What gets measured gets managed. But most founders measure the wrong things. Total users sounds impressive until you realize 90% churned. Revenue growth feels great until you discover your CAC is higher than LTV and you're hemorrhaging money on every customer.
This guide cuts through the noise. These are the metrics that investors scrutinize, that determine your fundraising success, and most importantly, that tell you whether your business model actually works.
Your North Star Metric: The One Number That Matters Most
Before diving into individual metrics, identify your North Star Metric—the single metric that best predicts long-term success for your business.
Examples by company type:
- Airbnb: Nights booked (not signups or listings)
- Slack: Messages sent per day (indicates actual engagement)
- WhatsApp: Number of messages sent (network effect metric)
- Netflix: Hours watched per subscriber
How to choose yours: Pick a metric that (1) reflects real value delivered to customers, (2) leads to revenue, and (3) compounds over time. Avoid vanity metrics like app downloads or website visits.
Revenue Metrics (For SaaS and Subscription Models)
MRR and ARR (Monthly/Annual Recurring Revenue)
The foundation of SaaS metrics. This is predictable, recurring revenue—the lifeblood of subscription businesses.
Formula:
- MRR = Sum of all monthly subscription fees from active customers
- ARR = MRR × 12 (or sum of annual contracts)
Example: You have 50 customers at $100/month and 10 at $500/month. MRR = (50 × $100) + (10 × $500) = $10,000. ARR = $120,000.
What's good:
- Seed stage: $10K-50K MRR to raise Series A
- Series A: $100K-300K MRR ($1.2M-3.6M ARR)
- Series B: $1M+ MRR ($12M+ ARR)
Revenue Growth Rate
How fast is your recurring revenue growing month-over-month?
Formula:
MoM Growth Rate = ((This Month's MRR - Last Month's MRR) / Last Month's MRR) × 100
Example: Last month MRR = $10K, this month = $11.5K
Growth = (($11,500 - $10,000) / $10,000) × 100 = 15%
Benchmarks:
- Early stage (pre-$1M ARR): 10-20% MoM is excellent
- Growth stage ($1M-10M ARR): 5-10% MoM is strong
- Scale stage ($10M+ ARR): 3-5% MoM still impressive
Rule of thumb: Aim to triple your ARR year-over-year in early stages (need ~10% monthly growth to achieve this).
Unit Economics: CAC and LTV
CAC (Customer Acquisition Cost)
How much does it cost to acquire one new customer? This includes all sales and marketing expenses.
Formula:
CAC = Total Sales & Marketing Costs / Number of New Customers Acquired
Example: You spent $20K on marketing last month and acquired 100 customers.
CAC = $20,000 / 100 = $200 per customer
What to include in costs:
- Ad spend (Google, Meta, LinkedIn, etc.)
- Sales team salaries + commissions
- Marketing team salaries
- Marketing tools and software (CRM, email, analytics)
- Content production costs
- Events and sponsorships
Don't include: Product development, engineering, customer success (those go into COGS or operations).
LTV (Lifetime Value)
The total revenue you expect to generate from a customer over their entire relationship with your company.
Simplified Formula:
LTV = ARPA × Customer Lifetime
Better Formula (accounting for churn):
LTV = ARPA / Churn Rate
Example:
ARPA (Average Revenue Per Account) = $100/month
Monthly Churn Rate = 5% (0.05)
LTV = $100 / 0.05 = $2,000
Alternative calculation using customer lifespan:
If average customer stays for 20 months:
LTV = $100 × 20 = $2,000
LTV:CAC Ratio
This is the ultimate unit economics test. Are you making more money from customers than you spend to acquire them?
Formula:
LTV:CAC Ratio = LTV / CAC
Using our examples:
LTV = $2,000, CAC = $200
Ratio = $2,000 / $200 = 10:1
What's healthy:
- 3:1 = Minimum viable. Lower than this, you're in trouble.
- 3:1 to 5:1 = Good. Sustainable unit economics.
- 5:1+ = Excellent. You should be investing more in growth.
- 10:1+ = Incredible (but question if you're measuring CAC correctly or underinvesting in growth).
Warning signs: Ratio below 1:1 means you lose money on every customer. Below 3:1, growth is unsustainable without outside funding.
CAC Payback Period
How long does it take to recoup the money spent acquiring a customer?
Formula:
CAC Payback Period (months) = CAC / (ARPA × Gross Margin %)
Example:
CAC = $600
ARPA = $100/month
Gross Margin = 80% (typical for SaaS)
Payback Period = $600 / ($100 × 0.80) = 7.5 months
Benchmarks:
- Under 12 months: Excellent. You can reinvest profits back into growth quickly.
- 12-18 months: Good. Standard for many SaaS businesses.
- 18-24 months: Acceptable if you have long customer lifetimes.
- 24+ months: Concerning. You need significant capital to fund growth.
Retention and Churn Metrics
Churn Rate
The percentage of customers who cancel or don't renew in a given period. This is arguably the most important SaaS metric.
Customer Churn Formula:
Monthly Customer Churn = (Customers Lost This Month / Customers at Start of Month) × 100
Example:
Started with 500 customers, lost 25.
Churn = (25 / 500) × 100 = 5% monthly churn
Revenue Churn Formula (more important for businesses with variable pricing):
Monthly Revenue Churn = (MRR Lost from Churned Customers / MRR at Start of Month) × 100
Annual churn approximation: Annual Churn ≈ Monthly Churn × 12 (this is simplified; compound effect means actual annual churn is slightly less)
Healthy benchmarks:
- B2B SaaS: 2-5% monthly churn (24-60% annually) is typical. Under 2% monthly is excellent.
- SMB-focused: 3-7% monthly (higher churn due to business failures)
- Enterprise: 0.5-2% monthly (lower churn, longer contracts)
- Consumer subscription: 5-10% monthly is common (think Netflix, Spotify)
Critical insight: High churn is a product problem, not a marketing problem. Fix retention before scaling acquisition.
Negative Churn (The Holy Grail)
When revenue from existing customers (through upsells, expansions, add-ons) grows faster than revenue lost from cancellations.
Formula:
Net Revenue Churn = (Churned MRR - Expansion MRR) / Starting MRR × 100
Example:
Starting MRR: $100K
Churned MRR: $5K
Expansion MRR (upgrades + upsells): $8K
Net Churn = ($5K - $8K) / $100K = -3% (negative churn!)
Why it's powerful: With negative churn, your revenue grows even if you acquire zero new customers. Companies like Snowflake and Datadog achieved this through land-and-expand strategies.
Cash and Burn Metrics
Burn Rate and Runway
How fast are you spending money, and how long until you run out?
Gross Burn Rate: Total monthly cash expenses
Net Burn Rate: Monthly cash expenses minus monthly revenue
Runway Formula:
Runway (months) = Current Cash Balance / Monthly Net Burn
Example:
Cash in bank: $500K
Monthly expenses: $75K
Monthly revenue: $25K
Net burn: $75K - $25K = $50K/month
Runway: $500K / $50K = 10 months
Rule of thumb: Maintain minimum 12-18 months runway. Start fundraising when you have 6-9 months left (fundraising takes 3-6 months).
Growth Efficiency Metrics
The Magic Number (SaaS Growth Efficiency)
Measures how efficiently you're converting sales & marketing spend into revenue growth.
Formula:
Magic Number = (Current Quarter MRR - Previous Quarter MRR) × 4 / Previous Quarter S&M Spend
Example:
Q1 MRR: $100K | Q2 MRR: $130K | Q1 S&M Spend: $80K
Magic Number = ($130K - $100K) × 4 / $80K = $120K / $80K = 1.5
Interpretation:
- > 0.75: Great. You're generating $0.75+ ARR for every $1 spent on S&M.
- 0.5-0.75: Good enough to justify growth investment.
- < 0.5: Inefficient. Focus on product-market fit before scaling spend.
Quick Ratio (Growth Quality)
Compares your growth (new + expansion MRR) to your contraction (churn + downgrades). Higher is better.
Formula:
Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)
Example:
New MRR: $30K | Expansion: $5K | Churned: $8K | Contraction: $2K
Quick Ratio = ($30K + $5K) / ($8K + $2K) = 35 / 10 = 3.5
Benchmarks:
- 4+: Exceptional growth
- 2-4: Healthy, sustainable growth
- 1-2: Concerning. Growth is fragile.
- < 1: Shrinking. You're losing more than you're gaining.
Product Engagement Metrics
DAU/MAU Ratio (Stickiness)
What percentage of your monthly active users are engaging daily?
Formula:
DAU/MAU Ratio = (Daily Active Users / Monthly Active Users) × 100
Example: 10,000 DAU, 50,000 MAU
Ratio = (10,000 / 50,000) × 100 = 20%
Benchmarks by product type:
- Social/Communication: 50-60% (Facebook, WhatsApp)
- Productivity tools: 20-40% (Notion, Slack)
- E-commerce/Marketplaces: 10-20%
- Entertainment: 30-50% (Netflix, Spotify)
Activation Rate
Percentage of signups who complete key actions that indicate they're getting value (your "aha moment").
Formula:
Activation Rate = (Users Who Completed Key Action / Total Signups) × 100
Example "aha moments":
- Dropbox: Upload at least one file
- Slack: Send 2,000 team messages
- Facebook: Connect with 7 friends in 10 days
- Twitter: Follow 30 accounts
Typical rates: 20-40% activation is common. 60%+ is excellent. Under 10% indicates serious product onboarding issues.
How to Actually Track These Metrics
Metrics are useless if you can't measure them accurately and consistently.
Essential tools:
- Product analytics: Mixpanel, Amplitude, or PostHog for user behavior
- Financial metrics: Stripe for revenue, ChartMogul or Baremetrics for SaaS metrics
- Dashboards: Mode Analytics, Metabase, or build custom with Retool
- Spreadsheets: Start simple. A well-maintained Google Sheet beats an unused fancy dashboard.
Best practices:
- Create a metrics dashboard you review weekly (not monthly—too slow)
- Define metrics consistently. Document exactly how you calculate each one.
- Segment your metrics. Look at metrics by cohort, channel, plan type, etc.
- Set targets. Metrics without goals are just numbers.
- Share them transparently with your team. Everyone should know the key metrics.
Which Metrics Matter at Each Stage
Pre-product-market fit (0-10 customers):
- Activation rate (are people using it?)
- Retention (do they come back?)
- Qualitative feedback
Early traction ($0-$100K ARR):
- MRR/ARR growth rate
- Churn rate
- CAC (track but don't optimize yet—sample size too small)
Growth stage ($100K-$1M ARR):
- All of the above
- LTV:CAC ratio
- CAC payback period
- Magic Number (growth efficiency)
Scale stage ($1M+ ARR):
- Everything
- Plus: Net revenue retention, Quick Ratio, Rule of 40 ((Growth Rate % + Profit Margin %) > 40)
Conclusion: Metrics Drive Decisions
Metrics aren't about impressing investors (though they help). They're about making better decisions faster. Without data, you're guessing. With the right metrics, you know exactly what's working and what needs fixing.
Start simple: Pick 3-5 metrics that matter most for your current stage. Track them weekly. Set goals. Make decisions based on trends, not single data points.
Most importantly: metrics reveal problems, but they don't solve them. Low activation? Fix onboarding. High churn? Improve your product. Terrible LTV:CAC? Rethink your business model or acquisition strategy.
Your action plan:
- This week: Set up tracking for MRR, churn rate, and CAC
- Calculate your current LTV:CAC ratio and CAC payback period
- Create a simple dashboard with these 5 metrics
- Review weekly and adjust your strategy accordingly
The startups that win are the ones that measure, learn, and iterate faster than everyone else. Start measuring what matters today.