In SaaS, tracking Monthly Recurring Revenue (MRR) is just the bare minimum.
Founders often get blinded by top-line growth. But if you want to build a valuable, sustainable business that is attractive to investors or buyers, you must look deeper. Here are the five key metrics that tell the true health of your SaaS business.
Customer Lifetime Value divided by Customer Acquisition Cost. A healthy SaaS company should maintain a ratio greater than 3:1.
Measures how much your MRR grows or shrinks from existing customers over time. Aim for 110%+.
How many months it takes for a customer to pay back the cost to acquire them. Keep this under 12 months for optimal capital efficiency.
SaaS gross margins should be high (75-85%). Lower margins indicate hidden hosting, onboarding, or support costs.
Understanding the actual lifetime value helps justify higher customer acquisition budgets.
“Valuation is not driven by growth alone, but by the efficiency and quality of that growth.”
— David Vance
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Your Revenue Is Growing. Your Profit Isn't Following. This is the most common financial problem in $5M to $200 Billions businesses. It has a name: structural margin compression. Here is exactly what's causing it and how to fix it.
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