SaaS businesses report metrics that look similar but hide meaningful differences. ARR is simple; net revenue retention is more complex than most dashboards show. This guide covers the core SaaS metrics, how to calculate them correctly, the common gaming that happens, and what "good" looks like by stage.
The base SaaS revenue metric. MRR is the normalized monthly subscription revenue across all active customers. ARR = MRR × 12.
What counts: subscription revenue only. Recurring product revenue that will continue unless churned.
What doesn't count: implementation fees, one-time services, non-recurring transactions, add-ons that aren't subscription. These are sometimes forced into MRR to inflate numbers; be skeptical.
Common gaming:
The ARR waterfall:
Tracking each component separately enables real analysis. A company growing 30% could be: healthy (40% new + 10% expansion − 15% churn − 5% contraction) or troubled (70% new + 5% expansion − 35% churn − 10% contraction). Same 30% growth, very different businesses.
GRR measures revenue retained from existing customers excluding expansion. Formula:
GRR = (Starting ARR − Churned ARR − Contraction ARR) / Starting ARR
GRR cap is 100% (no expansion counts). Below 100% means losing customer revenue.
Best-in-class SaaS: GRR above 92%. Mid-pack: 85–92%. Troubled: under 80%.
NRR measures revenue retained including expansion. Formula:
NRR = (Starting ARR − Churned ARR − Contraction ARR + Expansion ARR) / Starting ARR
NRR can exceed 100% when expansion exceeds churn + contraction.
Best-in-class SaaS: NRR 120%+. Mid-pack: 100–115%. Below 100% means existing customer base is contracting.
Logo retention counts number of customers retained; revenue retention weights by revenue. Important to track both – losing 20% of customers but only 5% of revenue is different from losing 20% of each.
Cohort analysis groups customers by signup month/quarter and tracks retention over time. Shows whether product improvements are translating to better retention for newer cohorts. More valuable than single-number retention metrics.
Total sales and marketing spend / new customers acquired in same period.
Common errors: excluding certain marketing costs, counting self-served signups at $0 CAC when marketing cost drove acquisition, attributing across too short a time window.
Blended CAC includes all new customers. Paid CAC only includes customers from paid channels. Organic CAC is often lower and not comparable to paid.
Simple formula: Average revenue per customer / churn rate. More realistic: weighted by expansion, contraction, customer-level margin.
Common errors: using gross revenue rather than gross profit (LTV should reflect margin not revenue); assuming constant churn at mature levels when newer cohorts churn higher; ignoring payback period in LTV calculation.
LTV / CAC – the bellwether unit economics metric. Venture benchmarks:
How many months until gross profit from a customer exceeds CAC to acquire. For SaaS:
Growth rate + profit margin ≥ 40%. Applied as:
Examples:
Rule of 40 is a quick health check. Companies with very high growth can run negative margin; mature companies with modest growth should show healthy margins. Companies failing both growth and margin (e.g., 15% growth, 0% margin) are concerning.
Net cash burn / net new ARR added. Measures capital efficiency of growth:
Net new ARR (annualized) / sales and marketing spend in period. Measures sales efficiency:
Related: SaaS bookkeeping by stage, ASC 606 revenue recognition, SaaS industry page.
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