Article · 20 min read

SaaS Metrics 2.0: Detailed Definitions

David Skok · For Entrepreneurs Free Intermediate

The formula reference: CAC, months to recover CAC, magic number, net MRR churn and NRR, each with the calculation spelled out. Bookmark it and stop arguing about arithmetic.

  • Customer lifetime is 1 divided by churn rate, so 3 percent monthly churn means a 33 month lifetime.
  • LTV is ARPA times gross margin percent, divided by monthly churn rate.
  • Months to recover CAC is CAC divided by (ARPA times gross margin percent), and should sit under 12 months, up to 20 for enterprise.
  • Net MRR churn is (churned MRR minus expansion MRR) divided by beginning MRR, and going negative is the goal.
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It answers 2 questions

  1. How do I work out CAC payback when I do not have a finance team?
  2. What is the magic number and should I care about it at my stage?

Read with it

  1. The piece that set the vocabulary the whole industry now uses for LTV, CAC and churn, still the best single explanation of why... For Entrepreneurs Article · 45 min read SaaS Metrics 2.0: A Guide to Measuring and Improving what Matters David Skok
  2. Video · 40 min Mastering Startup Math: TAM, CAC, Churn, Retention, LTV, Payback and more Shripati Acharya and Amit Somani
  3. The magic number was invented at Scale, so this is the primary source, including the Omniture story behind the name and how the... Scale Venture Partners Article · 8 min read SaaS Metrics: A History of the Magic Number Dale Chang
  4. Separates gross sales efficiency, net sales efficiency and magic number, which most people use interchangeably and should not.... Scale Venture Partners Article · 10 min read SaaS Metrics: A Primer on SaaS Sales Efficiency Dale Chang
  5. Organises metrics by company stage instead of dumping all of them on you at once, which is exactly what a founder tracking... Chargebee Article · 25 min read Important SaaS Metrics to track at every stage of your business Chargebee
  6. Video · 3 min CAC Payback Period | SaaS Metrics School | The SaaS CFO Ben Murray
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