SaaS Metrics became the language of software-as-a-service business health, with specific formulas for MRR, churn, LTV, CAC, and other key performance indicators.

Foundational Framework

David Skok’s 2012 essay “SaaS Metrics 2.0” codified the core metrics: MRR (Monthly Recurring Revenue), ARR (Annual Recurring Revenue), churn rate, LTV (Lifetime Value), CAC (Customer Acquisition Cost), LTV:CAC ratio, and months to recover CAC. These became the SaaS Bible, referenced in every pitch deck.

Key Metrics Explained

MRR Growth: The north star—consistent 10-20% monthly growth signaled health. Categorized as New MRR (new customers), Expansion MRR (upgrades), Contraction MRR (downgrades), and Churned MRR (lost customers).

Churn Rate: Monthly customer or revenue loss percentage. <5% annual churn considered excellent for B2B SaaS, <7% acceptable. Consumer SaaS tolerated 5-10% monthly churn.

LTV:CAC Ratio: Lifetime value divided by customer acquisition cost. 3:1 ratio deemed healthy—customer generates 3x what you spend acquiring them. Below 1:1 signaled unit economics death spiral.

Rule of 40: Growth rate + profit margin should exceed 40%. A 30% growing company could lose 10%, but a 10% grower needed 30% margins.

Dashboard Culture

Tools like Baremetrics, ChartMogul, and ProfitWell emerged 2014-2018 to automatically calculate SaaS metrics from Stripe data. Founders obsessively watched dashboards, tweeting MRR milestones. “We hit $10K MRR!” became a rite of passage.

Criticism & Nuance

By 2020-2023, metric obsession faced pushback: optimizing churn could mean firing difficult customers, CAC calculations ignored team time, and MRR didn’t reflect actual cash flow. Bootstrapped founders argued VC-oriented metrics (growth at all costs) didn’t apply to profitable small SaaS businesses.

Source: David Skok SaaS Metrics