SaaS Metrics Explained: MRR, ARR, Churn, LTV and CAC for Beginners
The five numbers every SaaS founder should know — what they mean, how to calculate them, and what “good” looks like.
Subscription businesses live and die by a handful of numbers. You don’t need a finance degree to understand them — just clear definitions and a calculator.
In this article7 sections
MRR: monthly recurring revenue
MRR is the predictable revenue you earn each month from subscriptions. The simplest version is number of paying customers × average revenue per account (ARPA). Exclude one-off fees like setup or consulting.
ARR: annual recurring revenue
ARR is MRR multiplied by 12. It is the headline number investors use to compare SaaS companies of different sizes.
Churn rate
Customer churn is the percentage of customers who cancel in a period. If you start the month with 200 customers and 6 cancel, monthly churn is 3%. Churn matters because it sets a ceiling on growth: the more you lose, the harder you must work just to stand still.
Why small churn changes matter
Average customer lifetime is roughly 1 ÷ monthly churn. At 5% churn a customer stays about 20 months; at 2% it’s about 50 months. Halving churn can more than double lifetime value.
LTV: customer lifetime value
LTV estimates the gross profit a customer brings in over their lifetime. A simple formula is ARPA × gross margin ÷ monthly churn. It’s an estimate, but a very useful one for deciding how much you can spend to win a customer.
CAC: customer acquisition cost
CAC is everything you spend on sales and marketing in a period divided by the number of new customers you won. Include ad spend, tools, and the salaries of people doing acquisition.
Putting it together: LTV:CAC and payback
| Metric | Rule of thumb |
|---|---|
| LTV:CAC | 3:1 or better |
| CAC payback | Under ~12 months |
| Monthly churn (SMB SaaS) | Lower is better — track the trend |
These are benchmarks, not laws — early-stage companies often look worse before they look better. What matters is that the trend is moving in the right direction.
Try it: calculate MRR, ARR, LTV and CAC payback instantly — free, no sign-up.
Final thoughts
Track these five metrics monthly and you’ll understand the health of your SaaS business better than most. Start simple, be consistent with your definitions, and improve one lever at a time — usually churn first.
