#The definitions that actually matter
Most SaaS metric disagreements are definitional rather than arithmetic. Two people compute "churn" from the same data and get different answers because one counted logos and the other counted revenue. This calculator uses the definitions investors apply during diligence.
MRR movement. Ending MRR = Starting + New + Expansion − Contraction − Churn. Every SaaS reporting problem begins with mixing these five buckets. An upgrade is expansion, not new. A downgrade is contraction, not churn. A customer who cancels and returns three months later is new, not reactivated expansion.
Gross revenue retention measures only what you lost: (Starting − Contraction − Churn) / Starting. It can never exceed 100%. It is the honest measure of whether customers stay.
Net revenue retention includes expansion: (Starting + Expansion − Contraction − Churn) / Starting. Above 100% means your existing base grows without a single new customer.
NRR is the single strongest predictor of SaaS valuation multiples. Best-in-class B2B companies run 120% or higher. A business at 130% NRR doubles revenue roughly every three years on the existing base alone; a business at 90% has to run hard just to stand still.
#Why LTV must be computed on gross profit
The most common error in SaaS reporting is computing lifetime value on revenue:
Wrong: LTV = ARPA / churn rate
Correct: LTV = ARPA × gross margin / churn rateIf your gross margin is 78%, the revenue-based figure overstates LTV by 28%. For infrastructure-heavy or support-heavy products running 60% margins, it overstates by 67%. Every deck that reports an LTV:CAC ratio above 5:1 should be checked for this before anything else.
This calculator applies your gross margin before computing LTV, which is why the result is frequently lower than the number in your last board pack.
#Interpreting LTV:CAC
Below 1:1 — you lose money on every customer. Stop spending on acquisition and fix the product or the pricing.
1:1 to 3:1 — acquisition is inefficient. The business can survive but cannot fund its own growth. Look at channel mix, sales cycle length and win rate before adding headcount.
3:1 to 5:1 — healthy. This is the band most venture-backed SaaS businesses target.
Above 5:1 — often a signal of underinvestment, not excellence. If each customer returns seven times their acquisition cost, you could profitably spend considerably more and grow faster. Founders frequently read a high ratio as a win when it is really an unexploited opportunity.
#CAC payback is the cash flow constraint
LTV:CAC tells you whether a customer is profitable eventually. CAC payback tells you how long your cash is tied up getting there:
CAC payback (months) = CAC / (ARPA × gross margin)Under 12 months is strong for SMB-focused products. Under 18 months is acceptable for enterprise sales cycles. Beyond 24 months the business structurally cannot self-fund growth — every new customer consumes cash for two years before contributing any, so faster growth means faster cash burn.
This is why two businesses with identical LTV:CAC ratios can have completely different funding requirements.
#The Rule of 40 and the quick ratio
Rule of 40: growth rate percentage plus profit margin percentage should exceed 40. It allows a fair comparison between a company growing 80% while burning 30% and one growing 20% at 25% profit. It becomes meaningful past roughly $10M ARR; below that, growth rate dominates the assessment and the rule produces noise.
Quick ratio: (New MRR + Expansion) / (Churned + Contraction). A quick ratio of 4 means you add four dollars of recurring revenue for every one you lose. Above 4 is healthy growth; below 2 means you are largely refilling a leaking bucket, and adding sales capacity will not fix it.
#Where founders most often go wrong
- Annual contracts counted as MRR in the month billed. Divide annual contract value by twelve. Booking $60,000 as a single month of MRR produces a growth chart that means nothing.
- Excluding customer success from CAC. If a team member is required to get a customer live and productive, their cost belongs in acquisition.
- Blending self-serve and enterprise. These have entirely different CAC, churn and expansion profiles. Averaging them hides both the healthy segment and the broken one. Run this calculator separately per segment.
- Using logo churn to compute LTV when revenue is concentrated. If your top decile of customers represents 60% of revenue, logo churn understates risk dramatically.
- Reporting NRR without stating the cohort window. NRR is a twelve-month measure on a defined cohort. A monthly figure annualised naively will overstate a good month and panic on a bad one.
#Using this in practice
Run it monthly on the same definitions, export the CSV, and track the trend rather than the level. Trends in NRR and CAC payback tell you more about the health of the business than any single month's snapshot. If your AI costs are becoming a meaningful line in gross margin, model them with the LLM API cost calculator and feed the result back into your margin assumption here.