Most SaaS founders can name the metrics. Fewer can calculate them correctly. The difference matters because the wrong calculation hides churn, inflates LTV, and creates investor pitches that fall apart on the second question.
This post covers the eight metrics that actually matter, with exact formulas, worked examples, and the common errors that produce wrong numbers.
1. MRR (Monthly Recurring Revenue)
Formula: Sum of monthly recurring revenue from all active subscriptions.
For annual subscriptions: divide annual value by 12. €1,200/year annual customer counts as €100 MRR.
Worked example: 50 monthly customers at €99/mo = €4,950. Plus 20 annual customers at €1,200/yr = €2,000 MRR. Total MRR = €6,950.
MRR movement
Break MRR change down into components each month:
- New MRR: from new customers acquired this month
- Expansion MRR: existing customers upgraded or added seats
- Contraction MRR: existing customers downgraded (negative)
- Churned MRR: customers who cancelled (negative)
- Net New MRR: New + Expansion - Contraction - Churned
Common errors
- Including one-time payments (setup fees, professional services) in MRR. These are NOT recurring.
- Including taxes/VAT in MRR. Use the pre-tax amount.
- Counting trial customers as MRR. Only count paid subscriptions.
2. ARR (Annual Recurring Revenue)
Formula: ARR = MRR × 12.
That is it. Do not over-think it. ARR is the annualized run rate of your current MRR, useful for investor conversations and yearly planning.
Worked example: MRR = €6,950 → ARR = €83,400.
When ARR misleads
ARR assumes current MRR continues for 12 months. If you have high churn, ARR overstates your actual annual revenue. Always pair ARR with monthly churn rate when reporting externally.
3. Churn (Logo vs Revenue)
Two types. Different formulas. Different things.
Logo churn (customer churn)
Formula: Customers churned during period / customers at start of period.
Example: Started month with 100 customers, 5 cancelled. Logo churn = 5/100 = 5%.
Revenue churn (gross MRR churn)
Formula: MRR lost from churn + contraction / MRR at start of period.
Example: Started month with €100K MRR, lost €4K to cancellations + €2K to downgrades = €6K total. Revenue churn = 6%.
Net revenue churn
Formula: (Churned + Contraction - Expansion) / MRR at start of period.
Can be negative — that means expansion exceeds churn. This is the holy grail. Best-in-class SaaS reports net revenue churn of -5% to -15%.
Common errors
- Reporting annual churn instead of monthly. They look very different — 5% monthly is 46% annual.
- Excluding involuntary churn (failed payments) from the calculation. It is real churn; count it.
- Using cohort churn but reporting it as overall churn. They are different metrics.
4. LTV (Customer Lifetime Value)
Simple formula: LTV = ARPU / Monthly Churn Rate.
Example: ARPU = €100/month, monthly churn = 5%. LTV = €100 / 0.05 = €2,000.
Better formula (accounts for gross margin)
LTV = (ARPU × Gross Margin) / Monthly Churn Rate.
Example: ARPU = €100, gross margin = 80%, churn = 5%. LTV = (€100 × 0.8) / 0.05 = €1,600.
Even better (accounts for expansion)
If your net revenue retention is positive, LTV is unbounded by the formula above. Use a 36-month cap for planning: LTV = ARPU × Gross Margin × Average lifetime in months (capped at 36).
Common errors
- Using top-line ARPU without gross margin adjustment. Overstates LTV by 20-50%.
- Calculating LTV from a single cohort and extrapolating. Use blended ARPU across active customers.
- Treating LTV as a precise number. It is a planning estimate with wide error bars.
5. CAC (Customer Acquisition Cost)
Formula: CAC = Total sales & marketing spend / new customers acquired.
Example: Spent €30K on sales + marketing last quarter, acquired 40 new customers. CAC = €750.
What goes into "sales & marketing spend"
- Salaries of sales and marketing employees (fully loaded — salary × 1.3 for benefits/payroll)
- Paid ad spend
- Content marketing costs (writers, tools, SEO software)
- Event sponsorships and trade show costs
- Sales tooling (CRM, sales engagement platform)
- Commissions paid to sales reps
What does NOT go into CAC
- Customer success / retention spend (that is for existing customers)
- Product development costs
- Engineering for marketing site (capex, not CAC)
- General & administrative overhead
6. LTV : CAC Ratio
Formula: LTV / CAC.
Benchmark: 3:1 is healthy. Below 3:1 means weak unit economics. Above 5:1 might mean under-investing in growth.
Example: LTV = €1,600, CAC = €750. Ratio = 2.13. Weak — either reduce CAC, improve retention, or raise price.
7. CAC Payback Period
Formula: CAC / (ARPU × Gross Margin).
Example: CAC = €750, ARPU = €100/month, gross margin = 80%. Payback = €750 / €80 = 9.4 months.
Benchmarks
- Under 6 months: exceptional. Scale acquisition hard.
- 6-12 months: good for SMB SaaS.
- 12-18 months: acceptable for mid-market.
- 18-24 months: acceptable for enterprise with high LTV.
- Over 24 months: requires outside capital to fund growth.
8. Magic Number
SaaSOptics/Bessemer ratio measuring efficiency of sales & marketing spend.
Formula: Magic Number = (Q-over-Q ARR growth × 4) / Previous quarter S&M spend.
Example: Q2 ARR = €1.2M, Q1 ARR = €1.0M. Growth = €200K × 4 = €800K. Q1 S&M spend = €500K. Magic Number = €800K / €500K = 1.6.
Interpretation
- Above 1.0: efficient growth. Invest more in S&M.
- 0.5-1.0: current investment level is roughly right.
- Below 0.5: inefficient growth. Cut S&M, fix conversion.
The Eight Metrics Summary
| Metric | Formula | Healthy benchmark |
|---|---|---|
| MRR | Σ monthly recurring revenue | Growing 5-15% per month |
| ARR | MRR × 12 | Same as MRR growth |
| Logo churn | Churned customers / starting customers | Under 3% monthly (SMB), under 1% (enterprise) |
| Net revenue retention | 1 - (churn + contraction - expansion) / starting MRR | Over 100% (best-in-class 120%+) |
| LTV | (ARPU × Gross Margin) / Monthly Churn | 3× CAC minimum |
| CAC | S&M spend / new customers | Depends on ARPU |
| Payback period | CAC / (ARPU × Gross Margin) | Under 12 months SMB, under 24 enterprise |
| Magic Number | (QoQ ARR growth × 4) / Prior Q S&M | 0.7-1.5 |
Reporting Frequency
- Daily: trial signups, paid conversions, failed payments. Operational.
- Weekly: new MRR, churn events, top accounts at risk. Tactical.
- Monthly: all eight metrics above. Strategic.
- Quarterly: Magic Number, NRR cohort analysis, LTV recalculation.
The Dashboard That Matters
A SaaS dashboard with 30 metrics is noise. The minimum viable dashboard:
- MRR + MRR movement (New / Expansion / Contraction / Churned)
- Logo churn rate (monthly)
- Net revenue retention
- CAC and payback period
- Cohort retention curve (visual)
Five things. Review weekly. Trend monthly. Everything else is supporting detail.
What Investors Actually Look At
Series A and beyond, investors focus on:
- ARR and ARR growth rate (40%+ YoY for top decile)
- Net revenue retention (110%+ is the bar)
- Gross margin (75%+ for software)
- CAC payback (under 18 months)
- Rule of 40: ARR growth % + operating margin % ≥ 40
Everything else is supporting. Get these five right, the rest follows.
Metrics audit for your SaaS
If your dashboard has 30 metrics and you cannot tell which ones to act on, I do 60-minute metrics audits. You leave with a 5-metric weekly dashboard and the formulas to calculate them correctly.
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