SaaS Metrics That Matter: A Founder's Guide
Building a SaaS company without tracking the right metrics is like flying a plane without instruments. You might stay airborne for a while, but you will not know if you are heading toward your destination or into a mountain. The beauty of SaaS is that almost everything is measurable; the challenge is knowing which measurements actually matter.
This guide covers the essential metrics every SaaS founder needs to understand, calculate, and optimize. Whether you are pre-revenue or scaling toward an exit, these are the numbers that will determine your success.
The Foundation: Revenue Metrics
Revenue metrics are the heartbeat of any SaaS business. They tell you not just how much money you are making, but the quality and predictability of that revenue.
Monthly Recurring Revenue (MRR)
MRR is the single most important metric in SaaS. It represents predictable, recurring revenue that you can count on each month.
Why it matters: MRR shows your baseline revenue and growth trajectory. It is the foundation for all other metrics.
MRR Components:
- New MRR: Revenue from new customers this month
- Expansion MRR: Additional revenue from existing customers (upgrades, add-ons)
- Churned MRR: Revenue lost from cancellations
- Contraction MRR: Revenue lost from downgrades
- Net New MRR: New + Expansion - Churned - Contraction
Annual Recurring Revenue (ARR)
ARR is simply MRR annualized. It is the standard metric for enterprise SaaS and is what investors use to value companies.
Benchmark: SaaS companies are typically valued at 5-15x ARR depending on growth rate, churn, and market.
Calculate Your SaaS Metrics
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Try the SaaS Metrics CalculatorCustomer Economics: LTV and CAC
Understanding the economics of acquiring and retaining customers is critical for sustainable growth. Get these wrong, and you will burn through cash without building value.
Customer Lifetime Value (LTV)
LTV represents the total revenue you can expect from a customer over their entire relationship with your company.
Simple calculation: If ARPU is $100/month, gross margin is 80%, and monthly churn is 2%, LTV = ($100 x 0.80) / 0.02 = $4,000
Customer Acquisition Cost (CAC)
CAC tells you how much it costs to acquire a single customer. Include all sales and marketing expenses: salaries, ads, tools, events, etc.
What to include: Sales salaries, marketing spend, advertising, tools, content creation, events, commissions.
The Golden Ratio: LTV/CAC
The ratio of lifetime value to acquisition cost is arguably the most important efficiency metric in SaaS.
| LTV/CAC Ratio | Interpretation | Action |
|---|---|---|
| Less than 1:1 | Losing money on every customer | Fix immediately or shut down |
| 1:1 to 3:1 | Marginal or unprofitable | Improve retention or reduce CAC |
| 3:1 to 5:1 | Healthy, sustainable business | Consider investing more in growth |
| Greater than 5:1 | Under-investing in growth | Spend more on acquisition |
CAC Payback Period
CAC Payback
How many months it takes to recover the cost of acquiring a customer.
Target: Under 12 months for SMB, under 18 months for mid-market, under 24 months for enterprise.
The Churn Challenge
Churn is the silent killer of SaaS businesses. Even small improvements in retention have compounding effects on growth and company value.
Customer Churn Rate
The percentage of customers who cancel their subscription in a given period.
Benchmarks: SMB: 3-7% monthly, Mid-market: 1-2% monthly, Enterprise: less than 1% monthly
Revenue Churn (MRR Churn)
Revenue churn accounts for the dollar value of lost subscriptions, not just customer count.
Why it differs: If your largest customers churn, revenue churn will be higher than customer churn.
Net Revenue Retention (NRR)
NRR is the holy grail of SaaS metrics. It shows whether your existing customer base is growing or shrinking, independent of new sales.
Net Revenue Retention
Measures the revenue from your existing customers over time, including expansions and contractions.
Benchmarks: Below 90% is concerning, 100%+ is good, 120%+ is excellent (common in enterprise SaaS)
NRR Example:
Starting MRR from cohort: $100,000
Expansion revenue: +$15,000
Churned revenue: -$8,000
Contraction: -$2,000
Ending MRR: $105,000
NRR: 105%
This means even with zero new customers, this cohort grows 5% per year.
Growth Metrics
Month-over-Month Growth Rate
The percentage increase in MRR from one month to the next.
T2D3 benchmark: Triple revenue for 2 years, then double for 3 years (elite growth trajectory)
| MoM Growth | Annual Growth | Assessment |
|---|---|---|
| 5% | 80% | Solid growth |
| 10% | 214% | Strong growth |
| 15% | 435% | Exceptional |
| 20% | 792% | Rare, elite |
Quick Ratio
SaaS Quick Ratio
Measures the efficiency of your growth. How much new revenue do you add for every dollar lost?
Benchmarks: Below 1 = shrinking, 1-4 = healthy, 4+ = very efficient growth
Operational Metrics
Average Revenue Per User (ARPU)
ARPU
The average monthly revenue per customer. Track this over time to see if you are moving upmarket or experiencing price pressure.
Gross Margin
SaaS Gross Margin
For SaaS, COGS includes hosting, support, customer success, and third-party software costs.
Benchmark: Best-in-class SaaS companies have 75-85% gross margins. Below 70% is concerning.
Building Your Metrics Dashboard
Here are the metrics every SaaS company should track, organized by stage:
Early Stage (Pre-Product/Market Fit):
- MRR and growth rate
- Churn rate
- Activation rate
- Customer feedback/NPS
Growth Stage (Post-PMF, Scaling):
- All early stage metrics, plus:
- LTV and CAC
- CAC Payback
- Net Revenue Retention
- Quick Ratio
- Gross Margin
Scale Stage (Series B+):
- All growth stage metrics, plus:
- Magic Number (sales efficiency)
- Rule of 40 (growth rate + profit margin)
- Burn Multiple
- Cohort analysis
The Rule of 40
The Rule of 40 is a benchmark for balancing growth and profitability:
Rule of 40
A company growing 50% with -10% margin = 40%. A company growing 20% with 20% margin = 40%. Both are considered healthy.
Interpretation: Below 40% may need to either grow faster or become more profitable. Well above 40% suggests elite performance.
Conclusion
Mastering SaaS metrics is not optional. These numbers tell you whether your business is healthy, where to focus your efforts, and how to communicate your progress to investors, employees, and stakeholders.
Start with the fundamentals: MRR, churn, LTV, and CAC. As you grow, add more sophisticated metrics like NRR, Quick Ratio, and the Rule of 40. Most importantly, use these metrics to drive decisions, not just to report on the past.
Use our SaaS Metrics Calculator to compute all your key metrics in one place. Regular tracking and analysis will help you build a data-driven culture that compounds over time into better decisions and faster growth.
Remember: what gets measured gets managed. Make sure you are measuring what matters.