Module 1: The Metrics
MRR, churn rate, CAC, LTV, CAC payback, NRR — what each one actually means, the exact formulas, and the benchmarks that tell you whether you're healthy or bleeding. This module is the dashboard everything else in the course runs on.
MRR and the revenue dashboard
MRR — monthly recurring revenue — is the sum of all your subscription revenue normalized to one month. A customer paying $49/month counts $49. A customer paying $588/year counts $49 too ($588 ÷ 12). Add them all up and you have MRR: the single headline number of a SaaS business. Multiply by 12 and you get ARR, annual recurring revenue, the number investors quote.
But headline MRR hides movement. Break it into four flows every month: new MRR (brand-new customers), expansion MRR (existing customers paying more — upgrades, seats, usage), contraction MRR (existing customers paying less — downgrades), and churned MRR (customers who left entirely). Net new MRR = new + expansion − contraction − churned. If you only track the headline, you can't tell whether you're growing by winning or by churning slower.
Two rules. One: MRR only counts recurring revenue — one-time setup fees, services, and hardware don't belong. Mixing them in makes the number lie about the health of the subscription engine. Two: review the four flows monthly, not just the total. A business adding $10k in new MRR while losing $9k to churn is not growing — it's running in place at full sprint.
What 5% vs 2% monthly churn does to 200 customers over 12 months
Build brief
Calculate your MRR right now (or estimate it for your idea). Then break it into the four flows: new, expansion, contraction, churned. Which flow surprises you?
Saved
Churn: the leak that kills
Customer churn rate = customers lost in a period ÷ customers at the start of the period. Lose 8 of 200 customers in a month and monthly churn is 4%. Revenue churn rate = MRR lost ÷ MRR at the start. Both matter, but revenue churn matters more — losing one $500/month customer hurts five times more than losing five $20/month ones, and customer churn treats them the same.
Churn compounds brutally. At 5% monthly churn, you keep only about 54% of your customers after a year — nearly half the base evaporates and has to be replaced just to stand still. At 2% monthly, you keep about 78%. That three-point difference is the difference between a business that compounds and a business that treads water. This is why a small churn reduction beats a big acquisition win: it pays you every month, forever.
Benchmarks, roughly: monthly customer churn under 2% is strong for SMB SaaS; 2–4% is workable if acquisition is strong; above 5% and you have a leaky bucket that no marketing budget can fill. Enterprise SaaS runs lower (annual churn under 10% is the bar). And watch involuntary churn — failed credit card payments, not unhappy customers — which quietly accounts for a fifth to two-fifths of all churn in card-billed businesses. Module 4 has the full defense.
The leak, visualized
100 customers at 5% monthly churn
Built from the lesson's churn math — illustrative teaching example, not real results.
Build brief
What is your best guess at monthly customer churn — and monthly revenue churn? Write both numbers. You'll learn to lower them in Module 4.
Saved
CAC, LTV, and the unit economics
CAC — customer acquisition cost — = total sales and marketing spend in a period ÷ new customers acquired in that period. Spend $10,000 in a month and add 100 customers: CAC is $100. Include everything: ad spend, salaries, tools, the founder's time if they're doing sales. Understated CAC is how companies fool themselves into thinking unprofitable growth is working.
LTV — lifetime value — = ARPA × gross margin ÷ revenue churn rate. ARPA is average revenue per account (MRR ÷ customers). So a $50 ARPA, 80% gross margin, 4% monthly revenue churn business has an LTV of $50 × 0.80 ÷ 0.04 = $1,000. The two ratios that matter: LTV:CAC should be 3:1 or better (you earn three dollars for every dollar of acquisition), and CAC payback = CAC ÷ (ARPA × gross margin) should be under 12 months (you recover the acquisition cost within a year).
Then the king metric: NRR — net revenue retention — = (starting MRR + expansion − contraction − churned) ÷ starting MRR. NRR of 102% means your existing customers grew 2% with zero new sales. NRR above 100% is the promised land: the installed base grows itself, and every new customer is pure growth on top. Best-in-class SaaS runs 110–130%. If your NRR is under 90%, fix retention and expansion before spending another dollar on acquisition.
The numbers that matter
Build brief
Estimate your CAC and LTV using the formulas in this module. Is your LTV:CAC ratio above 3:1? If not, which side needs the work — cheaper acquisition or longer lifetimes?
Saved
A company starts the month at $50,000 MRR, loses $3,000 MRR to cancellations, and gains $5,000 MRR from upsells. What is the revenue churn rate?
Your turn: Build your metrics snapshot. Fill in what you know, mark what you need to find: MRR, customer churn %, revenue churn %, CAC, LTV, LTV:CAC ratio, NRR.
Saved.
Your next 24 hours
Open a spreadsheet and build the one-tab dashboard: MRR (four flows), churn %, CAC, LTV, NRR. Five rows. Fill in your best estimates today — exact numbers can come later, the habit starts now.
Steal this template
THE SAAS DASHBOARD — five-metric template
MRR: $___ (new $___ / expansion $___ / contraction $___ / churned $___)
Customer churn: ___% · Revenue churn: ___%
CAC: $___ · LTV: $___ · LTV:CAC: ___:1
CAC payback: ___ months (target: under 12)
NRR: ___% (target: over 100%)
☐ Updated monthly, reviewed with the team
Cheat sheet
- MRR = sum of subscription revenue normalized monthly. ARR = MRR × 12.
- Net new MRR = new + expansion − contraction − churned.
- Customer churn = lost customers ÷ starting customers. Revenue churn = lost MRR ÷ starting MRR.
- At 5% monthly churn you keep ~54% of customers after a year; at 2% you keep ~78%.
- LTV = ARPA × gross margin ÷ revenue churn rate. Target LTV:CAC ≥ 3:1.
- NRR = (starting MRR + expansion − contraction − churned) ÷ starting MRR. Over 100% is the goal.