SaaS Metrics FAQ: Every KPI Explained Simply
A complete guide to SaaS metrics—what they measure, how to calculate them, and what "good" looks like. Formulas and benchmarks for ARR, churn, LTV, CAC, NRR, and every metric that matters. A fractional CFO can help you build dashboards and interpret these metrics for your business.
Revenue Metrics
What is MRR (Monthly Recurring Revenue)?
MRR is the sum of all recurring subscription revenue normalized to a monthly amount. Formula: Sum of (Customer Count × Monthly Price) for each plan. Include only predictable, recurring revenue—exclude one-time fees, professional services, and variable usage overages unless contractually committed.
What is ARR (Annual Recurring Revenue)?
ARR is MRR multiplied by 12. It represents the annualized value of your recurring revenue. Formula: ARR = MRR × 12. Use ARR when talking to investors and for benchmarking; use MRR for operational decisions and month-over-month tracking.
What's the difference between bookings and revenue?
Bookings are the total contract value signed (forward-looking commitment). Revenue is recognized as services are delivered (GAAP accounting). A $120K annual contract signed in January is $120K in bookings but $10K/month in revenue recognized over 12 months. Investors track both.
What are the components of MRR movement?
MRR movement has five components: New MRR (new customers), Expansion MRR (upsells/upgrades), Reactivation MRR (returning customers), Contraction MRR (downgrades), and Churn MRR (lost customers). Net New MRR = New + Expansion + Reactivation - Contraction - Churn.
What is ACV (Annual Contract Value)?
ACV is the annualized value of a contract, typically used for enterprise deals. It may include one-time fees (prorated) and services. Formula: (Total Contract Value - One-Time Fees) ÷ Contract Length in Years + One-Time Fees. Different from ARR which excludes non-recurring items.
How do I calculate ARPA (Average Revenue Per Account)?
ARPA = MRR ÷ Number of Customers. This shows average customer value. Track ARPA over time—increasing ARPA indicates successful upmarket movement or upselling. Segment ARPA by customer cohort or plan to understand your customer mix.
Retention & Churn
What is customer churn rate?
Customer churn rate (logo churn) is the percentage of customers lost in a period. Formula: Customers Lost ÷ Starting Customers. Monthly churn of 5% means losing 5 of every 100 customers each month. This compounds—5% monthly = ~46% annual churn.
What is revenue churn rate?
Revenue churn (gross revenue churn) is the percentage of revenue lost from existing customers. Formula: Churned MRR ÷ Starting MRR. Can differ significantly from logo churn if customer sizes vary. Losing 10 small customers vs. 1 large customer has different impacts.
What is Net Revenue Retention (NRR)?
NRR measures revenue retained from existing customers including expansion. Formula: (Starting MRR + Expansion - Contraction - Churn) ÷ Starting MRR. NRR above 100% means you grow even without new customers. Top SaaS companies have 110-140% NRR.
What is Gross Revenue Retention (GRR)?
GRR measures revenue retained excluding expansion (only contraction and churn). Formula: (Starting MRR - Contraction - Churn) ÷ Starting MRR. Maximum is 100%. GRR shows your baseline retention before upselling. Target: 85%+ for SMB, 90%+ for mid-market, 95%+ for enterprise.
How do I calculate expansion revenue?
Expansion MRR is additional revenue from existing customers (upsells, cross-sells, usage increases). Formula: (Ending MRR from Existing Customers - Starting MRR from Same Customers) for customers who increased. Expansion Rate = Expansion MRR ÷ Starting MRR.
What is cohort retention?
Cohort retention tracks how specific groups of customers (usually by signup month) retain over time. Plot retention curves: Month 0 = 100%, then track percentage remaining at Month 1, 2, 3, etc. Improving cohorts (flatter curves) indicate product and onboarding improvements.
Unit Economics
What is CAC (Customer Acquisition Cost)?
CAC is the cost to acquire one new customer. Formula: Total Sales & Marketing Spend ÷ Number of New Customers. Include all costs: salaries, commissions, advertising, tools, events, content. Calculate blended CAC (all customers) and paid CAC (excluding organic).
How do I calculate LTV (Customer Lifetime Value)?
Simple LTV = ARPA × Customer Lifetime in Months. More precise: LTV = ARPA × Gross Margin % × (1 ÷ Monthly Churn Rate). Example: $500 ARPA × 75% margin × (1 ÷ 2% churn) = $500 × 0.75 × 50 = $18,750 LTV.
What is a good LTV:CAC ratio?
Target LTV:CAC of 3:1 or higher—you generate $3 in lifetime value for every $1 spent acquiring customers. Below 3:1 suggests inefficient growth. Above 5:1 may indicate underinvestment in growth. The ratio varies by business model; capital-efficient PLG companies can operate at lower ratios.
What is CAC payback period?
CAC payback is months to recover customer acquisition cost. Formula: CAC ÷ (ARPA × Gross Margin %). If CAC is $3,000 and monthly gross profit per customer is $300, payback is 10 months. Target: under 12 months is excellent, 12-18 is good, over 24 is concerning.
How do I calculate gross margin?
Gross margin = (Revenue - COGS) ÷ Revenue. For SaaS, COGS includes hosting costs, customer support, customer success, and payment processing. Target 70-80%+ gross margins. Software companies with lower margins often have heavy services components.
What are fully-loaded vs. blended metrics?
Blended metrics average across all customers (organic + paid). Fully-loaded includes all costs in CAC. Marginal CAC shows incremental cost of additional customers. Report blended for overall health, segment by channel to optimize spend.
Efficiency Metrics
What is Rule of 40?
Rule of 40: Growth Rate + Profit Margin should equal or exceed 40%. A company growing 50% with -10% margins hits 40. One growing 20% needs 20% margins. It balances growth and efficiency. Used to benchmark SaaS companies, especially post-Series B. Top companies exceed 50 or even 60.
What is the SaaS Magic Number?
Magic Number measures sales efficiency: (Current Quarter Revenue - Previous Quarter Revenue) × 4 ÷ Previous Quarter S&M Spend. Above 1.0 means each $1 of S&M generates $1+ of annualized new revenue (efficient). Below 0.5 suggests inefficient sales. 0.5-1.0 is acceptable.
What is SaaS Quick Ratio?
Quick Ratio = (New MRR + Expansion MRR) ÷ (Churned MRR + Contraction MRR). It measures revenue growth efficiency. Above 4 is excellent; above 2 is good; below 1 means shrinking. Higher ratios indicate efficient growth where additions significantly outpace losses.
What is burn multiple?
Burn Multiple = Net Burn ÷ Net New ARR. It shows how much you spend to generate each dollar of new ARR. A burn multiple of 2x means spending $2 to generate $1 of new ARR. Below 1x is excellent (capital-efficient); above 3x suggests inefficient growth.
How do I calculate runway?
Runway = Cash Balance ÷ Monthly Net Burn. Net Burn = Monthly Expenses - Monthly Revenue. If you have $3M and burn $200K/month, runway is 15 months. Track monthly as burn changes. Maintain 12-18 months; start fundraising at 9-12 months remaining.
What is net burn vs. gross burn?
Gross burn is total monthly cash spent (all expenses). Net burn is gross burn minus revenue: Net Burn = Expenses - Revenue. If you spend $500K/month and make $300K, gross burn is $500K, net burn is $200K. Net burn determines runway.
Benchmarks & Targets
What churn rate is acceptable?
Acceptable churn varies by segment: SMB monthly logo churn 3-7% (can be higher for very low-touch); Mid-market 1-3% monthly; Enterprise under 1% monthly with net negative revenue churn expected. World-class companies have net negative churn where expansion exceeds losses.
What growth rate do investors expect?
For venture-backed SaaS: Series A expects 3x annual growth, Series B 2-3x, Series C 2x. The 'T2D3' framework: triple for two years, double for three years to reach $100M ARR. Growth expectations vary by stage and market conditions.
What is a good NRR benchmark?
NRR benchmarks: 90-100% is acceptable for SMB, 100-110% is good, 110-130% is excellent (typical of successful mid-market/enterprise companies), 130%+ is exceptional (Slack, Snowflake). Net negative churn (NRR > 100%) is the gold standard.
How should metrics change as I grow?
Early stage: prioritize growth and product-market fit over efficiency. Post-PMF: focus on unit economics (LTV:CAC, payback). At scale: efficiency matters more—Rule of 40, burn multiple, path to profitability. Metrics priorities shift from growth-at-all-costs to efficient growth.
How do I benchmark against peers?
Use public data: SaaS Capital, OpenView, Bessemer publish annual benchmarks. Compare by stage, ACV, and customer segment—SMB metrics differ from enterprise. Be careful with self-reported surveys; they often skew optimistic. Focus on trends over point-in-time comparisons.
What metrics matter most at each stage?
Seed: Product-market fit indicators, early retention, initial unit economics hypothesis. Series A: ARR/growth rate, retention (NRR), proven unit economics (LTV:CAC > 3). Series B: Scalability, sales efficiency (magic number), path to profitability. Series C+: Rule of 40, operating leverage, margin expansion.
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