SaaS Metrics 101: How to Read ARR, CAC, LTV and Churn
The four core metrics that steer SaaS growth — where healthy bands sit and how to improve each one.
TL;DR — Summary
- ARR is calculated as MRR × 12 and shows the true size of a SaaS.
- In a healthy SaaS, LTV/CAC ratio is at least 3:1 and CAC payback stays under 12 months.
- Monthly churn above 5% means growth is spent replacing losses rather than acquiring net-new.
- SaaS companies with Net Revenue Retention (NRR) above 110% can grow without any new customers.
ARR and MRR: Measuring Size
Annual Recurring Revenue (ARR) is the annualized form of subscription revenue. For monthly-billed SaaS, ARR = MRR × 12. For investors, ARR is the clearest single measure of company size and growth rate.
CAC and LTV: Unit Economics
Customer Acquisition Cost (CAC) is the total marketing + sales cost to acquire one customer. Lifetime Value (LTV) is the net profit that customer brings across their tenure. Healthy SaaS runs at an LTV/CAC of at least 3:1 with CAC payback under 12 months.
Churn and NRR: The Retention Story
If monthly gross churn tops 5%, growth is spent filling the leaky bucket. Net Revenue Retention (NRR) also counts upsell/expansion — SaaS companies above 110% NRR grow even without net-new customers.