Audit Your SaaS Metrics

Calculate your MRR and decompose it into components

Monthly Recurring Revenue (MRR) is the foundation of all SaaS metrics. Use the MRR Calculator to compute your total MRR and break it into its components: New MRR (from new customers acquired this month), Expansion MRR (upgrades, upsells, seat additions from existing customers), Reactivation MRR (returning churned customers), Contraction MRR (downgrades), and Churned MRR (cancelled subscriptions). Net New MRR = New + Expansion + Reactivation − Contraction − Churned. Healthy SaaS businesses maintain Net New MRR that is positive and growing. If Expansion MRR exceeds Churned MRR, you have negative revenue churn — your existing customer base grows revenue even without new customers. This state is the hallmark of a best-in-class SaaS business.

Tip: Track MRR on the last business day of each month with a consistent methodology — including or excluding trials, annual plan normalisation, and free plans must be decided once and kept constant.

Convert MRR to ARR and benchmark your growth rate

Annual Recurring Revenue (ARR) = MRR × 12. It is the standard metric for investor conversations, board reporting, and company valuation. Use the ARR Calculator to compute your current ARR and implied ARR growth rate year-over-year. Benchmark: pre-seed SaaS should target ARR growth of 3× annually; Series A typically targets 2–3×; Series B+ targets 1.5–2×. The 'Rule of 40' states that a healthy SaaS company's ARR growth rate + EBITDA margin should exceed 40%. A company growing at 80% ARR YoY can have −40% EBITDA margin and still pass the rule. ARR is also used for valuation multiples: private SaaS companies typically trade at 5–15× ARR depending on growth rate, churn, NRR, and market position. Note: annual contracts should be recognised as ARR upon signing, not spread across months.

Tip: ARR = MRR × 12 only works for monthly contracts. For a mix of monthly and annual plans, sum normalised annual values of all active subscriptions instead of multiplying MRR by 12.

Calculate customer churn and revenue churn separately

Churn rate measures how fast you are losing customers and revenue. Use the Churn Rate Calculator to compute both: Customer Churn Rate (% of customers who cancelled in a period) and Revenue Churn Rate (% of MRR lost from cancellations and downgrades). These two metrics often tell different stories. If large enterprise customers churn at a lower rate than SMB customers, your Revenue Churn will be lower than Customer Churn — which is a good sign. Gross Revenue Retention (GRR) = 1 − Revenue Churn, and must be calculated before expansion. Net Revenue Retention (NRR) = GRR + Expansion MRR as a % of starting MRR — NRR above 100% means your existing customers grow revenue even after accounting for churn. World-class SaaS NRR is 120%+. For monthly plans, monthly churn of 2% compounds to 22% annual churn — much worse than it sounds.

Tip: Segment churn by customer cohort, plan type, and acquisition channel. Aggregate churn hides the fact that some segments may have 0.5% monthly churn while others have 8%.

Calculate your Customer Acquisition Cost fully loaded

CAC (Customer Acquisition Cost) is the total cost to acquire one new paying customer, including all sales and marketing spend. Use the CAC Calculator to compute: fully-loaded CAC = (total sales + marketing spend for the period) ÷ new customers acquired in the period. Fully-loaded means including: sales team salaries + commissions, marketing team salaries, paid advertising spend, tools and software for sales/marketing, conference and event costs, and content and creative costs. Many companies undercount CAC by including only ad spend. Blended CAC mixes all channels — a more granular view computes channel-specific CAC (paid search CAC, organic CAC, outbound CAC) to identify which acquisition channels are efficient. A rising blended CAC with declining growth rate is an early warning signal that the best acquisition channels are saturating.

Tip: Compute CAC on a trailing 3-month basis, not month-over-month — single-month CAC is noisy due to timing mismatches between spend (this month) and customers acquired (who were in pipeline from last month).

Calculate LTV and the critical LTV:CAC ratio

Customer Lifetime Value (LTV) is the total revenue a customer generates over their relationship with your product. LTV = (Average Revenue Per Account) ÷ Customer Churn Rate. Or more precisely: LTV = ARPA × Gross Margin ÷ Monthly Churn Rate. Use the LTV Calculator to compute LTV and the LTV:CAC ratio — the single most important unit economics metric in SaaS. Benchmarks: LTV:CAC < 1 means you lose money on every customer (unsustainable). 1–3× is poor (marginal unit economics). 3× is healthy — the widely cited minimum for venture-backed SaaS. 4–5× is strong. Above 5× suggests underinvestment in growth. CAC Payback Period = CAC ÷ (Monthly ARPA × Gross Margin) — this is how many months to recover the cost of acquiring a customer. Best-in-class is under 12 months. Above 24 months creates significant cash flow risk.

Tip: LTV is only as reliable as your churn calculation. If churn is understated (e.g., you're excluding small customers), LTV will be overstated and your unit economics will look better than they are.