{"id":31443,"date":"2025-05-01T06:27:48","date_gmt":"2025-05-01T11:27:48","guid":{"rendered":"https:\/\/breakingintowallstreet.com\/?post_type=biws_kb&#038;p=31443"},"modified":"2025-07-02T06:58:23","modified_gmt":"2025-07-02T11:58:23","slug":"saas-metrics","status":"publish","type":"biws_kb","link":"https:\/\/breakingintowallstreet.com\/kb\/venture-capital\/saas-metrics\/","title":{"rendered":"SaaS Metrics: Definitions, Excel Examples, and Real-World Uses"},"content":{"rendered":"<blockquote><p><strong>SaaS Metrics Definition:<\/strong> \u201cMetrics\u201d for software-as-a-service (SaaS) companies are numbers that tell you how quickly these firms are growing, how efficiently they\u2019re operating and winning customers, and how appealing they are to investors; these metrics often influence their valuations directly.<\/p><\/blockquote>\n<p>The \u201cSoftware as a Service\u201d (SaaS) category includes software companies that offer their products as online subscription services. The most famous example is Salesforce.com, but virtually every software company today, large and small, uses a variation of this business model.<\/p>\n<p>Since <a href=\"https:\/\/breakingintowallstreet.com\/kb\/accounting\/cash-flow-statement\/\" target=\"_blank\" rel=\"noopener\">cash flow<\/a> and fundraising are <strong>key concerns<\/strong> for <a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/startup-valuation\/\" target=\"_blank\" rel=\"noopener\">early-stage startups<\/a>, you use SaaS metrics to evaluate how long it takes a company to repay its sales &amp; marketing expenses, how well it retains customers, and more.<\/p>\n<p>Some of the most important SaaS metrics include <a href=\"https:\/\/breakingintowallstreet.com\/kb\/venture-capital\/annual-recurring-revenue-arr\" target=\"_blank\" rel=\"noopener\">Annual Recurring Revenue (ARR)<\/a>, Customer Lifetime Value (LTV), Customer Acquisition Costs (CAC), the <a href=\"https:\/\/www.youtube.com\/watch?v=WPk2iExiiyg\" target=\"_blank\" rel=\"noopener\">LTV \/ CAC<\/a> ratio, and the CAC Payback Period.<\/p>\n<p>Traditional \u201cefficiency metrics\u201d like <a href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/return-on-equity-roe\/\" target=\"_blank\" rel=\"noopener\">Return on Equity (ROE)<\/a>, <a href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/roic-return-on-invested-capital\/\" target=\"_blank\" rel=\"noopener\">Return on Invested Capital (ROIC)<\/a>, and <a href=\"https:\/\/breakingintowallstreet.com\/kb\/financial-statement-analysis\/roic-return-on-invested-capital\/\" target=\"_blank\" rel=\"noopener\">Return on Assets (ROA)<\/a> are often negative for startups and growth companies, so they\u2019re rarely useful in this space.<\/p>\n<p>Meanwhile, large public SaaS companies may not disclose enough data to calculate these metrics, especially when it comes to sales &amp; marketing. For example, finding the spending split by new vs. renewal customers is difficult.<\/p>\n<p>So, unless you get very lucky, please remember that most of these SaaS metrics are practical only for early-stage startups and growth companies that <em>have provided you with all the required information.<\/em><\/p>\n<h3><strong>Files &amp; Resources:<\/strong><\/h3>\n<ul>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Startups-VC\/SaaS-Metrics-Slides.pdf\" target=\"_blank\" rel=\"noopener\">SaaS Metrics Overview &#8211; Presentation Slides (PDF)<\/a><\/li>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Startups-VC\/SaaS-Metrics.xlsx\" target=\"_blank\" rel=\"noopener\">SaaS Metrics Overview File Corresponding to Video (XL)<\/a><\/li>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Startups-VC\/Annual-Recurring-Revenue-ARR.xlsx\" target=\"_blank\" rel=\"noopener\">Annual Recurring Revenue (ARR) &#8211; Simple Examples (XL)<\/a><\/li>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Startups-VC\/Net-Revenue-Retention\/Net-Revenue-Retention-Examples.xlsx\" target=\"_blank\" rel=\"noopener\">Net Revenue Retention Examples (XL)<\/a><\/li>\n<li><a href=\"https:\/\/youtube-breakingintowallstreet-com.s3.us-east-1.amazonaws.com\/Startups-VC\/SaaS-Accounting.xlsx\" target=\"_blank\" rel=\"noopener\">SaaS Accounting &#8211; Simple Model (XL)<\/a><\/li>\n<\/ul>\n<h3><strong>Video Table of Contents:<\/strong><\/h3>\n<ul>\n<li><strong>0:00:<\/strong> Introduction<\/li>\n<li><strong>1:16:<\/strong> The Short Answer<\/li>\n<li><strong>5:44:<\/strong> Part 1: Why the \u201cLifetime Value\u201d Calculation is Tricky<\/li>\n<li><strong>13:32:<\/strong> Part 2: Calculating Customer Acquisition Costs (CAC)<\/li>\n<li><strong>15:30:<\/strong> Part 3: Is LTV \/ CAC Useful or Deceptive?<\/li>\n<li><strong>19:52:<\/strong> Part 4: A Better Alternative: CAC Payback Periods<\/li>\n<li><strong>23:32:<\/strong> Part 5: Other Common SaaS Metrics<\/li>\n<li><strong>26:43:<\/strong> Recap and Summary<\/li>\n<\/ul>\n<h2><strong>SaaS Metric #1: Annual(ized) Recurring Revenue (ARR)<\/strong><\/h2>\n<p>The \u201c<a href=\"https:\/\/breakingintowallstreet.com\/kb\/venture-capital\/annual-recurring-revenue-arr\/\" target=\"_blank\" rel=\"noopener\">Annual Recurring Revenue<\/a>\u201d or \u201cAnnualized Recurring Revenue\u201d (ARR) is one of the most important Saas metrics since it directly measures the company\u2019s growth from its <em>core business<\/em>.<\/p>\n<p>For a SaaS company, the \u201ccore business\u201d means \u201csubscription revenue,\u201d rather than sales from one-time licenses, professional services, consulting, or other sources.<\/p>\n<p>There\u2019s nothing inherently wrong with earning money from these sources, but they\u2019re considered less valuable than subscription revenue because they are more difficult to predict and tend to fluctuate significantly in each period.<\/p>\n<p>ARR is calculated based on the subscription revenue from the most recent month or quarter, multiplied by 12 or 4 to get an annual figure.<\/p>\n<p>Investors like ARR because they tend to value\u00a0recurring revenue\u00a0at\u00a0<a href=\"https:\/\/breakingintowallstreet.com\/kb\/valuation\/valuation-multiples\/\" target=\"_blank\" rel=\"noopener\">higher valuation multiples<\/a>\u00a0than non-recurring revenue.<\/p>\n<p>In the example below, to calculate ARR, we take the Subscription Revenue from one quarter and multiply it by 4 to get the annualized number.<\/p>\n<p>We exclude the Professional Service and Perpetual License revenue because they are\u00a0<strong>non-recurring<\/strong>\u00a0and require customers to make separate purchases each time rather than renewing their existing subscriptions:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31445 size-full\" title=\"ARR Calculation\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065500\/01-ARR-Calculation.jpg\" alt=\"ARR Calculation\" width=\"1738\" height=\"998\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065500\/01-ARR-Calculation.jpg 1738w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065500\/01-ARR-Calculation-300x172.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065500\/01-ARR-Calculation-1024x588.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065500\/01-ARR-Calculation-768x441.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065500\/01-ARR-Calculation-1536x882.jpg 1536w\" sizes=\"(max-width: 1738px) 100vw, 1738px\" \/><\/p>\n<h2><strong>SaaS Metric #2: Customer Lifetime Value (CLTV or LTV)<\/strong><\/h2>\n<p>Customer lifetime value (LTV) measures the total Gross Profits a SaaS company can expect to generate from the average customer over their subscription term.<\/p>\n<p>For example, if the average customer stays subscribed for 5 years and pays $100 per year, which the company earns an 80% Gross Margin on, the LTV is 5 * $100 * 80% = $400.<\/p>\n<p><strong>This sounds simple to calculate, but it\u2019s very tricky in practice because no one agrees on how to estimate a customer\u2019s \u201caverage lifespan\u201d \u2013 particularly for startups with limited operating histories.<\/strong><\/p>\n<p>Some people suggest using a formula based on the Churn Rate or Cancellation Rate:<\/p>\n<p>Average Customer Lifespan = 1 \/ Average Cancellation Rate<\/p>\n<p>For example, if 10% of customers cancel each year, the average customer should stay with the company for 1 \/ 10% = 10 years.<\/p>\n<p>However, this does not always hold up in real life because cancellation rates change over time as companies and markets evolve.<\/p>\n<p><strong>You should apply an additional discount for startups and growth companies due to their limited operating histories and reduced visibility. <\/strong><\/p>\n<p>One easy method is to add the company\u2019s <strong>estimated Discount Rate<\/strong> in the denominator of the formula:<\/p>\n<p>Average Customer Lifespan = 1 \/ (Average Cancellation Rate + Discount Rate)<\/p>\n<p>For example, if you\u2019re analyzing a growth company with a 10% cancellation rate and an approximate 20% Discount Rate due to its high risk and limited operating history, the formula would be:<\/p>\n<p>Average Customer Lifespan = 1 \/ (10% + 20%) = 3.3 years.<\/p>\n<p>While this may seem like a dramatic reduction, it\u2019s reasonable if the company has only 5 or 7 years of operating history. That\u2019s not enough time to decide whether a 10-year average lifespan is plausible.<\/p>\n<p>To estimate the average customer payment each year, you can take the current average payment, increase it by the average price increase per year, and add up the numbers over this 3.3-year period.<\/p>\n<p>You normally multiply by the average Gross Margin to account for costs such as customer support, infrastructure, bandwidth, and payment processing.<\/p>\n<p>So, the LTV metric is linked to the company\u2019s <em>Gross Profit<\/em> rather than its <em>Revenue<\/em>.<\/p>\n<p>Here\u2019s an example calculation for a large\/public company (Confluent):<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31446 size-full\" title=\"LTV Calculation\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065525\/02-LTV-Calculation.jpg\" alt=\"LTV Calculation\" width=\"1488\" height=\"596\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065525\/02-LTV-Calculation.jpg 1488w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065525\/02-LTV-Calculation-300x120.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065525\/02-LTV-Calculation-1024x410.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065525\/02-LTV-Calculation-768x308.jpg 768w\" sizes=\"(max-width: 1488px) 100vw, 1488px\" \/><\/p>\n<p>In this case, a \u201cContract Cycle\u201d means \u201c1 year\u201d because Confluent sells annual subscriptions.<\/p>\n<p>If it sold 2-year subscriptions, we\u2019d have to multiply the Average Annual Contract Value (ACV) by 2 to determine the income per \u201cContract Cycle\u201d and then multiply by the number of cycles to get the Average Lifetime Revenue Contribution.<\/p>\n<h2><strong>SaaS Metric #3: Customer Acquisition Costs (CAC)<\/strong><\/h2>\n<p>Because SaaS companies <strong>lose customers<\/strong> each year, they must <strong>win new customers<\/strong> to offset their losses and grow to higher revenue levels.<\/p>\n<p>Therefore, one of the most important SaaS metrics is \u201cCustomer Acquisition Costs,\u201d also called CAC.<\/p>\n<p>If you have detailed budget information from the company, calculating the CAC is straightforward; if not, it requires significant guesswork.<\/p>\n<p>Customer Acquisition Costs should include the following expenses:<\/p>\n<ul>\n<li>Marketing salaries and benefits (ideally, only those linked to new customers rather than retention).<\/li>\n<li>Paid advertising and lead generation.<\/li>\n<li>Onboarding and hiring expenses for sales reps dedicated to winning new customers.<\/li>\n<li>Commissions paid to sales reps who win new customers.<\/li>\n<li>Salaries, bonuses, benefits, and travel expenses for sales reps associated with new customers.<\/li>\n<li>The value of executives\u2019 time spent acquiring new customers (e.g., if the CEO needs to attend a meeting to win a deal).<\/li>\n<\/ul>\n<p>Here\u2019s a simple breakout for an early-stage startup:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31447 size-full\" title=\"CAC Calculation\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065550\/03-CAC-Calculation.jpg\" alt=\"CAC Calculation\" width=\"1576\" height=\"420\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065550\/03-CAC-Calculation.jpg 1576w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065550\/03-CAC-Calculation-300x80.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065550\/03-CAC-Calculation-1024x273.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065550\/03-CAC-Calculation-768x205.jpg 768w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065550\/03-CAC-Calculation-1536x409.jpg 1536w\" sizes=\"(max-width: 1576px) 100vw, 1576px\" \/><\/p>\n<p>Of course, this type of detailed calculation is <strong>unrealistic<\/strong> for large public companies because they do not disclose their expenses in this much detail.<\/p>\n<p>At best, you might be able to say that certain percentages of the total Sales &amp; Marketing are for new vs. renewal customers.<\/p>\n<p>For example, some surveys say 2\/3 to 3\/4 of S&amp;M spending is dedicated to winning new customers at the average enterprise SaaS firm.<\/p>\n<p>We make a CAC estimate for Confluent based on a similar 2\/3 estimate for new customer sales &amp; marketing spending:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31448 size-full\" title=\"Confluence - Customer Acquisition Costs (CAC)\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065616\/04-Confluence-CAC.jpg\" alt=\"Confluence - Customer Acquisition Costs (CAC)\" width=\"1482\" height=\"770\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065616\/04-Confluence-CAC.jpg 1482w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065616\/04-Confluence-CAC-300x156.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065616\/04-Confluence-CAC-1024x532.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065616\/04-Confluence-CAC-768x399.jpg 768w\" sizes=\"(max-width: 1482px) 100vw, 1482px\" \/><\/p>\n<p>To calculate the average CAC per customer, you can divide this number by the total number of new customers in the period.<\/p>\n<h2><strong>SaaS Metric #4: LTV \/ CAC Ratio<\/strong><\/h2>\n<p>Once you\u2019ve calculated the average Customer Lifetime Value and average Customer Acquisition Costs for a SaaS company, you can combine them to get the <strong>LTV \/ CAC Ratio<\/strong>.<\/p>\n<p>This metric is very important because it tells you how much the company earns over the long term for each $1.00 spent to acquire a new customer.<\/p>\n<p><strong>Higher numbers are generally better, but only within reason.<\/strong><\/p>\n<p>For example, a 3x LTV \/ CAC is better than a 2x LTV \/ CAC, but a 10x LTV \/ CAC is unrealistically high in most cases.<\/p>\n<p>It would raise questions about the company\u2019s internal calculations and whether its recordkeeping is accurate.<\/p>\n<p>Here\u2019s the LTV \/ CAC calculation for Confluent:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31449 size-full\" title=\"Confluence - LTV \/ CAC Ratio\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065641\/05-Confluent-LTV-CAC.jpg\" alt=\"Confluence - LTV \/ CAC Ratio\" width=\"1508\" height=\"914\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065641\/05-Confluent-LTV-CAC.jpg 1508w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065641\/05-Confluent-LTV-CAC-300x182.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065641\/05-Confluent-LTV-CAC-1024x621.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065641\/05-Confluent-LTV-CAC-768x465.jpg 768w\" sizes=\"(max-width: 1508px) 100vw, 1508px\" \/><\/p>\n<p>The first LTV \/ CAC is 3.9x, and the second is 2.1x.<\/p>\n<p>These are reasonable numbers, but the big difference in just two years raises questions about the company\u2019s Sales &amp; Marketing spending, as that change drives most of the difference in this LTV \/ CAC metric.<\/p>\n<p>Smaller startups often report much higher LTV \/ CAC ratios because their estimates for the \u201clifetime value\u201d of customers and their average lifespans are unrealistic.<\/p>\n<p><strong>Remember that these metrics should be discounted for any company with a limited operating history.<\/strong><\/p>\n<h2><strong>The Limitations of the LTV \/ CAC Ratio<\/strong><\/h2>\n<p>The main issues are described above: Startups have limited operating histories and tend to produce unreliable \u201clifetime value\u201d forecasts.<\/p>\n<p>If a company has only existed for 3 years, how can it confidently predict that an average customer will stay for 5 years based on a 20% annual cancellation rate?<\/p>\n<p>So, you should apply discount factors to all these metrics, and the earlier the company, the higher the appropriate discount factor.<\/p>\n<p>The LTV \/ CAC Ratio is best used as:<\/p>\n<ul>\n<li><strong>A Comparison \/ Benchmarking Metric<\/strong> \u2013 For example, it can tell you if one company is operating more or less efficiently than its peers.<\/li>\n<li><strong>A Budgeting Metric<\/strong> \u2013 If you\u2019re creating a budget or forecast for a startup, this metric can give you an idea of what the company must spend to grow to a certain level.<\/li>\n<\/ul>\n<p>Most public companies do not disclose their LTV \/ CAC, so you must rely on metrics such as Gross and <a href=\"https:\/\/breakingintowallstreet.com\/kb\/venture-capital\/net-revenue-retention-nrr\/\" target=\"_blank\" rel=\"noopener\">Net Revenue Retention<\/a> instead.<\/p>\n<h2><strong>SaaS Metric #5: CAC Payback Period<\/strong><\/h2>\n<p>The\u00a0CAC\u00a0Payback Period measures the time a company takes to <strong>recover<\/strong> its initial sales &amp; marketing costs to win an \u201caverage\u201d new customer.<\/p>\n<p>For example, if a company spends $100K to acquire a new customer, and the company earns $10K per month in Gross Profits from this customer, the CAC Payback Period is:<\/p>\n<p>$100K \/ $10K = 10 months<\/p>\n<p>The CAC Payback Period focuses on <strong>short-term performance<\/strong>, so it is more reliable than the Customer Lifetime Value (CLTV) or LTV \/ CAC metrics, which require forecasts many years into the future.<\/p>\n<p>Customer retention and cancellation rates do not factor in at all, making this metric more reliable.<\/p>\n<p>If you have a simple monthly model for a SaaS startup or growth company, you can calculate it as follows:<\/p>\n<p><strong>CAC Payback Period = Average Monthly CAC \/ Average Net New MRR<\/strong><\/p>\n<p>The \u201cAverage Monthly CAC\u201d is the total Customer Acquisition Costs (defined above) divided by the number of new customers won that month.<\/p>\n<p>The \u201cNet New MRR\u201d or \u201cNet New Monthly Recurring Revenue\u201d is normally defined as:<\/p>\n<p>Net New Monthly Recurring Revenue = (Additional Monthly Subscription Revenue from New Customers \u2013 Lost Monthly Subscription Revenue from Cancelling Customers) * Gross Margin %<\/p>\n<p><strong>In other words, you <em>exclude<\/em> additional revenue from price increases and seat expansions and focus on only *new* customer revenue and *lost\/cancelled\/downgraded* revenue.<\/strong><\/p>\n<p>Here\u2019s a simple calculation for a startup with a quarterly model:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31450 size-full\" title=\"Net New Monthly Recurring Revenue (MRR) Calculation\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065718\/06-Net-New-MRR.jpg\" alt=\"Net New Monthly Recurring Revenue (MRR) Calculation\" width=\"905\" height=\"454\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065718\/06-Net-New-MRR.jpg 905w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065718\/06-Net-New-MRR-300x150.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065718\/06-Net-New-MRR-768x385.jpg 768w\" sizes=\"(max-width: 905px) 100vw, 905px\" \/><\/p>\n<p>Since this is a quarterly model, the \u201cNet New MRR\u201d here is more like the <em>monthly average in this specific quarter<\/em>.<\/p>\n<p>The CAC Payback Period is then based on the Monthly Customer Acquisition Costs \/ Net New MRR.<\/p>\n<p>We need to divide the Total CAC figure here by 3 because this is a <em>quarterly model<\/em>, but we are calculating <em>monthly<\/em> numbers:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31451 size-full\" title=\"CAC Payback Period Calculation\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065749\/07-CAC-Payback-Period.jpg\" alt=\"CAC Payback Period Calculation\" width=\"897\" height=\"446\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065749\/07-CAC-Payback-Period.jpg 897w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065749\/07-CAC-Payback-Period-300x149.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065749\/07-CAC-Payback-Period-768x382.jpg 768w\" sizes=\"(max-width: 897px) 100vw, 897px\" \/><\/p>\n<p>The Average CAC Payback Period for this company varies, but the range is about 3 to 10 months over the quarters shown here:<\/p>\n<p><img decoding=\"async\" class=\"aligncenter wp-image-31452 size-full\" title=\"CAC Payback Period Range\" src=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065813\/08-CAC-Payback-Period-Range.jpg\" alt=\"CAC Payback Period Range\" width=\"1250\" height=\"119\" srcset=\"https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065813\/08-CAC-Payback-Period-Range.jpg 1250w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065813\/08-CAC-Payback-Period-Range-300x29.jpg 300w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065813\/08-CAC-Payback-Period-Range-1024x97.jpg 1024w, https:\/\/biwsuploads-assest.s3.amazonaws.com\/biws\/wp-content\/uploads\/2025\/05\/01065813\/08-CAC-Payback-Period-Range-768x73.jpg 768w\" sizes=\"(max-width: 1250px) 100vw, 1250px\" \/><\/p>\n<p>This is a healthy result because most SaaS companies aim for payback periods <strong>under 1 year.<\/strong><\/p>\n<p>There are some exceptions for companies with longer-term, higher-priced contracts, but firms generally want to recover their upfront sales &amp; marketing costs as quickly as possible; under 1 year is best for most enterprise SaaS companies.<\/p>\n<p>If we were analyzing a similar SaaS company with a longer CAC Payback Period, such as 10 \u2013 14 months, we would perceive that company as riskier and less efficient than the one shown here.<\/p>\n<p><strong>In addition to helping you assess the risk and efficiency of different firms, the CAC Payback Period is useful for determining companies\u2019 funding needs.<\/strong><\/p>\n<p>For example, if Company A needs 1 year to recover its average sales &amp; marketing costs for each new customer, but Company B needs 2 years to do the same, Company B will probably have to raise funds more quickly.<\/p>\n<p>As with the CLTV and LTV \/ CAC metrics, it is very difficult to calculate the CAC Payback Period for large\/public SaaS companies because they do not disclose enough information in most cases.<\/p>\n<h2><strong>Other SaaS Metrics<\/strong><\/h2>\n<p>There are many other SaaS metrics, so we recommend reviewing the <a href=\"https:\/\/breakingintowallstreet.com\/kb\/venture-capital\/\" target=\"_blank\" rel=\"noopener\">Venture Capital &amp; Startup Modeling page<\/a> on this site to learn more.<\/p>\n<p>We have covered some of the most common and useful ones here, but you should also know about the differences between <a href=\"https:\/\/breakingintowallstreet.com\/kb\/venture-capital\/saas-accounting\/\" target=\"_blank\" rel=\"noopener\">Billings, Bookings, and Revenue,<\/a> and performance metrics such as \u201c<a href=\"https:\/\/breakingintowallstreet.com\/kb\/venture-capital\/rule-of-40\/\" target=\"_blank\" rel=\"noopener\">The Rule of 40<\/a>.\u201d<\/p>\n<p>You can find even more coverage and full models with walkthroughs in our full <a href=\"https:\/\/breakingintowallstreet.com\/venture-capital-modeling\/\" target=\"_blank\" rel=\"noopener\">Venture Capital &amp; Growth Equity Modeling course<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>\u201cMetrics\u201d for software-as-a-service (SaaS) companies are numbers that tell you how quickly these firms are growing, how efficiently they\u2019re operating and winning customers, and how appealing they are to investors; these metrics often influence their valuations directly.<\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-31443","biws_kb","type-biws_kb","status-publish","hentry","kb_category-venture-capital"],"acf":[],"_links":{"self":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb\/31443","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/biws_kb"}],"about":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/types\/biws_kb"}],"wp:attachment":[{"href":"https:\/\/breakingintowallstreet.com\/wp-json\/wp\/v2\/media?parent=31443"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}