SaaS Metrics Glossary
The metrics that distinguish a healthy SaaS business from a leaky one. Includes the definitional disagreements that affect cross-company comparisons.
Logo churn vs. revenue churn
Logo (or customer) churn measures the percentage of customers who left in a period. Revenue churn (also gross dollar churn) measures the percentage of recurring revenue that left in the same period. The two diverge when high-revenue and low-revenue customers churn at different rates. SMB-heavy businesses typically have higher logo churn than revenue churn (small accounts churn more); enterprise businesses often have the opposite — fewer logos lost, but each loss carries large revenue.
Both metrics matter. Logo churn is the leading indicator of fit; high logo churn signals product or onboarding problems even in a business where revenue churn looks acceptable. Revenue churn drives the financial model. Reporting both, by segment, gives an honest picture.
Net dollar churn (and net revenue retention)
Net dollar churn includes contraction and churn but subtracts expansion. A company with 8% gross dollar churn and 15% expansion has net negative churn of −7% — the existing base grew on its own. Net dollar churn equals 100% minus NRR (so NRR of 120% is net dollar churn of −20%). Investors prefer the NRR framing because larger numbers are healthier; operators sometimes prefer net churn because it's directional (negative is good).
Cohort retention
Cohort analysis groups customers by acquisition period and tracks each group's behavior over time. Retention curves typically show heavy early-period churn that flattens (or doesn't) into a long-run "smile" curve. Healthy products show curves that flatten quickly; weak products show steady erosion that doesn't stabilize.
Cohort analysis reveals what aggregate churn cannot: whether new cohorts are improving (better acquisition or product-market fit) or degrading (worse fit, broader funnel pulling in less qualified customers). It's also the right way to validate LTV — cohort revenue out N months projected forward gives an empirical LTV estimate, more reliable than the standard LTV formula.
Expansion revenue
Expansion is revenue added from existing customers in a period: more seats on the same plan, upgrades to higher-priced tiers, additional products purchased, or usage-based revenue exceeding committed minimums. In healthy SaaS businesses, expansion is the largest single source of new ARR — often more than new-logo bookings. Public SaaS companies typically derive 30-50% of new ARR from expansion; the strongest businesses exceed 50%.
Expansion is more efficient than new-logo acquisition because the customer is already proven (no acquisition cost) and trust is established (shorter cycle). Companies that build expansion motions deliberately — usage-based pricing, multi-product strategies, dedicated CS teams driving upsell — compound much faster than companies that rely on new-logo acquisition for all growth.
Magic number
The Magic Number is the most-cited SaaS GTM efficiency metric. A value above 1.0 means each dollar of S&M is generating more than a dollar of annualized new ARR — healthy. Above 1.5 is excellent; below 0.75 suggests scaling more S&M won't proportionally increase ARR. The metric was popularized by SaaStr and is now standard in board decks and earnings disclosures.
Magic Number's main limitation: it doesn't distinguish new-logo ARR from expansion ARR. Companies with strong expansion can post good Magic Number while spending little on net-new acquisition; companies dependent on new-logo growth need to separate the two to know whether their go-to-market is actually working.
Rule of 40
The Rule of 40 is a SaaS rule of thumb: a healthy business should sum to at least 40 between its growth rate and its profit margin (typically operating margin or FCF margin). A company growing 60% with a −20% margin (sum: 40) is healthy; one growing 15% with 25% margin (sum: 40) is also healthy; one growing 30% with −20% margin (sum: 10) is not.
The rule captures the trade-off between growth and profitability — fast-growing companies are expected to spend their way to growth; mature companies are expected to convert growth to margin. Companies sustaining 40+ at scale (Salesforce, ServiceNow at various points) command premium valuations. Companies sitting persistently below 40 are valued more like traditional software businesses, which is to say, less.
CAC payback period
CAC payback measures how quickly a customer's gross profit covers the cost to acquire them. A 12-month payback means each new customer covers their CAC in their first year of revenue. Industry benchmarks: under 12 months for SMB SaaS, under 18 months for mid-market, under 24 months for enterprise. Faster payback means less working capital tied up in growth and lower funding requirements as the company scales.
CAC payback is a cash-flow metric; LTV:CAC is a profitability metric. They can disagree: a high-LTV customer with a long payback is profitable but cash-hungry. See the LTV:CAC calculator for both calculations.
Quick ratio (SaaS)
The SaaS quick ratio (different from the accounting quick ratio) measures growth additions against retention losses. A quick ratio above 4 indicates strong growth relative to churn; below 1 means the business is shrinking. Public SaaS leaders typically post 3-6; struggling businesses sit below 1.
Quick ratio is useful as a single-number health check that captures both top-line growth and retention quality. Its weakness: it doesn't distinguish whether growth is coming from cheap new-logo acquisition or expensive sales-led expansion. Pair with Magic Number for an efficiency view.
ARPU / ARPA / ARPC
Average revenue per user (ARPU), per account (ARPA), and per customer (ARPC) all measure the same thing — recurring revenue divided by a count of users, accounts, or customers — at slightly different units. Consumer apps typically use ARPU (revenue per individual user); B2B SaaS typically uses ARPA or ARPC (revenue per company). Choosing the right unit matters: a B2B tool with seat-based pricing has a higher ARPC than ARPU because there are multiple seats per customer.
Trending ARPU/ARPA/ARPC is one of the cleanest signals of segment shift. Rising ARPC usually means the company is moving upmarket (acquiring larger customers); falling ARPC means moving down or successfully expanding into smaller segments. Either is a strategic decision, and the metric makes it visible.
Bookings, billings, and revenue
The three metrics measure different points in the contract lifecycle. Bookings is the value of contracts signed in the period — leading indicator of future revenue, often quoted as TCV or ACV. Billings is what was actually invoiced (regardless of recognition timing) — closer to cash. Revenue is what's recognized in the period under accrual accounting (ASC 606), spread over the contract life for subscription deals.
For a 12-month, $120,000 SaaS contract billed annually upfront and signed on December 15: bookings = $120K in Dec, billings = $120K in Dec (when invoiced), revenue = $5K in Dec (half a month) and $115K spread across the next 12 months. The three metrics often disagree dramatically in growing SaaS businesses; investors care about all three for different reasons.
LTV / CAC ratio
The LTV:CAC ratio is the single most common SaaS unit-economics measure. Above 3× is acceptable; above 5× is strong; above 10× usually indicates underinvestment in growth. The ratio is sensitive to the inputs — LTV depends on a churn assumption that's typically forecasted; CAC depends on what's included in the numerator (paid spend only, or fully-loaded sales and marketing). Two companies with apparently similar ratios can be very different businesses depending on these methodological choices.
See the LTV calculator and CAC calculator for the inputs, and the LTV:CAC calculator for the combined metric with payback.