If you’re running a SaaS startup, you know that not all metrics are created equal.

Investors, board members, and even your own team will throw around acronyms like MRR, CAC, LTV, and NRR. But which ones really matter as you scale? More importantly, which ones actually help you make better decisions?

If you’re at the growth stage – meaning you’ve got traction, paying customers, and a push towards scale – you need to cut through the noise and focus on the metrics that actually move the needle.

Let’s break them down.

1. Monthly Recurring Revenue (MRR) & Annual Recurring Revenue (ARR)

If you’re a SaaS business, recurring revenue is king. Unlike one-off sales models, your valuation, investor interest, and ability to scale all depend on predictable, compounding revenue.

Why it matters:

• Tracks revenue growth trends over time.
• Shows investors the predictability and stability of your business.
• Helps with cash flow forecasting and hiring decisions.

How to calculate it:

• MRR = Total subscription revenue per month
• ARR = MRR × 12

💡 Pro tip: Watch out for false MRR growth – if your revenue is increasing due to big one-off discounts or annual deals, it might not be sustainable.

2. Net Revenue Retention (NRR) – The Investor Favourite

Net Revenue Retention (NRR) is one of the most important metrics for SaaS investors. It measures how well you’re retaining and expanding revenue from existing customers.

Why it matters:

• If NRR is over 100%, you’re growing even without new customer acquisition.
• A high NRR means strong expansion revenue (upsells, cross-sells).
• It’s a key predictor of long-term SaaS success.

How to calculate it:
(Revenue from existing customers + expansions – churn) ÷ Starting revenue from existing customers

💡 Pro tip: If your NRR is below 100%, you’re losing more revenue from churn than you’re gaining from existing customers. That’s a red flag.

3. Customer Acquisition Cost (CAC) – Are You Paying Too Much for Growth?

Acquiring customers isn’t free. Customer Acquisition Cost (CAC) measures how much you spend to acquire a new customer – including marketing, sales, and any associated costs.

Why it matters:

• If CAC is too high, your growth isn’t sustainable.
• Helps you figure out when and where to invest in marketing/sales.
• Ties directly into LTV to assess profitability.

How to calculate it:
(Total sales & marketing spend) ÷ (Number of new customers acquired)

💡 Pro tip: If CAC is rising without a corresponding increase in LTV, you’re burning cash inefficiently. Time to reassess your acquisition strategy.

4. Lifetime Value (LTV) – The Real Measure of SaaS Success

LTV tells you how much revenue you can expect from a customer over their lifetime. If your LTV is high, your business has strong customer stickiness and long-term value.

Why it matters:

• Shows the true worth of your customer base.
• Helps you understand how much you can afford to spend on acquisition.
• Investors love high LTV – it signals strong retention and a scalable model.

How to calculate it:
(Average revenue per user (ARPU) × Gross margin) ÷ Churn rate

💡 Pro tip: Keep your LTV:CAC ratio at 3:1 or higher – this means you’re earning 3x more from customers than it costs to acquire them.

5. Churn Rate – The Silent Killer of SaaS Businesses

Churn is the percentage of customers who cancel their subscription over a given period. High churn is a major warning sign that something’s wrong – either your product isn’t delivering value, or you’re targeting the wrong customers.

Why it matters:

• High churn cancels out new growth, making scaling harder.
• Even with strong acquisition, if churn is too high, you’re leaking revenue.
• Investors won’t touch a SaaS business with an unsustainable churn rate.

How to calculate it:
(Lost customers in a month) ÷ (Total customers at the start of the month)

💡 Pro tip: If churn is over 5-7% monthly, dig into why – bad onboarding? Poor customer support? Wrong-fit customers? Fix the root cause, not just the symptoms.

6. Payback Period – How Fast Do You Recover CAC?

The payback period measures how long it takes to recover the money spent to acquire a new customer. A shorter payback period means better cash flow and faster growth.

Why it matters:

• A long payback period puts pressure on cash flow.
• A short payback period means you can reinvest faster into growth.
• SaaS startups with VC funding can afford longer payback periods, but bootstrapped companies need a faster return.

How to calculate it:
(CAC) ÷ (ARPU)

💡 Pro tip: Aim for a payback period under 12 months. If it’s too long, you’ll be too reliant on outside funding to keep growing.

7. Activation Rate – Are New Users Actually Using Your Product?

Most SaaS businesses track sign-ups, but what really matters is activation. This is when a new user completes a key action that makes them more likely to stick around.

Why it matters:

• If activation is low, you’re losing potential long-term customers.
• Helps you optimise onboarding and user experience.
• Strong activation means higher retention and lower churn.

How to calculate it:
(Users who complete a key action) ÷ (Total sign-ups)

💡 Pro tip: Find your “aha moment” – the action that makes a user more likely to stay (e.g., sending the first email in an email marketing tool) and optimise your onboarding to drive that behaviour.

Track What Matters, Ignore Vanity Metrics

SaaS founders can easily get lost in vanity metrics – things like total sign-ups or website traffic that look good on a pitch deck but don’t actually indicate business health.

Instead, focus on the metrics that actually drive decisions:

✅ MRR/ARR for revenue growth
✅ NRR for retention and expansion
✅ CAC & LTV to ensure profitability
✅ Churn rate to prevent revenue leaks
✅ Payback period to optimise cash flow
✅ Activation rate to improve onboarding