Frequently Asked Questions
What are the most important SaaS metrics?
Top 5: MRR/ARR (revenue), Net Revenue Retention (>100% is healthy), Gross Margin (>75% for SaaS), CAC Payback (<12 months), and Rule of 40 (Growth + Profit Margin >40%). These cover growth, retention, efficiency, and profitability.
What's the Rule of 40?
Growth Rate (%) + Profit Margin (%) ≥ 40% indicates a healthy SaaS business. A company growing 50% with -10% margin = 40 (passing). Below 40 means either growth is too slow or burn is too high. Top public SaaS companies often hit 50-60.
What's the difference between MRR and ARR?
MRR (Monthly Recurring Revenue) = predictable monthly subscription revenue. ARR (Annual Recurring Revenue) = MRR × 12. ARR is preferred for annual-contract SaaS; MRR for month-to-month. Both exclude one-time fees, professional services, and overage charges.
What is Net Revenue Retention?
NRR = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR. NRR >100% means existing customers grow more than they churn - a key sign of product-market fit. Best-in-class SaaS: 120%+. Below 100% suggests a leaky bucket that's hard to grow profitably.
What's the difference between GRR and NRR?
GRR (Gross Revenue Retention) measures the revenue you keep excluding any expansion, so it caps at 100% and shows how leaky the bucket is (target 90%+). NRR adds upsell and cross-sell on top, which is why best-in-class SaaS clears 120%. Always read them together: strong NRR can hide heavy churn if a few accounts are expanding fast.
What CAC payback period is acceptable?
The SaaS median is around 15 months, top quartile is under 12, and anything over 24 months signals capital inefficiency. A short payback means each customer funds the next round of acquisition sooner, which matters most for cash-constrained companies.
Why should LTV/CAC be at least 3?
A ratio below 1 means every customer you acquire is a net loss. Between 1 and 3 is marginal. At 3 or above, the business can scale with confidence without destroying value. Pair it with CAC payback, though: a high ratio with a two-year payback still strains cash flow.
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Business Information Disclaimer: Estimates only. Not professional business advice.
This calculator provides estimates for informational purposes only. Business results vary by industry, market conditions, and execution. Not a substitute for professional business consulting, accounting, or legal advice. Consult qualified professionals before making business decisions.