Top SaaS Metrics Every SaaS Founder Should Track (and Why)

Running a SaaS business involves keeping track of many numbers. From sign-ups to subscriptions and cancellations, there’s a lot going on. When you use a subscription model, knowing your key metrics (and understanding what they’re telling you) is especially important.

At first, the number of things to measure might seem overwhelming. That’s why we’ll keep it simple. We’ll cover four important metrics, show you easy examples, explain their importance, and give tips on how you can use them to help your SaaS grow. Let’s dive in!

Monthly Recurring Revenue (MRR)

MRR is simply how much predictable, recurring revenue your business earns each month from subscription fees. It doesn’t count things like one-time setup charges or special project fees—just steady monthly subscription income.

How to calculate MRR

Let’s say you have 50 customers paying $100 each month:

50 customers x $100 monthly = $5,000 MRR

If some customers pay annually, divide their annual subscription by 12 to find their effective monthly amount.

When calculating your MRR, exclude:

• One-time charges (setup fees, service fees)
• Discounts (subtract the discount from the normal monthly amount)
• Non-subscription revenue (like consultancy or project payments)

Why track MRR?

MRR shows how stable your business is. Tracking changes month-to-month gives you clear signals about growth, expansion, or issues you need to address. MRR also helps you forecast future cash flow, which keeps you in control of business planning and budgeting.

How to improve and use MRR effectively:

• Break down MRR into segments: new customers (“New MRR”), upgrades or add-ons (“Expansion MRR”), and cancellations (“Churned MRR”).
• Set monthly targets. This helps you focus your sales and marketing strategies.
• Watch changes closely—declining MRR could mean you need to address churn or rethink your pricing.

Churn Rate

Churn rate measures the percentage of customers (or revenue) you lose over a particular period, typically each month. If two customers cancel, and you started the month with 100 customers:

2 customers lost / 100 customers at start = 2% customer churn

There are two main types of churn:

• Customer churn: percentage of customers who leave.
• Revenue churn: percentage of MRR you lose due to cancellations or downgrades.

Sometimes revenue churn is more important because losing a few large customers could impact your business more than losing several small ones.

Industry Benchmarks:

• Early-stage SaaS businesses often see 5-7% monthly churn rates (or higher), but a healthy rate is below 3% monthly.
• For established SaaS companies aiming for steady growth, monthly churn below 2% is ideal.

Why track churn?

Churn significantly affects revenue and profitability. Keeping customers is easier and cheaper than finding new ones. More importantly, high churn usually signals deeper product or service issues you should address quickly.

How to improve churn:

• Talk to customers who leave. Exit surveys help identify why users cancel, letting you fix issues.
• Improve customer service and onboarding. Ensure users know how to get value from your product from day one.
• Segment churn by customer type (industry, size, usage level). You can then find and tackle problems specific groups face.

Customer Lifetime Value (LTV)

LTV is the total revenue you expect to collect from a customer over their entire relationship with you. A simplified formula looks like this:

Average Monthly Revenue Per Customer / Monthly Churn Rate = LTV

Example: If customers generate around $50/month each, and your churn rate is 2% per month, your LTV looks like this:

$50 average monthly revenue / 0.02 churn rate = $2,500 LTV per customer

Keep in mind this is a basic calculation. If your churn rates fluctuate significantly each month, calculate your churn as an overall average across multiple months for accuracy.

Industry Benchmarks:

A key metric founders often track is the LTV to CAC ratio (explained below):

• A healthy LTV:CAC ratio is about 3:1 or higher. Meaning, if you spend $100 to get a new customer, you want them to generate at least $300 in lifetime value.

Why track LTV?

Knowing your LTV helps you set smart budgets for acquiring new customers. Simply put, if your customer lifetime value is far higher than acquisition costs, you’re on the right track.

How to improve your LTV:

• Reduce your churn rate (see above).
• Offer helpful upgrades or expansions that keep customers engaged longer and raise revenue per customer.
• Target the right customers. Focus marketing efforts on customer segments with the highest lifetime value.

Customer Acquisition Cost (CAC)

CAC measures how much you spend, on average, to gain a new paying customer. It includes costs like ads, marketing software, marketing agencies, salaries for your sales teams, and commissions.

How to calculate CAC:

CAC is easy to figure out:

Total acquisition cost (marketing + sales expenses) / Number of new customers gained in that period

Example: You spent $1,000 on ads + $900 on your sales team salaries this month, and picked up 19 new customers.

$1,900 total expenses / 19 customers = $100 CAC per customer

Industry Benchmarks:

Remember the LTV:CAC ratio mentioned above? Aim for the lifetime value of a customer to be at least 3 times greater than your CAC. Here’s a quick example:

• CAC: $100 per customer
• Ideal LTV: at least $300 per customer or higher

This allows you enough profit to reinvest in your business.

Why track CAC?

CAC reveals your marketing and sales efficiency. If your CAC is too high relative to your LTV, you’re essentially losing money each time you bring a new customer onboard.

How to reduce CAC:

• Test lower-cost marketing channels, like blogging, strong content for organic traffic, or referral programs.
• Improve messaging and targeting so each dollar you spend attracts more of the right people.
• Automate easy or routine sales tasks so salespeople spend their time most efficiently on high-value activities.

How These Key Metrics Work Together

Your SaaS metrics connect closely and impact one another directly:

• High churn rate shortens customer lifetime, cutting your LTV drastically.
• High CAC leaves little room for profitability, especially if LTV is low or churn is high.
• Strong MRR depends on low churn and reasonable CAC. Efficient CAC and good retention helps MRR grow effectively.

Tracking metrics together gives valuable insight into your overall SaaS business health.

Additional Metrics for Deeper Analysis:

As your business grows, consider these other helpful metrics to deepen your insights:

• Annual Recurring Revenue (ARR): yearly recurring subscription revenue (basically, MRR x 12).
• Average Revenue per User (ARPU): average monthly revenue from each customer (total MRR divided by total customers).
• Retention Rate: percentage of users sticking around (this is the opposite of churn).

Tracking these can add depth to your analysis as you scale up.

Easy ways to use all these metrics effectively:

• Set monthly (or quarterly) goals and checkpoints around these key metrics.
• Establish quick feedback loops—for example, sending short surveys to churned customers to identify issues early.
• Prioritize product and marketing improvements based on what impacts metrics most (such as churn or CAC reductions).

Wrap-up

Understanding and regularly tracking these crucial metrics—MRR, Churn Rate, LTV, and CAC—lets you plan smarter, spend wisely, and grow sustainably. Keeping a close eye on your numbers helps you catch issues early and continue improving over time, giving your SaaS company the strong foundations it needs for success.