SaaS Metrics Explained: MRR, Churn, LTV and CAC
SaaS metrics explained simply: how to calculate MRR, churn, net revenue retention, LTV and CAC, with a worked rand example and the mistakes to avoid.
· 4 min read · Summarix team
The core SaaS metrics are MRR (monthly recurring revenue), churn (how much of it you lose), LTV (what a customer is worth over their lifetime) and CAC (what it costs to win one). Together they tell you whether a subscription business is growing efficiently or leaking money. Here is how to calculate each, with a worked example in rand.
MRR and its components
MRR is the normalised monthly value of all active subscriptions. Annual plans are divided by 12; one-off setup fees and usage overages are usually excluded so MRR reflects the predictable base. The real insight comes from splitting MRR movement into parts:
| Component | What it is |
|---|---|
| New MRR | MRR from customers who subscribed this month |
| Expansion MRR | Increases from existing customers (upgrades, extra seats) |
| Contraction MRR | Decreases from existing customers (downgrades) |
| Churned MRR | MRR lost from customers who cancelled |
| Net new MRR | New + expansion − contraction − churned |
Churn: customer churn vs revenue churn
| Metric | Formula |
|---|---|
| Customer (logo) churn | Customers lost in month ÷ customers at start of month × 100 |
| Gross revenue churn | (Churned MRR + contraction MRR) ÷ MRR at start of month × 100 |
| Net revenue retention (NRR) | (Starting MRR + expansion − contraction − churned) ÷ starting MRR × 100 |
Customer churn and revenue churn can tell different stories. If your small customers leave and large ones stay, logo churn looks bad while revenue churn looks fine. NRR above 100% means your existing customers grow faster than you lose revenue from them, so the business grows even with zero new sales.
LTV and CAC
| Metric | Formula |
|---|---|
| ARPA (average revenue per account) | MRR ÷ active customers |
| Customer lifetime (months) | 1 ÷ monthly customer churn rate |
| LTV | ARPA × gross margin % ÷ monthly customer churn rate |
| CAC | Sales and marketing spend ÷ new customers |
| LTV:CAC ratio | LTV ÷ CAC |
| CAC payback (months) | CAC ÷ (ARPA × gross margin %) |
Worked example: one month of a small SaaS
Say your software business started September with 200 customers and R180,000 MRR. During the month:
- 25 new customers added R22,500 of new MRR.
- Upgrades added R9,000 of expansion MRR; downgrades removed R3,000.
- 8 customers cancelled, taking R6,400 of MRR with them.
- Sales and marketing spend was R60,000. Gross margin is 80%.
Now the calculations:
- Net new MRR: 22,500 + 9,000 − 3,000 − 6,400 = R22,100, so ending MRR is R202,100.
- Customer churn: 8 ÷ 200 = 4% a month.
- Gross revenue churn: (6,400 + 3,000) ÷ 180,000 = 5.2%
- NRR: (180,000 + 9,000 − 3,000 − 6,400) ÷ 180,000 = 99.8%
- ARPA: R180,000 ÷ 200 = R900
- LTV: R900 × 0.80 ÷ 0.04 = R18,000
- CAC: R60,000 ÷ 25 = R2,400
- LTV:CAC: 18,000 ÷ 2,400 = 7.5; CAC payback: 2,400 ÷ (900 × 0.8) = 3.3 months
The picture: acquisition is efficient (fast payback, strong LTV:CAC), but 4% monthly churn means you replace almost half your customer base each year. Reducing churn to 2% would double LTV to R36,000 without changing anything else. That is usually the highest-value lever in an early SaaS. Start by looking at who churned: which plan they were on, how long they had been customers, how they were acquired and whether they ever used the core feature. Patterns in that list usually point to an onboarding or targeting fix.
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Common SaaS metric mistakes
- Counting annual prepayments as one month’s MRR. Divide by 12.
- Including one-off fees in MRR. They inflate growth and then vanish.
- Treating a paused or failed-payment account inconsistently. Decide a rule (for example, churn after a set number of days unpaid) and stick to it.
- Blending all customers into one churn number. Split by plan, size or acquisition channel; the averages hide the story.
- Leaving out salaries in CAC. Sales and marketing staff costs belong in the numerator.
Reporting SaaS metrics monthly
A monthly SaaS report should open with MRR and net new MRR, show the MRR bridge (new, expansion, contraction, churn), then churn and NRR, then acquisition efficiency. If you bill through Stripe, our guide to Stripe revenue reports shows how to pull the data together. Summarix connects to Stripe and can produce this report on a schedule, with the figures computed from your data. For the marketing side of CAC, read marketing KPIs: ROI, CAC and ROAS, and for burn and runway see financial KPIs for owners.
Conclusion
MRR tells you how big the business is; churn, NRR, LTV and CAC tell you whether it is healthy. Break MRR into its components, measure churn by both customers and revenue, and treat LTV as an estimate that improves with time. Do that consistently and you will know which lever to pull: acquisition, expansion or retention.
Frequently asked questions
How do you calculate MRR?
Add up the monthly value of every active subscription, dividing annual or quarterly plans into monthly amounts. Exclude one-off fees and usually usage-based overages.
What is a good LTV to CAC ratio?
A ratio of around 3:1 is a commonly used rule of thumb, but it depends on your cash position and how reliable your churn data is. A short CAC payback period matters as much as the ratio.
What is the difference between gross and net revenue churn?
Gross revenue churn counts only lost and downgraded revenue. Net revenue churn subtracts expansion revenue from existing customers, so it can be negative if upgrades outweigh losses.
What is net revenue retention?
NRR is the percentage of starting MRR you keep after expansion, contraction and churn from existing customers. Above 100% means existing customers are growing overall.