SaaS Metrics Glossary

A reference guide for SaaS subscription metrics, listed alphabetically with definitions, formulas, and links to detailed explanations.

ACV (Annual Contract Value)

ACV is the average annualized revenue per customer contract, excluding one-time fees. It is used primarily in enterprise SaaS where contracts vary in length and value.

ACV = Total contract value / Contract length in years

ARPU (Average Revenue Per User)

ARPU is the average monthly revenue generated per active customer. It measures monetization efficiency and tracks the impact of pricing changes.

ARPU = MRR / Total active customers

ARR (Annual Recurring Revenue)

ARR is the annualized value of all active subscriptions. It is the standard top-line metric for SaaS companies with annual or multi-year contracts.

ARR = MRR × 12

CAC (Customer Acquisition Cost)

CAC is the total cost of acquiring a new customer, including sales, marketing, and onboarding expenses.

CAC = Total sales & marketing spend / New customers acquired

CAC Payback Period

CAC payback period is the number of months it takes to recover the cost of acquiring a customer. A healthy SaaS targets under 12 months.

CAC Payback = CAC / (ARPU × Gross margin %)

Churn Rate (Customer)

Customer churn rate is the percentage of customers who cancel their subscription during a given period.

Customer Churn Rate = Customers lost / Customers at start of period

Churn Rate (Revenue)

Revenue churn rate is the percentage of MRR lost from cancellations and downgrades during a given period. It can differ significantly from customer churn if large accounts leave or small accounts leave.

Revenue Churn Rate = MRR lost / MRR at start of period

Cohort Analysis

Cohort analysis groups customers by their signup month and tracks retention, revenue, or engagement over time. It reveals whether newer cohorts retain better than older ones, indicating product or onboarding improvements.

Contraction MRR

Contraction MRR is the revenue lost from existing customers who downgrade their plan or reduce usage. It is distinct from churned MRR (complete cancellation).

Contraction MRR = Previous MRR - Current MRR for downgraded customers

Conversion Rate

Conversion rate is the percentage of visitors or trial users who become paying customers. Website visitor-to-trial rates average 2-5% for SaaS. Trial-to-paid rates average 15-25%.

Conversion Rate = Conversions / Total visitors (or trials)

DAU/MAU (Daily/Monthly Active Users)

DAU/MAU ratio measures product stickiness. It represents what fraction of monthly users return daily. A ratio above 20% indicates strong daily engagement.

DAU/MAU = Daily active users / Monthly active users

Deferred Revenue

Deferred revenue is payment received for services not yet delivered. When a customer pays annually upfront, 11/12 of the payment is deferred revenue that gets recognized monthly.

Dunning

Dunning is the process of recovering failed payments through automated retries and customer notifications. Effective dunning recovers 20-40% of involuntary churn. See churn reduction strategies.

Expansion MRR

Expansion MRR is additional recurring revenue from existing customers through upgrades, add-ons, or increased usage.

Expansion MRR = Current MRR - Previous MRR for upgraded customers

Gross Margin

Gross margin is revenue minus cost of goods sold (hosting, support, infrastructure) expressed as a percentage. Healthy SaaS gross margins range from 70-85%.

Gross Margin = (Revenue - COGS) / Revenue × 100

Gross Revenue Retention (GRR)

GRR measures the percentage of recurring revenue retained from existing customers, excluding expansion. GRR cannot exceed 100%. Best-in-class SaaS companies maintain GRR above 90%.

GRR = (Starting MRR - Contraction - Churn) / Starting MRR × 100

LTV (Lifetime Value)

LTV is the total revenue expected from a customer over their entire relationship. It is the primary input for determining sustainable acquisition spending.

LTV = ARPU / Customer churn rate

LTV:CAC Ratio

LTV:CAC ratio measures unit economics efficiency. A ratio of 3:1 or higher indicates healthy economics. Below 1:1 means you lose money on each customer acquired.

LTV:CAC = Customer lifetime value / Customer acquisition cost

MRR (Monthly Recurring Revenue)

MRR is the sum of all active subscription amounts normalized to a monthly value. It is the most fundamental SaaS metric and the basis for ARR, growth rate, and churn calculations.

MRR = Sum of (Monthly price × Quantity) for all active subscriptions

Net New MRR

Net new MRR is the total change in MRR during a period. Positive net new MRR means the business is growing; negative means it is shrinking.

Net New MRR = New MRR + Expansion MRR + Reactivation MRR - Contraction MRR - Churned MRR

Net Revenue Retention (NRR)

NRR measures total revenue retained from existing customers including expansion. NRR above 100% means existing customers generate more revenue over time. Best-in-class SaaS targets 120%+ NRR.

NRR = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR × 100

New MRR

New MRR is recurring revenue from first-time customers who subscribed during the period. It is one of five MRR components alongside expansion, contraction, churned, and reactivation.

NPS (Net Promoter Score)

NPS measures customer satisfaction by asking "How likely are you to recommend us?" on a 0-10 scale. Scores range from -100 to 100. Above 50 is excellent for SaaS.

NPS = % Promoters (9-10) - % Detractors (0-6)

Quick Ratio

Quick ratio measures growth efficiency by comparing revenue inflows to outflows. A ratio above 4 indicates strong, efficient growth.

Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)

Reactivation MRR

Reactivation MRR is recurring revenue from previously churned customers who resubscribe. It is tracked separately from new MRR because reactivated customers have different retention patterns.

Revenue Churn

Revenue churn is the dollar amount of MRR lost from cancellations and downgrades. It differs from customer churn because losing one large customer has more revenue impact than losing several small ones.

Revenue Churn = Churned MRR + Contraction MRR

Revenue Recognition (ASC 606)

ASC 606 is the accounting standard governing when and how subscription revenue is recognized. Revenue is recognized as the service is delivered, not when payment is received.

Rule of 40

The Rule of 40 states that a healthy SaaS company's growth rate plus profit margin should exceed 40%. It balances growth and profitability.

Rule of 40 Score = Revenue growth rate (%) + Profit margin (%)

SaaS Magic Number

The SaaS Magic Number measures sales efficiency by comparing new ARR to sales and marketing spend. Above 0.75 indicates efficient go-to-market; below 0.5 suggests spending is too high.

Magic Number = Net new ARR (quarter) / Sales & marketing spend (previous quarter)

Subscriber

A subscriber is a customer with an active, paying subscription. In Stripe, subscribers are customers with at least one subscription where status = active or status = trialing.

Trial-to-Paid Conversion

Trial-to-paid conversion rate is the percentage of free trial users who become paying customers. The SaaS industry average is 15-25% for opt-in trials (no credit card required) and 50-70% for opt-out trials (credit card required upfront).

Trial-to-Paid Rate = Paid conversions / Trial starts × 100