Revenue base
| Metric | Formula | Note |
|---|---|---|
| MRR | Sum of all monthly recurring subscription revenue | The heartbeat number |
| ARR | MRR × 12 | Annualized; for annual contracts |
| ARPA | MRR ÷ number of accounts | Average revenue per account |
Acquisition & unit economics
| Metric | Formula | Healthy benchmark |
|---|---|---|
| CAC | sales & marketing spend ÷ new customers | Lower is better |
| LTV | ARPA × gross margin % ÷ churn rate | Lifetime gross profit per customer |
| LTV : CAC | LTV ÷ CAC | ≥ 3× is the rule of thumb |
| CAC payback | CAC ÷ (ARPA × gross margin %) | < 12 months is strong |
The distinction people blur
Always compute LTV on gross profit, not revenue. A customer paying $100/mo at 80% gross margin is worth $80/mo of real value — using revenue overstates LTV and flatters the LTV:CAC ratio.
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Retention
| Metric | Formula / meaning | Healthy benchmark |
|---|---|---|
| Gross revenue retention (GRR) | Revenue kept from existing customers, excluding expansion. Caps at 100%. | > 90% (B2B) |
| Net revenue retention (NRR) | Revenue kept including expansion / upsell. Can exceed 100%. | > 100%; 120%+ is excellent |
| Logo churn | customers lost ÷ customers at start | Lower is better |
| Revenue churn | MRR lost ÷ MRR at start | Can be negative if expansion > churn |
Growth efficiency
| Metric | Formula | Healthy benchmark |
|---|---|---|
| Rule of 40 | revenue growth % + profit margin % | ≥ 40 |
| Magic number | net new ARR ÷ prior-period S&M spend | > 0.75 = efficient to scale spend |
| Burn multiple | net cash burned ÷ net new ARR | < 1 is great; < 2 acceptable |
| SaaS quick ratio | (new + expansion MRR) ÷ (churned + contraction MRR) | > 4 = healthy growth |
Common mistakes
- Quoting NRR without GRR. A high NRR can hide heavy churn masked by a few big expansions — always show both.
- Revenue-based LTV. Inflates unit economics; use gross margin.
- Trailing CAC against same-period customers. Spend often converts in a later period — be consistent about the window.
- Rule of 40 on a single quarter. Use trailing-twelve-month figures to avoid seasonal noise.
Sources
- Definitions consolidated from public investor and operator benchmarks (a16z, Bessemer Cloud Index, OpenView, KeyBanc SaaS surveys).
- Standard SaaS finance references for the Rule of 40, magic number, and burn multiple.
Benchmarks are general rules of thumb and vary widely by segment (SMB vs enterprise), stage, and region. For reference only.