SaaS Metrics for Beginners: MRR, Churn, CAC, LTV Explained

1. MRR (Monthly Recurring Revenue)

What it means: How much money comes in every month from subscriptions.

Example: You have 50 customers paying $40/month. Your MRR = 50 × $40 = $2,000

Why it matters: This is THE number everyone talks about. It shows how big your business is.

Good to know: ARR = MRR × 12 (Annual Recurring Revenue)

2. Churn Rate

What it means: What percentage of customers cancel each month.

Example: You started the month with 100 customers. 5 cancelled. Your churn rate = 5%

Why it matters: If too many customers leave, you can't grow. It's like filling a bucket with a hole.

What's good:

3. CAC (Customer Acquisition Cost)

What it means: How much money you spend to get one new customer.

Example: You spent $1,000 on ads and got 20 new customers. CAC = $1,000 ÷ 20 = $50

Why it matters: If it costs more to get a customer than they pay you, you lose money.

Rule of thumb: CAC should be less than what a customer pays you over their lifetime (see LTV below).

4. LTV (Lifetime Value)

What it means: How much money a customer pays you in total before they leave.

Simple calculation: Average monthly payment ÷ Monthly churn rate

Example: Customers pay $50/month. Churn is 5%/month. LTV = $50 ÷ 0.05 = $1,000

Why it matters: You can spend up to LTV to acquire a customer and still profit.

5. LTV:CAC Ratio

What it means: How much value you get compared to what you spend to acquire.

Calculation: LTV ÷ CAC

Example: LTV = $1,000, CAC = $200. Ratio = 5:1

What's good:

The Only Metrics You Need Early On

When you're just starting, focus on just these:

  1. MRR — Are you growing?
  2. Churn — Are customers staying?
  3. Number of customers — How many people use it?

Don't worry about CAC and LTV until you're spending money on marketing. Keep it simple.

Key Takeaways