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Not all metrics are equal. Focus on what moves the needle.
SaaS is a metrics game. You buy customers (CAC), keep them (churn), and grow them (MRR). This covers the 7 numbers every founder tracks, and what each one is telling you.
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 = 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).
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.
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.
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 = 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.
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).
Track the seven, act on the one that is bleeding, and ignore everything a dashboard adds for free.
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