SaaS is a metrics game. You're buying customers (CAC), keeping them (churn), and scaling (MRR). This guide covers the 7 metrics every SaaS founder tracks.
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 charges; ignore annual plans converted to monthly). Why it matters: MRR is the heartbeat. It tells you if your business is growing, shrinking, or flat. Growth SaaS targets 10% MRR growth month-over-month (100% annual). How to calculate: Sum all active subscriptions' monthly value. Subtract upcoming cancellations. That's your net MRR. Pay attention to: MRR growth rate (month-over-month). If it's negative, you're losing customers faster than you're acquiring them. If it's flat, you're not growing. If it's > 5% monthly, you're on a good trajectory.
Churn Rate
Churn = 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 that founders ignore until it's too late. If churn is 10% monthly, you're losing 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 (product, pricing, onboarding, or market fit). How to improve churn: Onboarding (get users to the aha moment faster). Win-back campaigns (reach out when users go inactive). Pricing alignment (raise prices for power users, not all users). Product roadmap (listen to churn feedback—why are customers leaving?).
Customer Acquisition Cost (CAC)
CAC = how much you spend to acquire a customer. If you spend $10K on marketing and acquire 100 customers, CAC = $100. Why it matters: If you're spending $100 per customer but only making $99 revenue, you're losing money. CAC determines your go-to-market strategy (word-of-mouth vs. paid ads). Calculate: Total marketing spend (ads, salaries, tools, events) / customers acquired = CAC. Target CAC: Should be < 1/3 of LTV (see below). If LTV is $5,000, CAC should be < $1,500. If CAC > LTV, you're burning cash for growth that might not work.
Customer Lifetime Value (LTV)
LTV = total revenue from a customer over their lifetime. If a customer pays $99/month and stays for 24 months, LTV = $2,376 (ignoring churn recovery and expansion revenue). 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 = ~4 years. LTV = ($99 × 50) - $500 = $4,950 - $500 = $4,450. This customer is worth $4,450 to you (accounting for churn). Why it matters: LTV tells you how much you can spend to acquire a customer. LTV/CAC ratio should be > 3. If it's < 2, your unit economics are broken.
CAC Payback Period
How many months until a customer's revenue covers their acquisition cost? Formula: CAC / (ARPU × (1 - churn rate)) = payback period. Example: CAC = $500, ARPU = $99, monthly churn = 2%. Payback = $500 / ($99 × 0.98) = $500 / $97 = 5.2 months. Meaning: After 5 months, this customer has paid back their acquisition cost. Everything after month 5 is profit. Target payback: < 12 months (ideally < 6 months). If payback is > 24 months, you're running a cash burn nightmare. You need huge growth to offset the wait.
Magic Number (Growth Efficiency)
Magic number = how much revenue you gain per dollar of marketing spend. Formula: (MRR this month - MRR last month) / marketing spend last month = magic number. Example: MRR grew from $10K to $12K. Marketing spend = $2K. Magic = $2K / $2K = 1.0. Meaning: For every $1 spent, you gained $1 in new MRR. This is break-even (your CAC payback is infinite). Target magic number: > 0.75 (every dollar spent brings in > $0.75 revenue). > 1.0 is excellent. Why it matters: It tells you if your growth is sustainable. If magic number is 0.2, you're wasting money on marketing. If it's 1.5, double-down and scale.
Net Revenue Retention (NRR)
NRR = revenue from existing customers, accounting for churn and expansion (upsells, add-ons). Example: You started with $10K MRR. This month, $500 churned (downgraded). But $1,500 expanded (upsells). Net change = +$1,000. NRR = 110%. Why it matters: NRR > 100% means you're making more from existing customers than you're losing. You're expanding faster than you're churning. This is the sign of a healthy SaaS. NRR < 100% means churn is winning. Expansion alone can't offset churn. How to improve NRR: Reduce churn (better product, better onboarding). Increase expansion revenue (upsells, add-ons, premium tiers).