Introduction
Understanding SaaS metrics is crucial for building a sustainable subscription business. Metrics help you make data-driven decisions, communicate with investors, and identify problems early. This guide covers the metrics that matter most.
Revenue Metrics
Monthly Recurring Revenue (MRR)
The predictable revenue earned each month:
MRR = Sum of all active subscriptions
+ Expansion revenue
- Contractions
- Churned revenue
Annual Recurring Revenue (ARR)
Annualized version of MRR:
ARR = MRR × 12
Types of MRR
- New MRR: New customer subscriptions
- Expansion MRR: Upsells, additional seats
- Contraction MRR: Downgrades
- Churned MRR: Lost customers
Growth Metrics
Net Revenue Retention (NRR)
Measures revenue retained from existing customers:
NRR = (MRR at end of period + Expansion - Contraction - Churn)
÷ MRR at start of period
Target: >100%
Net Dollar Retention (NDR)
Similar to NRR, often used interchangeably.
Customer Metrics
Customer Acquisition Cost (CAC)
Cost to acquire a new customer:
CAC = Total Sales & Marketing Spend
÷ Number of New Customers
Example:
CAC = $10,000 ÷ 10 = $1,000 per customer
Lifetime Value (LTV)
Total revenue from a customer:
LTV = Average Revenue Per Account (ARPA)
÷ Monthly Churn Rate
Example:
LTV = $100 ÷ 5% = $2,000
LTV:CAC Ratio
Efficiency of acquisition:
LTV:CAC = LTV ÷ CAC
Target: >3:1
- <1:1 = Losing money
- 1-3 = Building
- >3 = Healthy
Churn Metrics
Customer Churn Rate
Percentage of customers lost:
Monthly Churn = Customers Lost ÷ Customers at Start
= 5 ÷ 100 = 5%
Annual Churn = 1 - (1 - Monthly Churn)^12
Revenue Churn
Revenue lost from churned customers:
Revenue Churn = Revenue Lost ÷ MRR at Start
Net Revenue Churn
Accounts for expansion minus churn:
Net Revenue Churn = (Churned MRR - Expansion MRR) ÷ MRR at Start
Unit Economics
Average Revenue Per Account (ARPA)
Average revenue per customer:
ARPA = Total MRR ÷ Number of Customers
Contribution Margin
Revenue after variable costs:
Contribution Margin = Revenue - Variable Costs
% = Contribution Margin ÷ Revenue
Efficiency Metrics
Payback Period
Time to recover CAC:
Payback Period = CAC ÷ (ARPA × Gross Margin %)
Example:
Payback = $1,000 ÷ ($100 × 70%) = 14 months
Rule of 40
Profitability vs growth balance:
Growth Rate + Profit Margin = >40%
Example:
30% growth + 15% profit = 45% ✓
Common SaaS Metrics
| Metric | What It Measures | Good |
|---|---|---|
| MRR | Monthly revenue | Growing |
| ARR | Annual revenue | Growing |
| NRR | Retention | >100% |
| Churn | Customer loss | <5% monthly |
| LTV:CAC | Acquisition efficiency | >3:1 |
| Payback | CAC recovery | <12 months |
| Rule of 40 | Growth vs profit | >40% |
Tracking Tools
- Baremetrics: Subscription analytics
- ProfitWell: Retention platform
- ChartMogul: Revenue data
- Klaviyo: E-commerce SaaS
Metrics by Stage
Startup (Pre-revenue)
- User growth
- Engagement
- ProductQualified Leads (PQLs)
Growth ($0-1M ARR)
- MRR growth
- CAC payback
- Activation rate
Scale ($1M+ ARR)
- NRR
- Rule of 40
- Net revenue churn
Conclusion
Focus on metrics that drive decisions. Start with MRR, churn, and LTV:CAC. As you scale, add more sophisticated metrics. The right metrics depend on your stage and goals.
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