SaaS and B2B metrics

Annual Recurring Revenue (ARR) is the normalized annualized revenue a subscription business expects from its active contracts. It is calculated by taking MRR × 12 or by summing each subscription's annualized fee. ARR is the headline number SaaS investors and operators track because it represents the durable, predictable revenue base of the business stripped of one-off variability.

Customer Acquisition Cost (CAC) is the total sales and marketing spend required to win a new customer, divided by the number of new customers acquired in the period. It is the cleanest single measure of acquisition efficiency: are you spending more or less than the next dollar of customer revenue is worth.

Churn Rate is the percentage of customers (or revenue) lost over a period, expressed monthly or annually. Logo Churn measures customers lost. Revenue Churn measures ARR lost. Both matter, and they often tell different stories: a business can have low logo churn but high revenue churn if it loses one big customer, or the opposite if it loses many small ones.

Customer Lifetime Value (LTV) is the total gross profit a customer is expected to deliver over the length of the relationship. For subscription businesses, the standard formula is: (average revenue per customer × gross margin) ÷ customer churn rate. LTV is the value side of the LTV-to-CAC ratio, which is the single most-cited measure of subscription business health.

Monthly Recurring Revenue (MRR) is the predictable, normalised revenue a SaaS business expects each month from its subscription customers. It is calculated by summing each active subscription's monthly fee, with annual contracts divided by 12. MRR is the single most important metric in subscription-software finance because it predicts ARR, growth rate, and runway without requiring the volatility of one-off bookings to interpret.

Net Revenue Retention (NRR) measures how much revenue a SaaS business retains from a cohort of customers over a period, including expansion, contraction, and churn. NRR is calculated as: (Starting ARR + Expansion - Contraction - Churn) ÷ Starting ARR. NRR over 100% means the cohort grew without new logos. Public SaaS leaders run 110-130% NRR and it is one of the strongest predictors of long-term value.