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Frameworks, core principles and top case studies for SaaS pricing, learnt and refined over 28+ years of SaaS-monetization experience.
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In the fast-paced world of SaaS, understanding your revenue metrics isn't just about keeping score—it's about charting a course for sustainable growth. As subscription models continue to dominate the software landscape, executives need a clear picture of what's working and what's not.
Whether you're scaling a startup or optimizing an established SaaS business, tracking the right metrics can mean the difference between strategic growth and costly missteps. Let's explore the essential revenue metrics that every SaaS leader should monitor to drive subscription growth.
The Foundation: Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue represents the predictable revenue stream your business generates each month from subscription customers. As the cornerstone of SaaS financial health, MRR provides a clear snapshot of your current business state.
Breaking down MRR into its components offers even deeper insights:
- New MRR: Revenue from new customers
- Expansion MRR: Additional revenue from existing customers (upgrades, cross-sells)
- Contraction MRR: Lost revenue from downgrades
- Churned MRR: Revenue lost from cancelled subscriptions
According to OpenView Partners' 2023 SaaS Benchmarks Report, top-performing SaaS companies maintain at least 15% month-over-month MRR growth during early scaling phases.
Pro tip: Track MRR velocity (the rate at which your MRR is changing) to forecast future growth and identify trends before they become problems.
Annual Recurring Revenue (ARR)
While MRR offers a monthly perspective, ARR provides the big picture view of your subscription business. This metric is particularly important when communicating with investors and setting long-term growth targets.
ARR = MRR × 12
A study by SaaS Capital found that companies with ARR growth rates above 40% tend to command valuation multiples 2-3x higher than those growing at 20% or below.
Customer Acquisition Cost (CAC)
CAC measures how much it costs to acquire a new customer, calculated by dividing your total sales and marketing expenses by the number of new customers acquired in a given period:
CAC = Total Sales & Marketing Expenses / Number of New Customers
According to ProfitWell research, the average CAC in the SaaS industry has increased by nearly 60% over the past five years, making efficient customer acquisition increasingly critical.
Customer Lifetime Value (CLV)
CLV represents the total revenue you can expect from a customer throughout their relationship with your company. The formula varies by company, but a simplified version is:
CLV = Average Revenue Per Account (ARPA) × Average Customer Lifespan
The CLV:CAC ratio is particularly revealing. A healthy SaaS business typically maintains a CLV:CAC ratio of 3:1 or higher, meaning the lifetime value of a customer is at least three times the cost to acquire them.
Churn Rate
Churn measures the percentage of customers or revenue lost during a specific time period. There are two critical types of churn to monitor:
1. Customer Churn
Customer churn = (Customers lost during period / Total customers at start of period) × 100
2. Revenue Churn
Revenue churn = (MRR lost during period / Total MRR at start of period) × 100
According to Recurly Research, the average churn rate across SaaS industries is approximately 5.6%, though this varies significantly by sector and target market.
Revenue churn can be negative when expansion revenue from existing customers exceeds lost revenue from churned customers—a highly desirable state indicating strong product-market fit and customer success.
Expansion Revenue Rate
This metric measures additional revenue generated from existing customers through upsells, cross-sells, and add-ons:
Expansion Revenue Rate = (Expansion MRR / Total MRR at start of period) × 100
Data from Profitwell shows that companies with strong expansion revenue (10%+ of total revenue) grow 50% faster than those relying primarily on new customer acquisition.
Net Revenue Retention (NRR)
NRR measures the percentage of revenue retained from existing customers over time, including expansions, contractions, and churn:
NRR = ((Starting MRR + Expansion MRR - Contraction MRR - Churned MRR) / Starting MRR) × 100
Top-performing SaaS companies maintain NRR above 120%, meaning they grow their customer base's value even without adding new customers. According to KeyBanc Capital Markets' SaaS survey, the median NRR for private SaaS companies is around 106%.
Customer Acquisition Payback Period
This metric reveals how long it takes to recoup your customer acquisition costs:
Payback Period = CAC / (ARPA × Gross Margin)
Most venture-backed SaaS companies aim for a payback period of 12-18 months or less. A longer period may indicate scaling difficulties or pricing problems.
Implementing a Metrics-Driven Strategy
Having the right metrics is only half the battle. Here's how to leverage these numbers for subscription growth:
1. Set Clear Targets
Establish benchmarks for each key metric based on your business stage, industry standards, and growth goals. The most successful SaaS companies set tiered goals:
- Minimum acceptable performance
- Target performance
- Stretch goals
2. Create a Revenue Metrics Dashboard
Visualize your metrics in real-time through a centralized dashboard accessible to key stakeholders. Tools like ChartMogul, ProfitWell, or Baremetrics can help automate this process.
3. Establish Review Cadences
Schedule regular revenue metric reviews:
- Weekly: Focus on leading indicators like sales pipeline and conversion rates
- Monthly: Review core subscription metrics like MRR, churn, and CAC
- Quarterly: Analyze trends and adjust strategies for CLV, NRR, and expansion revenue
4. Connect Metrics to Actions
For each key metric, define specific actions to take when numbers fall below or exceed expectations. For example:
- High CAC: Review marketing channel efficiency and sales process optimization
- Declining NRR: Invest in customer success initiatives and examine product-market fit
- Strong Expansion Revenue: Double down on upsell opportunities and success-driven pricing tiers
Conclusion
In the subscription economy, your revenue metrics tell a story about your business health and growth trajectory. By tracking these essential SaaS metrics and implementing a metrics-driven growth strategy, you can identify opportunities, address challenges proactively, and accelerate your subscription growth.
Remember that metrics work best when viewed as an interconnected system rather than in isolation. A holistic approach to revenue metrics will reveal not just how fast you're growing, but whether that growth is sustainable and profitable over the long term.
The most successful SaaS leaders don't just collect metrics—they build a culture of data-informed decision making where everyone understands how their work impacts the company's subscription growth engine.
Which of these metrics has been most valuable for your business? Are there others you've found particularly insightful? The journey to subscription growth is ongoing, and the right metrics make all the difference in navigating it successfully.