What is ARR and how is it different from revenue?
Annual Recurring Revenue is the normalized, forward-looking value of your subscription contracts over a trailing twelve-month window, counted only when revenue is contractually recurring. GAAP revenue is backward-looking and recognized ratably as services are delivered, so a January deal shows up in ARR immediately but trickles into recognized revenue month by month. ARR excludes one-time services, usage overages, and anything a customer can walk away from mid-term. Treat ARR as a run-rate planning number, not a reported financial, and reconcile it against booked and recognized revenue every month.
Read the full ARR definition →
What is MRR and when should I use it instead of ARR?
Monthly Recurring Revenue is the same concept as ARR, just normalized to a single month. Use MRR when your contracts, pricing, or churn move faster than quarterly, which is typical for product-led SaaS, usage-billed products, and self-serve plans. Annualize MRR by multiplying by twelve to compare against ARR peers, but do not treat the two as interchangeable. MRR surfaces compounding problems earlier because a bad month shows up as a one-twelfth signal rather than being averaged into a trailing year.
Read the full MRR definition →
ARR vs MRR: which should my board care about?
Boards and investors anchor on ARR because it is the common benchmark for valuation multiples, growth rates, and efficiency ratios. Operators run on MRR because it reflects what shipped this month. The right answer is both: report ARR for strategic context and MRR for operating cadence. If you only have time for one view in your monthly business review, show new, expansion, contraction, and churned MRR as waterfall components rolling up to net new ARR. That gives directional change and absolute scale in a single chart.
Read the full ARR vs MRR breakdown →
What is LTV and how do I calculate it correctly?
Customer Lifetime Value is the gross profit a customer generates across their entire relationship with you. The simple formula is average revenue per account times gross margin divided by annual revenue churn rate. The honest version adjusts for expansion revenue, discount rate, and segment-level churn, because a blended LTV masks the difference between SMB and enterprise economics. LTV is a planning input, not a performance metric, so pair it with cohort retention curves and never report a single company-wide figure to your board without the underlying segment math.
Read the full LTV definition →
What is CAC and what gets included in the number?
Customer Acquisition Cost is the fully loaded sales and marketing spend required to close one new customer. Fully loaded means headcount, commissions, tooling, ads, content, events, and allocated overhead, divided by new logos closed in the same period. CAC per logo tells you deal economics; CAC per dollar of new ARR tells you capital efficiency. Pure-play SaaS boards usually want both. Keep the time window consistent, lag spend to bookings when sales cycles are long, and never net expansion into the denominator.
Read the full CAC definition →
What is a healthy LTV to CAC ratio?
The industry rule of thumb is three to one or better, meaning every dollar of acquisition cost returns at least three dollars of gross-profit lifetime value. Below one to one and you are burning capital to grow; above five to one and you may be underinvesting in growth. Segment the ratio by motion, because self-serve, inside sales, and field will land in very different ranges. Watch the trend line more than the number. A ratio that trends down over four quarters is a leading indicator of margin or retention compression.
Read the full LTV to CAC guide →
What is a SaaS metric and which ones actually matter?
A SaaS metric is any ratio that describes the health of a subscription business across growth, retention, efficiency, or unit economics. The short list most operators converge on: ARR and growth rate, net revenue retention, gross margin, CAC payback, LTV to CAC, Rule of 40, burn multiple, and magic number. Everything else is a drill-down. Pick five to seven for your monthly operating review, keep the definitions written down so finance and GTM agree, and resist the urge to add new ones every quarter.
Read the full SaaS metrics primer →
What is the Rule of 40 and how is it used?
Rule of 40 is a shorthand for balanced SaaS health: your year-over-year growth rate plus your operating profit margin should sum to at least forty percent. A high-growth company can run at a loss and still clear the bar; a mature company trades growth for margin. Investors use it as a screening heuristic for software businesses because it rewards either growth or profitability without demanding both. Calculate it quarterly on a trailing twelve-month basis, use consistent margin definitions, and expect the number to compress as you scale.
Read the full Rule of 40 explainer →
What is burn multiple and why does it matter now?
Burn multiple, popularized by David Sacks, is net cash burn divided by net new ARR added in the same period. It answers one question: how many units of cash are you lighting on fire to generate one unit of recurring revenue? Below one is elite, one to two is healthy, two to three warrants scrutiny, and above three is a red flag. Burn multiple cuts through growth-at-all-costs noise because it rewards efficient growth and penalizes expensive growth, which is why it became the default efficiency metric in the current funding environment.
Read the full burn multiple explainer →
What is magic number and how do I interpret it?
Magic number, formalized by Scale Venture Partners, is annualized new gross-profit ARR from one quarter divided by the sales and marketing spend from the prior quarter. Above one means your go-to-market engine is paying for itself inside a year and you should keep investing. Between zero point seven and one is fine; below zero point seven and you need to tune before adding spend. It is a payback proxy, not a profitability measure, and it works best when you report it alongside CAC payback and net revenue retention.
Read the full magic number guide →
What is a win rate and what counts as a healthy one?
Win rate is closed-won opportunities divided by closed opportunities inside a defined window, usually a quarter. The industry median for B2B SaaS lands in the low twenties, but the number only matters when you segment it: by motion, by deal size, by lead source, and by stage entered. A blended win rate above forty percent often means your pipeline is being over-qualified upstream rather than your sellers being elite. Track trend, not absolute number, and always pair win rate with average deal size and sales cycle length.
Read the full win rate explainer →
How often should we recalculate these metrics?
ARR, MRR, and pipeline metrics should update daily or at least weekly in your source of truth. Efficiency metrics like CAC payback, burn multiple, magic number, and Rule of 40 belong in your monthly operating review on a trailing twelve-month basis. LTV and LTV to CAC are quarterly, because the inputs move slowly and overreacting to a single bad month creates noise. Document the cadence, the formula, and the data source for each metric so a new finance hire can rebuild the pack without a hallway conversation.
