SaaS metrics formulas, in plain English

Here are the formulas behind the numbers people ask a SaaS founder about, with one example worked all the way through. To skip the math, plug your own numbers into the free runway and LTV calculator.

The example company below is made up so the math is easy to follow.

The example

100 paying customers, $5,000 MRR, 80% gross margin, 4% of customers churn each month, $300 to acquire a customer, $60,000 in the bank and $9,000 a month in expenses.

ARPU

ARPU = MRR ÷ paying customers. $5,000 ÷ 100 = $50 a month.

MRR and ARR

MRR is recurring revenue in a month: customers × what they pay monthly. Annual plans count as one twelfth per month. ARR = MRR × 12, so $60,000 here.

Churn and customer lifetime

Monthly churn = customers lost this month ÷ customers at the start of the month. Losing 4 of 100 is 4%. A rough average lifetime = 1 ÷ churn, so 1 ÷ 0.04 = 25 months.

LTV (lifetime value)

LTV = ARPU × gross margin ÷ monthly churn. $50 × 0.8 ÷ 0.04 = $1,000. Using gross margin instead of revenue keeps it honest, because it's what you actually keep from each customer.

LTV:CAC

LTV:CAC = LTV ÷ CAC. $1,000 ÷ $300 is about 3.3 to 1. A common rule of thumb is to aim for 3 to 1 or better. Below that, acquisition usually costs too much for what a customer is worth.

CAC payback

CAC payback (months) = CAC ÷ (ARPU × gross margin). $300 ÷ $40 = 7.5 months to earn back what you spent to win a customer. Shorter is better, since it's cash you're waiting to get back.

Net burn and runway

Net burn = monthly expenses − (MRR × gross margin). $9,000 − $4,000 = $5,000 a month.

Runway (months) = cash ÷ net burn. $60,000 ÷ $5,000 = 12 months. If net burn is zero or negative, you're not burning cash and runway has no limit.

Where these break down

Want the full model?

The Founder Unit Economics Pack ($39) is an Excel and Google Sheets workbook with pricing tiers, a 12-month MRR projection, runway with a zero-cash date, and side-by-side scenarios.