There are perhaps forty metrics a subscription business could track and about twelve that change decisions. This is the twelve, with the formula, a benchmark range, and — the part most guides skip — what you should actually do when the number is bad.
Topline: the revenue engine
Everything in SaaS derives from monthly recurring revenue and the five movements that change it. If you track only one thing, track these separately rather than as a single net figure — a company adding $50k of new MRR while losing $45k to churn looks identical to one adding $8k and losing $3k, and they are not remotely the same business.
MRR and the five movements
Ending MRR = Starting MRR + New + Expansion − Contraction − Churn
Annual contracts divided by 12. Track each movement as its own line — the net number hides the diagnosis.
What it tells you. New and expansion are your growth engine; contraction and churn are the leak. The ratio between them tells you whether to spend the next quarter on sales or on the product.
Net revenue retention (NRR)
NRR = (Starting MRR + Expansion − Contraction − Churn) ÷ Starting MRR
Benchmark: 100–120%. Best-in-class enterprise SaaS runs above 120%.
What it tells you. Above 100%, your existing customers grow faster than they leave — the business expands even if you never win another logo. It is the single most predictive metric in SaaS, and the reason investors ask for it before almost anything else.
Gross revenue retention (GRR)
GRR = (Starting MRR − Contraction − Churn) ÷ Starting MRR
Benchmark: 85–95%. SMB sits lower, enterprise higher.
Logo churn
Logo churn = Customers lost ÷ Customers at start of month
Benchmark: 1–2% monthly for SMB, well under 1% for enterprise.
What it tells you. Counts customers rather than dollars. Low dollar churn with high logo churn means you are losing small accounts fast — survivable now, fatal to your ability to move downmarket later.
Unit economics: does a customer pay for itself?
CAC
CAC = Total sales & marketing spend ÷ New customers won
Fully loaded — include salaries, not just ad spend. Half-loaded CAC flatters every business.
CAC payback period
CAC payback (months) = CAC ÷ (ARPA × Gross margin)
Benchmark: under 12 months for SMB, under 18–24 for enterprise.
What it tells you. How long before a customer has repaid what it cost to win them. This is the metric that determines how much cash growth consumes: at a 24-month payback, doubling sales spend does not double growth, it doubles your funding requirement.
LTV and LTV:CAC
LTV = (ARPA × Gross margin) ÷ Monthly churn rate
Gross-margin adjusted. LTV computed on revenue rather than gross profit overstates every business.
LTV : CAC = LTV ÷ CAC
Benchmark: 3x or better. Consistently above 5x usually means underinvesting in growth.
Gross margin
Gross margin = (Revenue − Cost of revenue) ÷ Revenue
Benchmark: 70–85% for software.
What it tells you. How much of each new dollar is available to fund growth. Below 70% for software usually means hosting or support costs are scaling with customers and being treated as fixed.
Efficiency: is the growth worth what it costs?
Rule of 40
Rule of 40 = Revenue growth rate (%) + Profit margin (%)
Benchmark: 40% or better. Below it is common and survivable — treat it as a prompt, not a verdict.
Burn multiple
Burn multiple = Net cash burned ÷ Net new ARR added
Benchmark: under 1.5x is strong, 1.5–2x reasonable, above 3x means growth is being bought rather than earned.
Magic number
Magic number = Net new ARR ÷ Sales & marketing spend
Benchmark: 0.75x or better. Below 0.5x, more sales spend is not buying proportional growth.
| Metric | Healthy range | What a bad number usually means |
|---|---|---|
| Net revenue retention | 100–120% | The product is not becoming more valuable with use |
| Gross revenue retention | 85–95% | You are selling to the wrong customers, or onboarding badly |
| Logo churn (monthly) | 1–2% | Small accounts are not reaching value fast enough |
| CAC payback | Under 12 months | Growth is consuming far more cash than it appears to |
| LTV : CAC | 3x+ | Acquisition is expensive relative to what a customer is worth |
| Gross margin | 70–85% | Cost of revenue is scaling with customers |
| Rule of 40 | 40%+ | You are paying too much for the growth you are getting |
| Burn multiple | Under 2x | Every dollar of ARR costs too many dollars of cash |
| Magic number | 0.75x+ | The sales motion is not efficient at current spend |
Frequently asked questions
What are the most important SaaS metrics?
Net revenue retention, CAC payback and gross margin. NRR tells you whether the product gets more valuable over time, CAC payback tells you how much cash growth consumes, and gross margin determines how much of each dollar you keep to fund it. Almost everything else is a diagnostic on one of those three.
What is a good net revenue retention rate?
100–120% is the healthy band. Above 100% means your existing customer base grows on its own. Below 90%, you are refilling a leaking bucket and growth costs far more than it should.
How do you calculate CAC payback?
Divide fully loaded customer acquisition cost by monthly gross profit per account — that is ARPA multiplied by gross margin, not ARPA alone. Using revenue instead of gross profit understates payback by however large your cost of revenue is.
What is the Rule of 40?
Revenue growth rate plus profit margin, targeted at 40% or above. It exists so a fast-growing loss-maker and a slow-growing profitable company can be compared on one axis.
Should I use MRR or ARR?
MRR to manage the business, ARR to talk about it. Monthly movement is where you spot problems; the annualized figure is a summary for people outside the company.
How often should I review these?
Monthly, as soon as the books close. Reviewing metrics on incomplete books is worse than not reviewing them, because the numbers look authoritative and are not.