Benchmarks · Hardware + subscription
What investors check first in a hardware startup
Healthy ranges for a hardware startup at an early stage: gross margin 35%–70%, monthly users churn up to 2%, year 1 device gross margin 35%–70%, year 3 subscription attach rate 15%–60%.
How a hardware startup makes money
Devices sold x price + subscribers x plan.
That one line is the revenue engine. Every number in it should be something you can measure today and defend with your own data. Investors rebuild it in their heads in the first five minutes, so your model should too.
The benchmark ranges
| Metric | Healthy (green) | Watch (amber) |
|---|---|---|
| Gross margin | 35%–70% | 25%–80% |
| Monthly users churn | up to 2% | up to 3.5% |
| Year 1 device gross margin | 35%–70% | 20%–80% |
| Year 3 subscription attach rate | 15%–60% | 5%–80% |
Year 1 device gross margin. Hardware investors usually want 35-50%+ device margin, plus a growing subscription.
Year 3 subscription attach rate. Attach rate above ~60% needs strong evidence (or a required subscription).
Ranges are rules of thumb for early-stage companies, used by the Model Health Score in the Hardware + subscription edition. They are not market data; check current sources and talk to founders who raised recently.
The drivers in the model
These are the inputs the Hardware + subscription edition asks for, with the values used for the sample company, Voltwise Inc. (smart home energy monitor with an app subscription). Where a value changes over five years, the first and last are shown.
| Driver | Sample | Why it matters |
|---|---|---|
| Users at start (month 0) | 1,500 | Active users you already have before month 1. |
| Organic / referral new users in month 1 | 80 | Word of mouth, SEO, referrals, partnerships. |
| Organic new-user growth per month | 5% → 2% | Compounds monthly. Above 10% a month needs strong evidence. |
| Paid marketing spend | $30,000 → $140,000 | Ads, sponsorships, paid campaigns (people costs are in Headcount). |
| Paid CAC (cost to win one user via paid channels) | 80 → $100 | Paid new customers = paid spend / paid CAC. CAC usually rises as you scale. |
| Monthly churn | 1.5% → 1.2% | Share of active device users who stop using it each month. New users = devices sold. |
| Device selling price, Year 1 | $229 | Average net selling price per device. |
| Annual change in device price | 0% | |
| Bill of materials + manufacturing per unit | 95 → 62 | Costs usually fall with volume. |
| Shipping & fulfilment per unit | 12 | |
| Returns & warranty | 4% | |
| Subscription attach rate (active users subscribed) | 40% → 60% | Share of active users paying for the app subscription. |
What the sample model looks like over five years
| Voltwise Inc. | Y1 | Y2 | Y3 | Y4 | Y5 |
|---|---|---|---|---|---|
| Revenue | $1.46M | $2.94M | $4.68M | $6.67M | $8.64M |
| Gross margin % | 53% | 60% | 66% | 69% | 72% |
| EBITDA | -$455k | -$891k | -$916k | -$843k | -$241k |
| Cash at year end | $2.29M | $11.4M | $10.2M | $9.05M | $8.54M |
| Active device users (year end) | 6,582 | 15,399 | 27,336 | 42,140 | 57,913 |
| Revenue run-rate (year end) | $1.66M | $3.27M | $5.14M | $7.30M | $9.30M |
| Headcount (year end) | 9 | 16 | 22 | 28 | 30 |
| LTV : CAC | 10.4x | 7.5x | 6.7x | 6.6x | 6.0x |
| CAC payback (months) | 6.4 | 9.5 | 11.5 | 12.7 | 13.8 |
Fictional sample company, Base case. Figures are illustrative and come from the SAMPLE file of the Hardware + subscription edition.
Hardware + subscription terms to know
- BOM
- Bill of materials - the cost of components in one device.
- Attach rate
- Share of device users who pay for the subscription.
- Installed base
- Devices in active use.