SaaS Growth Metrics That Actually Move the Needle

You have a dashboard full of graphs. Use usage is up. Pageviews are up. Signups are up. But when you talk to an investor, they look bored. Why?

Because you are tracking Vanity Metrics.

Investors and acquirers care about Value Metrics—the numbers that prove the unit economics of your money machine are sound. If you put $1 in, does $5 come out?

This guide covers the "Big 5" metrics that dictate your valuation and health.

What you’ll learn

1. LTV/CAC Ratio: The "God Metric" of SaaS.
2. Net Revenue Retention (NRR): The secret to exponential growth.
3. Burn Multiples: The new efficiency standard.
4. Churn: Why "Gross" and "Net" tell different stories.
5. CAC Payback Period: How fast do you get your money back?

1. LTV / CAC Ratio

Lifetime Value (LTV) is how much a customer pays you before they leave. Customer Acquisition Cost (CAC) is how much you spend to get them.

Target: > 3.0x

• < 1x: You are losing money on every sale. Stop selling.
• 1x - 3x: You are treading water.
• > 3x: Healthy.
• > 5x: You are under-spending. Grow faster!

The Trap

Founders often calculate LTV assuming a customer stays for 5 years. In SaaS, use a more conservative estimate (e.g., 2-3 years cap) or 1 / Churn Rate.

2. CAC Payback Period

How many months of revenue does it take to pay off the sales/marketing cost of acquiring the customer?

Target: < 12 Months

• SMB SaaS: Should be 6-9 months.
• Enterprise SaaS: Can be 12-18 months (due to longer contracts/lock-in).

If your payback is 24 months, your cash flow trough will be massive. You will need to raise tons of VC money just to survive the wait.

3. Net Revenue Retention (NRR)

NRR measures what happens to your revenue from existing customers over time.

NRR = (Starting MRR + Expansion - Downsell - Churn) / Starting MRR

Target: > 100%

If NRR is 120%, it means if you stopped sales today, your business would still grow by 20% next year just from upsells. This is the holy grail. Snowflake had an NRR of ~160% at IPO.

4. Churn: Gross vs. Net

• Gross Dollar Churn: The % of revenue lost. (Target: <1% per month for Enterprise, <2-3% for SMB).
• Logo Churn: The % of customers lost.

Insight: You can lose logos (small customers leaving) but keep revenue (big customers staying/upgrading). This is "bad" logo churn but "good" revenue retention. Revenue retention matters more for valuation, but logo churn indicates product-market fit issues.

5. The Burn Multiple (Efficiency)

Ideally suited for the current economic climate.

Burn Multiple = Net Burn / Net New ARR

• Burn $2M, Add $1M ARR: Multiple = 2.0 (OK for early stage).
• Burn $1M, Add $1M ARR: Multiple = 1.0 (Great).
• Burn $0.5M, Add $1M ARR: Multiple = 0.5 (Elite).

Investors want to see this trending down as you grow.

Examples

To see how these interact, let's look at a Tale of Two Startups.

Startup A: "Leaky Bucket Inc."

• LTV: $5,000.
• CAC: $2,500.
• Ratio: 2x.
• Payback: 18 months.
• Analysis: This company will run out of cash trying to grow. The payback is too slow, and the margin (2x) is too thin to absorb shocks. They need to fix retention before buying ads.

Startup B: "Efficient Scale Ltd."

• LTV: $15,000.
• CAC: $3,000.
• Ratio: 5x.
• Payback: 6 months.
• Analysis: This is a money printing machine. Every $1 in gets $5 out. They recover their ad spend in 6 months, allowing them to reinvest twice a year. This company should raise money and pour gasoline on the fire.

Metric Visualization

Imagine a bucket (Your Business).

• Water In: New Sales.
• Holes: Churn.
• Water Expanding: Up-sells (Expansion revenue).

If the water expands faster than it leaks, the bucket fills up even without adding new water. That is NRR > 100%.

Checklist: Metric Hygiene

• [ ] Define "Active": Don't count someone who logged in once 6 months ago as active.
• [ ] Fully Load CAC: Include salaries of sales/marketing staff, not just Ad spend.
• [ ] Separate Expansion: Don't hide churn by blending it with new sales. Track "New Business" vs. "Expansion" separately.
• [ ] Track Cohorts: Don't just look at averages. Look at how the January cohort performs vs the December cohort.
• [ ] monitor Magic Number: Aim for > 0.7. (New ARR Q2) / (Sales & Marketing Spend Q1).

FAQ

Q: Should I track metrics daily? A: No. SaaS metrics are slow-moving. Weekly or monthly is better. Noise vs. Signal.

Q: My Payback is 0 months (Organic Growth). Is that good? A: Yes, it's profitable! But investors might ask why you aren't spending money to grow faster. If you can spend $1 to get $3, you should do it until the math breaks.

Q: What is a "Good" churn rate? A:

• SMB ($50/mo): 3-7% monthly churn.
• Mid-Market ($500/mo): 1-2% monthly churn.
• Enterprise ($5k/mo): <0.5% monthly churn.

Q: How do i calculate ARPU? A: MRR / Total Active Customers. Use it to track if you are moving up-market.

Valuation Calculator

Related Resources

• Valuation Guide - How metrics feed into the valuation formula.
• Rule of 40 - Balancing growth and profit.
• Free Valuation Calculator - See how your metrics impact your price.