Core
Customer Acquisition Cost (CAC)
Total cost to acquire a new customer, including all marketing and sales expenses.
Example: $500,000 spent, 100 customers → CAC = $5,000
Track marketing CAC and sales CAC separately to diagnose channel-level inefficiency. CAC is the denominator in every efficiency ratio that follows.
Core
Customer Lifetime Value (LTV)
Total revenue expected from a customer over their relationship with the company.
Example: ARPU $1,000 · 5% churn → LTV = $20,000
Governs how much can be profitably spent on acquisition. Reducing churn has an outsized effect on LTV — a 1% churn reduction at $1,000 ARPU increases LTV by $5,000.
Core
CAC:LTV Ratio
Compares the cost to acquire a customer against the total value that customer generates.
Example: CAC $5,000 · LTV $20,000 → Ratio 1:4
Below 1:3 signals inefficient acquisition requiring intervention. Above 1:5 is strong — and may indicate underinvestment in growth. Increasingly used as a primary investor efficiency screen.
Core
Monthly Recurring Revenue (MRR)
Predictable monthly revenue from active subscriptions.
Example: 100 customers × $500/mo → MRR = $50,000
Track four components separately: New MRR · Expansion MRR · Contraction MRR · Churned MRR. The components tell you where growth is coming from and where it is leaking.
2026 note: Usage-based and hybrid pricing models introduce variability that flat-rate MRR formulas don't capture. Model usage floors and ceiling scenarios separately when planning cash flow against consumption-based contracts.
Core
Annual Recurring Revenue (ARR)
Annualised predictable revenue — the standard metric for valuation and long-term planning.
Example: MRR $50,000 → ARR = $600,000
Primary valuation input in private SaaS markets. Current benchmarks: 4–6× ARR for private SaaS; 1–3× premium for AI-native companies with demonstrated NRR improvement above 110%.
Core
Churn Rate
Percentage of customers or revenue lost over a defined period.
2025 benchmark: Median B2B SaaS churn 3.5% — 2.6% voluntary, 0.8% involuntary (Recurly)
Revenue churn is more actionable than customer churn — it reveals whether you are losing high-value or low-value customers. Track both.
Updated
Gross Margin
Revenue minus cost of goods sold (COGS), expressed as a percentage.
Example: $1M revenue · $200K COGS → 80% gross margin
Traditional SaaS target: 70–85%. Higher margins fund growth reinvestment and improve CAC payback calculations.
2026 AI-era update: AI-embedded products carry ongoing inference, token, and compute COGS that traditional SaaS never had. Realistic target for AI-enabled products at scale: 60–70%. Do not benchmark against legacy SaaS gross margin norms without adjusting for this structural shift.
Core
CAC Payback Period
Time required to recover the cost of acquiring a customer from that customer's gross margin contribution.
Example: CAC $5,000 · ARPU $500 · 80% margin → 12.5 months
Under 12 months is the standard benchmark; under 18 months acceptable for enterprise-focused businesses with longer sales cycles. Shorter payback = more efficient capital deployment.
New · 2026
Net Revenue Retention (NRR)
Revenue retained from existing customers over a period, including expansion, contraction, and churn. Also called Net Dollar Retention (NDR).
Example: $100K start + $20K expansion − $5K contraction − $5K churn → NRR = 110%
NRR above 100% means the company grows from existing customers alone — without acquiring a single new one. A direct mechanical input into ARR valuation multiples.
2026 benchmark: 110–120% is strong. AI investments that improve onboarding speed, health scoring, or expansion triggers directly improve NRR — and therefore valuation. This is where AI ROI is most clearly demonstrable in financial terms.
New · 2026 Benchmark
The Rule of 40
Growth Rate (%) + EBITDA or FCF Margin (%) ≥ 40
A composite benchmark combining growth rate and profit margin to assess whether a company is balancing growth and efficiency appropriately. In 2026 this has become the single benchmark investors and acquirers use to separate sustainable growth from subsidised growth. A company growing at 25% with 20% EBITDA margin scores 45 — healthy. A company growing at 50% with −20% margin scores 30 — under pressure regardless of headline growth rate. As AI-driven growth acceleration becomes more accessible, the Rule of 40 separates genuine operational efficiency from growth bought with unsustainable spend.
