SaaS metrics that actually matter

Monthly recurring revenue (MRR)

MRR = revenue from subscriptions expected to renew next month.

Example: you have 100 customers at $99/month. MRR = $9,900. (Ignore one-time fees; ignore annual plans converted to monthly.)

Why it matters: MRR is the heartbeat. It tells you whether your business is growing, shrinking, or flat. A growth-stage SaaS targets 10% MRR growth monthly (100% annually).

Watch: MRR growth rate (monthly). If it's negative, you're losing customers faster than you acquire them.

Churn rate

Churn = the percentage of customers who cancel each month. If you have 100 customers and 5 cancel, churn is 5%.

Why it matters: churn is the metric founders ignore until it's too late. If churn is 10% monthly, you lose your entire customer base every 10 months. You're running a leaky bucket.

Target churn: < 2% monthly for early-stage SaaS. < 1% for mature SaaS. If you're above 5%, something is broken.

How to improve churn: onboarding (get users to the aha moment faster). Win-back campaigns. Pricing fit. Product roadmap (listen to churn feedback).

Customer acquisition cost (CAC)

CAC = how much you spend to acquire a customer. If you spend $10,000 on marketing and acquire 100 customers, CAC = $100.

Why it matters: if you spend $100 per customer but only make $99 in revenue, you're losing money. CAC determines your go-to-market strategy (word of mouth vs. paid ads).

The calculation: total marketing spend (ads, salaries, tools) / customers acquired = CAC.

Target CAC: it should be < 1/3 of LTV. If LTV is $5,000, CAC should be < $1,500.

Customer lifetime value (LTV)

LTV = total revenue from a customer over their lifetime. If a customer pays $99/month and stays 24 months, LTV = $2,376.

The formula: (ARPU × lifetime) - CAC = true LTV. ARPU = average revenue per user. Lifetime = 1 / monthly churn.

Example: ARPU = $99, monthly churn = 2%, CAC = $500. Lifetime = 1 / 0.02 = 50 months. LTV = (99 × 50) - 500 = $4,450.

Why it matters: the LTV/CAC ratio should be > 3.

Payback period

How many months until a customer's revenue covers their acquisition cost?

The formula: CAC / (ARPU × (1 - churn rate)) = payback period.

Example: CAC = $500, ARPU = $99, monthly churn = 2%. Payback period = 500 / (99 × 0.98) = 500 / 97 = 5.2 months.

Meaning: after 5 months, this customer has paid back their acquisition cost. Everything after month five is profit.

Target payback period: < 12 months (ideally < 6 months). If it's over 24 months, you're running a cash nightmare.

The magic number (growth efficiency)

The magic number = how much revenue you earn for every dollar of marketing spend.

The formula: (this month's MRR - last month's MRR) / last month's marketing spend = the magic number.

Example: MRR grew from $10,000 to $12,000. Marketing spend = $2,000. Magic number = 2,000 / 2,000 = 1.0.

Meaning: for every dollar you spent, you earned a dollar in new MRR.

Target magic number: > 0.75. If it's > 1.0, double your spend and scale.

Net revenue retention (NRR)

NRR = revenue from existing customers, accounting for churn and expansion (upgrades and add-ons).

Example: you started with $10,000 MRR. This month, $500 churned. But $1,500 expanded. Net change = +$1,000. NRR = 110%.

Why it matters: NRR > 100% means you earn more from existing customers than you lose. You're expanding faster than you churn. That's the sign of a healthy SaaS.

How to improve NRR: reduce churn. Increase expansion revenue (upgrades, add-ons, premium tiers).