree to which revenue can grow faster than costs. This is the structural advantage at the core of most venture-scale businesses.
Cash-Based vs. Accrual Accounting
The Definition: Cash-Based Accounting records revenue and expenses when cash changes hands. Accrual Accounting records them when earned or incurred, regardless of payment timing. Earlier-stage companies often start on cash accounting and transition to accrual ahead of institutional fundraising or an audit.
The Impact: The method used directly affects how MRR, burn rate, and profitability appear. Whichever method is in use should be disclosed, since the same business can look materially different under each.
Next Week in the Glossary: Unit Economics and Margins. These per-customer profitability metrics determine whether current growth is sustainable and value-additive.