SaaS Metrics Explained: MRR, ARR, CAC, LTV, and Churn
Published October 19, 2026
If you’re evaluating a SaaS company, reading a vendor’s pitch, or just trying to understand how subscription businesses measure themselves, these five metrics come up constantly. None of them are complicated once you see the actual formula — the confusion usually comes from vendors using them loosely in marketing rather than precisely.
MRR (Monthly Recurring Revenue)
MRR is the predictable revenue a SaaS company collects every month from active subscriptions.
Formula: Sum of all active subscriptions’ monthly value.
A company with 100 customers paying $50/month has $5,000 in MRR. MRR is tracked over time because the trend — growing, flat, shrinking — tells you more than the number itself at any single point.
ARR (Annual Recurring Revenue)
ARR is simply MRR annualized — the same predictable revenue, expressed as a yearly figure.
Formula: MRR × 12.
Companies with larger, enterprise-focused contracts often report in ARR since their deals are naturally annual; companies with smaller, high-volume subscriptions often report in MRR since month-to-month changes are more visible at that scale. Neither is “more correct” — they’re the same underlying number at different time scales.
CAC (Customer Acquisition Cost)
CAC is how much it costs, on average, to acquire one new paying customer.
Formula: Total sales and marketing spend over a period ÷ number of new customers acquired in that period.
If a company spends $50,000 on sales and marketing in a month and acquires 100 new customers, CAC is $500. CAC matters most in relation to LTV (below) — a low CAC relative to LTV suggests efficient, sustainable growth.
LTV / CLV (Customer Lifetime Value)
LTV (or CLV) estimates the total revenue a business expects to earn from a customer over the entire relationship.
Formula (simplified): Average revenue per customer per month ÷ churn rate.
A common health-check ratio is LTV:CAC — a 3:1 ratio or higher (earning $3 in lifetime value for every $1 spent acquiring a customer) is a commonly cited benchmark for a sustainable SaaS business, though healthy ratios vary by industry and growth stage.
Churn Rate
Churn is the percentage of customers (or revenue) a company loses over a given period.
Formula: Customers lost during a period ÷ customers at the start of the period.
A company with 1,000 customers at the start of a month that loses 20 has a 2% monthly churn rate. Lower is better, and even small differences compound significantly over a year — 2% monthly churn compounds to roughly 22% annual churn, not simply 24%, because the shrinking base affects each subsequent month.
There’s also revenue churn (lost revenue rather than lost customer count), which can diverge from customer churn if the customers who leave are disproportionately small or large accounts.
How These Metrics Relate to Each Other
These aren’t independent numbers — they tell a connected story: MRR/ARR show current scale, CAC and LTV together show whether growth is efficient, and churn shows whether the business is retaining what it earns. A company can have impressive MRR growth that’s actually unsustainable if CAC is climbing faster than LTV, or if churn is quietly eating away at the customer base being acquired.
FAQ
What’s a good churn rate for a SaaS company?
It varies significantly by market — consumer SaaS often sees higher monthly churn (3-7%) than B2B SaaS (0.5-2% monthly is often considered healthy), since B2B contracts tend to be stickier and harder to switch away from.
Why do companies report ARR instead of MRR, or vice versa?
It’s mostly about what matches how the business actually sells — annual-contract businesses report ARR because that mirrors their deal structure; monthly-subscription businesses report MRR because that’s the natural unit of their revenue.
What’s the difference between CAC and LTV?
CAC measures what it costs to acquire a customer; LTV measures what that customer is worth over time. Comparing the two (the LTV:CAC ratio) is how businesses judge whether their growth spending is sustainable.
Is a high churn rate always bad?
Generally yes for the business’s growth trajectory, but context matters — a company deliberately moving upmarket toward larger customers may see churn among smaller customers it’s no longer prioritizing, which can be a deliberate tradeoff rather than a health problem.
