SaaS Metrics Glossary: All 14 Key Terms Defined

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1. MRR (Monthly Recurring Revenue)

The predictable recurring revenue your subscription business generates each month from active subscriptions. Excludes one-time fees, services, and trials.

Formula: MRR = Active Customers × Average Monthly Subscription Price

Benchmark: Growth rate matters more than absolute MRR. Target 10%+ MoM at seed, 4-6% at Series B+.

2. ARR (Annual Recurring Revenue)

The annualized version of MRR. The standard metric for SaaS valuations, board reporting, and fundraising.

Formula: ARR = MRR × 12

Benchmark: $1M ARR signals product-market fit. Valued at 6-15x multiple depending on growth.

3. ARPU (Average Revenue Per User)

The average monthly revenue generated per active customer. A key indicator of pricing power and upsell success.

Formula: ARPU = Total MRR ÷ Active Customers

Benchmark: Varies by segment. Rising ARPU is more important than the absolute number.

4. Expansion MRR

Additional recurring revenue from existing customers who upgrade, add seats, or purchase add-ons. The cheapest revenue you can generate.

Formula: Sum of (New MRR − Previous MRR) for each upgrading customer

Benchmark: Should exceed churned + contracted MRR to achieve NRR above 100%.

5. Customer Churn Rate

The percentage of customers who cancel over a given period. Measures how many people are leaving your business.

Formula: Customer Churn = (Customers Lost ÷ Customers at Start) × 100

Benchmark: Below 5% monthly for Series B+. Below 3% for enterprise.

6. Revenue Churn Rate

The percentage of recurring revenue lost from cancellations and downgrades. Measures how much money is leaving, not how many people.

Formula: Revenue Churn = ((MRR Churned + MRR Contracted) ÷ MRR at Start) × 100

Benchmark: Below 4% monthly. Net revenue churn should be negative (expansion exceeds losses).

7. NRR (Net Revenue Retention)

Revenue retained from existing customers including expansion, churn, and contraction. Can exceed 100%, meaning existing customers grow over time.

Formula: NRR = ((MRR Start − Churn − Contraction + Expansion) ÷ MRR Start) × 100

Benchmark: Above 110%. World-class: above 130% (Snowflake, Datadog).

8. GRR (Gross Revenue Retention)

Revenue retained after churn and contraction, excluding expansion. Can never exceed 100%. Reveals true retention without upsell masking.

Formula: GRR = ((MRR Start − Churn − Contraction) ÷ MRR Start) × 100

Benchmark: Above 85%. World-class: above 90%.

9. CAC (Customer Acquisition Cost)

The total cost to acquire one new customer, including all sales and marketing spend. Half of the LTV:CAC equation.

Formula: CAC = Total Sales & Marketing Spend ÷ New Customers Acquired

Benchmark: No universal target. Evaluate via LTV:CAC ratio (target 3:1+) and payback period.

10. LTV (Customer Lifetime Value)

The total gross profit a customer generates before they churn. Tells you how much you can afford to spend on acquisition.

Formula: LTV = (ARPU × Gross Margin) ÷ Monthly Churn Rate

Benchmark: Should be at least 3x CAC. Rising LTV is the goal.

11. LTV:CAC Ratio

The ultimate unit economics sanity check. Compares customer lifetime value to acquisition cost. 3:1 means $3 of value per $1 spent.

Formula: LTV:CAC = LTV ÷ CAC

Benchmark: 3:1 or higher. Below 1.5:1 is unsustainable. Above 5:1 may mean under-investing in growth.

12. CAC Payback Period

How many months it takes to recover the cost of acquiring a customer. A cash flow metric that complements LTV:CAC.

Formula: CAC Payback = CAC ÷ (ARPU × Gross Margin)

Benchmark: Under 12 months. Above 18 months is high risk.

13. Rule of 40

A health metric that balances growth and profitability. Growth rate plus profit margin should equal or exceed 40.

Formula: Rule of 40 = Revenue Growth Rate (%) + Profit Margin (%)

Benchmark: 40+ is healthy. Above 50 is excellent. Below 25 needs improvement.

14. Burn Multiple

Cash efficiency metric that measures how much cash you burn per dollar of new ARR created. Coined by Craft Ventures.

Formula: Burn Multiple = Net Burn ÷ Net New ARR

Benchmark: Below 1.0 is excellent. 1.0-2.0 is acceptable. Above 2.0 is high risk.

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