SaaS metrics glossary

Each entry has a plain definition, the formula, and a note on how to use it when your product is small. All examples use monthly figures unless stated.

MRR (monthly recurring revenue)

MRR = sum of active subscriptions, normalised to one month

The predictable subscription revenue you collect in a typical month. Annual plans count as one-twelfth per month; one-off fees, trials and taxes are excluded. Example: 40 customers at $9 plus 10 annual customers at $90 a year is $360 + $75 = $435 MRR. Full detail in how to calculate MRR and ARR.

ARR (annual recurring revenue)

ARR = MRR × 12

The same run rate expressed per year. $435 MRR is $5,220 ARR. ARR is not a forecast and not last year's revenue. It is most useful when annual contracts are common or when comparing with companies that report in ARR.

ARPU (average revenue per user)

ARPU = MRR ÷ paying customers

Average monthly revenue per paying customer. $435 MRR across 50 paying customers is $8.70 ARPU. Some teams call it ARPA (per account) when one account has several users. Watching ARPU over time tells you whether upgrades and price changes are working. Count only paying customers, or the free plan will drag it down.

Churn

Customer churn % = customers lost in month ÷ customers at start of month × 100

The share of customers (or revenue) you lose in a period. Customer churn counts people; revenue churn counts MRR lost to cancellations and downgrades. If you start the month with 50 customers and 2 cancel, customer churn is 4%. With small numbers, one cancellation swings the percentage a lot, so look at a three-month average.

Revenue churn uses the same idea with money:

Revenue churn % = (churned MRR + contraction MRR) ÷ MRR at start of month × 100

NRR (net revenue retention)

NRR % = (start MRR + expansion − contraction − churned) ÷ start MRR × 100

How much revenue from existing customers you keep after upgrades, downgrades and cancellations, ignoring new customers. Above 100% means existing customers grow faster than they leave. It is usually measured over a year for a cohort of customers; monthly NRR is fine for a quick read. Example: start at $500, +$30 expansion, −$10 contraction, −$20 churned gives NRR of 100%.

CAC (customer acquisition cost)

CAC = sales and marketing spend ÷ new paying customers

What it costs to win one paying customer. $300 of ads and sponsorships that bring in 10 new customers is a $30 CAC. Founders often leave out their own time, which makes organic channels look free. They are not, but if you cannot measure time spent, at least note which customers came from paid channels and calculate a paid CAC.

LTV (customer lifetime value)

LTV = ARPU × gross margin % ÷ monthly revenue churn %

The gross profit you expect from a customer over the whole time they stay. With $8.70 ARPU, 85% gross margin and 3% monthly churn: $8.70 × 0.85 ÷ 0.03 ≈ $247. A simpler version leaves out margin (ARPU ÷ churn), which overstates LTV. With low churn the formula produces very large numbers, so many teams cap the lifetime at three to five years.

LTV:CAC ratio

LTV:CAC = LTV ÷ CAC

Whether acquiring customers pays off. An LTV of $247 against a CAC of $30 is roughly 8:1. A commonly quoted rule of thumb is that 3:1 or better is healthy. For small products, also check payback: CAC ÷ (ARPU × gross margin) is how many months it takes to earn back what you spent. Here, $30 ÷ $7.40 ≈ 4 months.

Burn rate

Net burn = monthly expenses − monthly revenue

How fast cash is leaving the business. Gross burn is total spending; net burn subtracts revenue. Net burn drives runway. See SaaS burn rate explained for a worked example.

Runway

Runway (months) = cash available ÷ net burn

How many months the business can operate at current burn. $24,000 cash and $1,600 net burn is 15 months. If net burn is zero or negative, you are profitable and runway is not the constraint. Try the runway calculator.

Gross margin

Gross margin % = (revenue − cost of revenue) ÷ revenue × 100

The share of revenue left after the direct costs of delivering the product: hosting, third-party APIs, email delivery, payment fees and support. Software tends to have high gross margins, but products that resell AI or infrastructure can be far lower. Do not confuse it with profit margin, which subtracts all expenses, including marketing, tools and salaries.