The SaaS Metrics Glossary: Every Term You Need to Know

Annual Recurring Revenue (ARR)

ARR is the annualized value of a company's recurring subscription contracts. It represents the predictable, contracted revenue a company expects to receive over the next twelve months, excluding one-time fees, professional services, and usage-based overages that can't be reliably annualized.

ARR is the headline number in every SaaS earnings call. See ARR growth rates for public SaaS →

Monthly Recurring Revenue (MRR)

MRR is the monthly equivalent of ARR — the normalized, monthly recurring revenue from all active subscriptions. Early-stage and high-velocity SaaS companies track MRR closely because it responds faster to changes in new logo acquisition, expansion, and churn. Public companies typically report ARR; private companies often manage to MRR.

See ARR vs MRR: the full comparison →

ARR Growth Rate

ARR growth rate is the year-over-year percentage change in a company's ARR. It is the primary growth signal for public SaaS investors — a forward-looking measure of revenue velocity that leads reported GAAP revenue by one to four quarters. A company growing ARR at 30% will grow reported revenue at roughly 30% over the following year, assuming stable contract duration.

Deep dive: ARR Growth Rate definition & benchmarks →

Net New ARR

Net New ARR is the absolute dollar change in ARR over a period — the difference between starting ARR and ending ARR. It combines new logo ARR, expansion from existing customers, minus contraction and churn. High-growth investors watch Net New ARR to assess whether a company is accelerating, decelerating, or holding steady in absolute dollars added each quarter.

Net Revenue Retention (NRR)

NRR — also called Net Dollar Retention (NDR) — measures the percentage of recurring revenue retained from existing customers over a 12-month period, including expansion (upsells and seat growth) and subtracting contraction and churn. NRR above 100% means the existing customer base is growing revenue on its own, without a single new logo. It is the single most powerful signal of SaaS business quality.

Deep dive: NRR definition, formula & benchmarks → · Compare NRR across all public SaaS companies →

Gross Revenue Retention (GRR)

GRR measures retention without expansion — it captures only what percentage of last year's ARR a company kept, after churn and contraction but before any upsells. Because it excludes expansion, GRR is capped at 100%. It is the floor metric: a high GRR (95%+) means low involuntary churn, a prerequisite for sustainable expansion-led growth. NRR tells you how far the ceiling is; GRR tells you how solid the floor is.

Logo Retention Rate

Logo retention (also called customer retention rate or account retention) measures the percentage of customers — not revenue — retained over a period. A company can have high NRR while losing many small logos if large enterprise customers expand significantly. Logo retention surfaces the breadth of the customer base health and is particularly relevant for SMB-heavy SaaS where individual customer ARR is modest.

Customer Acquisition Cost (CAC)

CAC is the total sales and marketing cost required to acquire one new customer. It includes salaries, commissions, marketing spend, tooling, and overhead attributed to new logo acquisition — divided by the number of new customers added in the same period. CAC is the input to both CAC Payback Period and LTV:CAC ratio, making it the root metric for GTM efficiency analysis.

CAC Payback Period

CAC Payback Period is the number of months it takes for gross profit generated by a new customer to cover the cost of acquiring that customer. It measures capital efficiency of growth: a 12-month payback means the company recovers its acquisition investment in one year and the customer becomes purely profitable from month 13. Lower is better.

Deep dive: CAC Payback Period benchmarks → · Compare across public SaaS →

Magic Number

The Magic Number measures sales efficiency: how many dollars of annualized new ARR each dollar of sales and marketing spend generates. A Magic Number above 1.0 means the company generates more than $1 of ARR for every $1 it spends on growth — a strong signal to accelerate investment. Below 0.5 suggests structural GTM inefficiency.

Burn Multiple

Burn Multiple, popularized by David Sacks at Craft Ventures, measures how many dollars a company burns to generate each dollar of Net New ARR. It is a capital efficiency metric that penalizes companies for spending excessively to grow. Unlike the Magic Number, it captures total burn — not just sales and marketing — making it a holistic measure of growth efficiency. Investors use it to assess whether growth is being bought or earned.

Annual Contract Value (ACV)

ACV is the average annualized revenue value of a contract. Unlike ARR, which is the total across all customers, ACV is the per-deal measure. Companies with high ACV sell enterprise; companies with low ACV sell SMB or PLG. ACV determines sales motion: low-ACV products ($1K–$10K) require inbound or product-led growth; high-ACV deals ($100K+) require enterprise sales cycles with dedicated AEs and SEs.

Customer Lifetime Value (LTV)

LTV is the total gross profit a company expects to generate from a customer over the entire relationship. It accounts for the customer's ACV, gross margin on that revenue, and the expected duration of the relationship (determined by churn rate). LTV is only meaningful relative to CAC — together they form the LTV:CAC ratio, the canonical unit economics test.

LTV:CAC Ratio

The LTV:CAC ratio compares the expected lifetime value of a customer to what it costs to acquire them. A 3:1 ratio means every $1 spent on acquisition generates $3 of lifetime gross profit — the traditional benchmark for a healthy SaaS business. Below 1:1 means the company is structurally destroying value on every customer. Above 5:1 often signals underinvestment in growth.

Gross Margin

Gross margin is revenue minus cost of goods sold (COGS), expressed as a percentage of revenue. In SaaS, COGS primarily includes cloud infrastructure (AWS, GCP, Azure), customer support, and professional services. Gross margin is the ceiling on all future profitability — every dollar of operating expense must come out of gross profit. Pure-play software companies consistently achieve 70–85% gross margins; infrastructure or payments-adjacent SaaS runs 45–65%.

Deep dive: Gross Margin benchmarks → · Compare gross margins across public SaaS →

FCF Margin (Free Cash Flow Margin)

FCF margin is free cash flow as a percentage of revenue. Free cash flow equals operating cash flow minus capital expenditures. Unlike GAAP net income, FCF is not distorted by stock-based compensation accounting — it represents the actual cash the business generates after funding its operations. For SaaS companies with large SBC charges, FCF margin is a significantly more reliable measure of economic earnings than GAAP operating margin.

Deep dive: FCF Margin benchmarks → · Compare FCF margins →

Rule of 40

The Rule of 40 is the most widely used SaaS health benchmark. It states that a company's revenue growth rate plus its profit margin should equal or exceed 40. It elegantly captures the core trade-off in SaaS: growth costs money, so companies at different growth stages can be compared on equal footing. A company growing 50% and burning at −15% FCF margin scores 35 — below 40, signaling the growth isn't quite efficient enough to justify the burn. A company growing 20% with 25% FCF margin scores 45 — above 40, demonstrating durable, profitable growth.

Deep dive: Rule of 40 benchmarks → · Compare Rule of 40 scores across public SaaS →

EV / Revenue Multiple

The EV/Revenue multiple (Enterprise Value divided by trailing twelve-month revenue) is the standard valuation benchmark for SaaS companies, most of which carry limited tangible assets and are not yet profitable on a GAAP basis. It reflects the market's expectation of future revenue growth and margin expansion. A 10x EV/Revenue multiple implies the market believes revenue will grow significantly and that substantial profit margins will emerge over time. Multiples compress when growth slows, when interest rates rise, or when profitability disappoints.

Deep dive: EV/Revenue multiple → · Compare EV/Revenue multiples →

EV / NTM Revenue

EV/NTM Revenue uses next-twelve-month (NTM) consensus revenue estimates as the denominator instead of trailing revenue. Because SaaS companies are valued on forward expectations, NTM multiples are often lower than TTM multiples — the market is pricing in anticipated growth. High-growth companies trading at 15× TTM might trade at 10× NTM if the market expects 50% growth. NTM multiples are the preferred measure for cross-company comparisons in a high-growth cohort.