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The 5 Revenue Metrics Every Founder Must Track


Founder's Playbook SeriesIndian Edition
H

HelloVC Team

October 2024 · 8 min read

Metrics

Most early-stage founders track too many metrics — or the wrong ones. This guide covers the five numbers that tell the complete story of a recurring revenue business. Know these cold, and you can walk into any investor conversation with confidence.

Metric 1 — MRR (Monthly Recurring Revenue)


MRR is the normalised monthly revenue from all active recurring subscriptions or contracts. It is the heartbeat of a SaaS business.

MRR Calculation

MRR = Sum of all active monthly subscription values

For annual contracts: ACV ÷ 12

For usage-based: average of last 3 months

Track MRR movements monthly: • New MRR: From new customers • Expansion MRR: Upgrades and upsells • Churned MRR: Lost to cancellations • Net New MRR = New + Expansion − Churned

MoM growth rate above 15% is strong at early stage. Above 25% is exceptional.

Metric 2 — Net Revenue Retention (NRR)


NRR measures how much revenue you retain from existing customers over a period — including expansions and excluding churned customers. It is the single most important metric for a SaaS business because it determines whether growth compounds or fights against a leaking bucket.

NRR Formula

NRR = (Starting MRR + Expansion MRR − Churned MRR) ÷ Starting MRR × 100

Benchmarks: • Below 80%: Critical — you are losing money faster than you are expanding • 80–100%: Stable but not compounding • 100–110%: Healthy — expansion offsets churn • 120%+: World class — your existing customers grow your business without new sales

Best-in-class SaaS companies (Snowflake, Datadog) run NRR above 130%.

Metric 3 — Churn Rate


Churn is the percentage of customers (or revenue) lost in a given period. There are two types:

  • Logo churn: % of customers who cancelled
  • Revenue churn: % of MRR that was lost

Monthly Churn Benchmarks

Consumer SaaS: Under 5% monthly is acceptable

SMB SaaS: Under 3% monthly (36% annualised)

Mid-market SaaS: Under 1.5% monthly

Enterprise SaaS: Under 0.75% monthly

High churn is almost never a marketing problem. It is a product-market fit problem. Do not spend on acquisition until you have fixed churn.

Metric 4 — CAC Payback Period


CAC Payback Period is how many months it takes to recover the cost of acquiring a customer. It tells you how capital-efficient your growth is.

CAC Payback Calculation

CAC = Total sales & marketing spend in month ÷ New customers acquired in month

CAC Payback = CAC ÷ (ARPU × Gross Margin %)

Benchmarks: • Under 12 months: Strong. You can self-fund growth relatively quickly. • 12–18 months: Acceptable. Common in SMB SaaS. • Above 24 months: Requires significant capital to grow. Enterprise models can sustain this — SMB models cannot.

VCs increasingly weight CAC payback over LTV:CAC because it reflects actual capital efficiency, not theoretical lifetime value.

Metric 5 — ARPU (Average Revenue Per User)


ARPU sets the economics of everything else. A low ARPU business needs either massive scale or extremely low CAC to be viable.

ARPU and Business Model Implications

ARPU below ₹500/month: Requires viral or near-zero CAC acquisition. Almost impossible to build with a sales team.

ARPU ₹500–₹5,000/month: SMB SaaS territory. Low-touch inside sales model.

ARPU ₹5,000–₹50,000/month: Mid-market. Inside sales and customer success required.

ARPU above ₹50,000/month: Enterprise. Requires field sales, long cycles, complex procurement.

If your ARPU is below ₹1,000/month, you need to either raise it or find a channel where CAC is under ₹500.

Track these five metrics in a simple dashboard that updates every month. The act of tracking forces clarity. The pattern that emerges tells you where to focus every 30 days.


HelloVC.inFinancial Modeling · October 2024
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