SaaS Metrics Glossary: Key Growth and Finance Terms Defined
Lightbridge maintains this SaaS metrics glossary as a vendor-neutral reference for founders, CFOs, and RevOps leaders. Each entry defines one SaaS growth or finance metric in one to three sentences, with the formula where one exists, grouped into recurring revenue, retention and churn, unit economics, and growth efficiency.
Lightbridge treats SaaS metrics as conventions, not accounting standards.
The figures on this page are SaaS-finance conventions. ARR, NRR, CAC, LTV, the Rule of 40, and the rest carry variable definitions across companies, investors, and boards, and none is required by GAAP, FASB, or any accounting standard. Two teams can compute the same metric differently and both be defensible, which is why every entry below states its formula and its assumptions.
Recurring revenue and billing sit closer to formal accounting. Where these metrics touch how revenue is contracted, billed, and recognized, Lightbridge ERP owns the governed detail: see subscription billing models, deferred revenue, and ASC 606 revenue recognition. Those pages cover the standards; this one covers the growth metrics that sit on top of them.
For deeper treatment of single metrics, Lightbridge maintains companion guides on annual recurring revenue, net revenue retention versus gross revenue retention, and SaaS unit economics. This glossary is the index; those pages go to depth.
Recurring revenue metrics, defined by Lightbridge
These metrics size the predictable, subscription portion of a SaaS business. Lightbridge uses them across its cross-entity growth-finance advisory.
ARR (Annual Recurring Revenue)
ARR is the normalized annualized value of a SaaS company's recurring subscription revenue, calculated as ARR = MRR x 12. It counts contractual recurring revenue only and excludes one-time setup, implementation, and professional-services fees. Non-contractual variable usage is excluded, but committed or contractual usage minimums can be included.
MRR (Monthly Recurring Revenue)
MRR is the sum of a SaaS company's normalized monthly recurring subscription revenue. Annual or multi-year contracts are normalized to a monthly figure, and one-time fees are excluded. MRR is the base unit from which ARR (MRR x 12) and most retention metrics are built.
ARPA (Average Revenue Per Account)
ARPA is recurring revenue divided by the number of accounts in a period, usually expressed monthly. It feeds lifetime-value and payback math. The same idea appears as ARPU (per user) and ARPC (per customer); pick one denominator and apply it consistently.
ACV (Annual Contract Value)
ACV is the average annualized value of a customer contract, normalizing a multi-year deal to a per-year figure. Definitions vary on whether one-time fees are included, so state your convention. ACV describes contract size, while ARR describes the recurring revenue base.
TCV (Total Contract Value)
TCV is the total value of a contract across its entire term, including recurring fees plus any one-time charges. A three-year deal has a TCV roughly three times its ACV. TCV is a bookings and sales metric, not a recurring-revenue metric.
Expansion and contraction revenue
Expansion revenue is added recurring revenue from existing customers through upsell, cross-sell, or seat growth. Contraction revenue is reduced recurring revenue from existing customers through downgrades or seat reductions, short of full cancellation. Both flow into retention metrics.
Retention and churn metrics, defined by Lightbridge
These metrics measure how much revenue and how many customers a SaaS company keeps, expands, and loses over a period.
NRR / NDR (Net Revenue Retention)
Net Revenue Retention, also called Net Dollar Retention, measures recurring revenue retained from a starting cohort including expansion. The formula is NRR = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR. Because it includes expansion, NRR can exceed 100%, which signals a cohort that grows even before new logos.
GRR (Gross Revenue Retention)
Gross Revenue Retention measures recurring revenue retained from a starting cohort, excluding expansion. The formula is GRR = (Starting MRR - Contraction - Churn) / Starting MRR. Because expansion is excluded, GRR is capped at 100% and floored at 0%, so it isolates pure leakage.
Revenue churn rate
Revenue churn is the percentage of recurring revenue lost from existing customers over a period, calculated as Revenue churn = (Contraction + Churned MRR) / Starting MRR for that period. Always state the period (monthly or annual), since the two are not interchangeable.
Logo churn (customer churn) rate
Logo churn, also called customer churn, is the percentage of customers lost over a period, calculated as Logo churn = Customers lost in period / Customers at start of period. It counts accounts, not dollars, so a company can have low logo churn yet high revenue churn if its largest accounts leave.
SaaS unit economics metrics, defined by Lightbridge
These metrics test whether acquiring a customer pays back. They are conventions with variable inputs, not accounting standards.
CAC (Customer Acquisition Cost)
CAC is the fully loaded sales-and-marketing cost to acquire a customer in a period, calculated as CAC = S&M spend in period / new customers acquired in that period. Definitions vary on which costs load in (salaries, tooling, overhead), so state the inclusions.
LTV (Customer Lifetime Value)
LTV is the gross-margin profit expected from a customer over their lifetime. A common convention is LTV = (ARPA x gross margin %) / churn rate. It is sensitive to the churn rate and margin you assume, so two analysts can compute very different LTVs from the same business; state the assumptions.
LTV:CAC ratio
The LTV:CAC ratio compares the lifetime value of a customer to the cost of acquiring one. A 3:1 ratio is a widely cited heuristic for healthy SaaS unit economics, not a GAAP standard or a guaranteed target. Because it inherits every LTV assumption, report it alongside the underlying churn and margin inputs.
CAC payback period
CAC payback is the number of months needed to recover acquisition cost from a customer's gross-margin contribution, calculated as CAC payback (months) = CAC / (ARPA x gross margin %). Shorter payback means capital recycles faster; many SaaS teams watch for payback under twelve to eighteen months.
Gross margin
Gross margin is revenue minus cost of goods sold, divided by revenue, expressed as a percentage. For SaaS, cost of goods sold centers on hosting, support, and delivery. Gross margin is an input to LTV and CAC payback, so an inflated margin assumption flatters both.
Payback period
Payback period is the general unit-economics concept of how long it takes to recover an upfront cost from the profit it generates. In SaaS it most often refers to CAC payback, but the same logic applies to any acquisition or expansion investment.
SaaS growth efficiency metrics, defined by Lightbridge
These metrics judge how efficiently a SaaS company converts spend and capital into durable growth.
Rule of 40
The Rule of 40 holds that a healthy SaaS company's revenue growth rate plus its profitability margin should be at least 40%. The profitability term is variable: this glossary defaults to EBITDA margin, with free-cash-flow margin common for mature companies and operating margin used less often. State which margin you use. The benchmark was popularized by Brad Feld in 2015.
SaaS magic number
The magic number measures sales efficiency, calculated as net new recurring revenue in a period divided by sales-and-marketing spend in the prior period. State your numerator (net-new-ARR delta versus GAAP-subscription-revenue delta), since both are in use and give different results. A magic number around 0.75 or above is a common efficiency heuristic.
Burn multiple
The burn multiple measures how much cash a company burns to generate growth, calculated as net cash burned / net new ARR. Introduced by David Sacks, it captures capital efficiency in a single figure where lower is better; under 1.0 is strong and above 2.0 warrants scrutiny.
SaaS quick ratio
The SaaS quick ratio measures growth versus leakage, calculated as (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR). A ratio above 1.0 means revenue gained outpaces revenue lost. It is distinct from the accounting quick ratio used for liquidity.
Note: the metrics defined here are SaaS-finance conventions with variable definitions, not requirements under GAAP, FASB, or any accounting standard. Benchmarks such as the 3:1 LTV:CAC ratio, the 40% Rule of 40 threshold, and the 0.75 magic number are common heuristics, not guaranteed targets. Confirm the exact definition your investors, board, or auditors expect before reporting against it.
This glossary is independent, general educational information published by Lightbridge. It is not financial, accounting, tax, or investment advice. For revenue recognition and billing under accounting standards, consult Lightbridge ERP on ASC 606 and a qualified professional.
SaaS metrics: frequently asked questions, answered by Lightbridge
- What are SaaS metrics?
- SaaS metrics are the growth and finance measures used to run and value a subscription software business. They include recurring revenue figures (ARR and MRR), retention measures (NRR, GRR, and churn), unit economics (CAC, LTV, and CAC payback), and growth-efficiency benchmarks (Rule of 40, magic number, and burn multiple). Lightbridge treats them as industry conventions with variable definitions, not as accounting standards, so the inputs behind any one number always matter.
- What is the difference between ARR and MRR?
- MRR is monthly recurring revenue, and ARR is its annualized form: ARR = MRR x 12. Both count normalized recurring subscription revenue and exclude one-time setup, implementation, and professional-services fees. Non-contractual variable usage is excluded from recurring revenue, but committed or contractual usage minimums can be included. MRR is the working unit for monthly cohorts and retention math, while ARR is the headline figure used to size the recurring base.
- Can net revenue retention exceed 100%?
- Yes. Net Revenue Retention, also called Net Dollar Retention, includes expansion revenue: NRR = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR. When a cohort expands faster than it contracts and churns, NRR rises above 100%, which means existing customers grow the recurring base even before any new logos are added. Gross Revenue Retention is the opposite case: it excludes expansion, so GRR is capped at 100%.
- How is the Rule of 40 calculated?
- The Rule of 40 adds a SaaS company's revenue growth rate to its profitability margin and checks whether the sum is at least 40%. The profitability term is variable. This glossary defaults to EBITDA margin, while free-cash-flow margin is common for mature companies and operating margin is used less often. State which margin you use, because the same company can pass or fail depending on the choice. The benchmark was popularized by Brad Feld in 2015.
- What is a good LTV:CAC ratio?
- A 3:1 ratio of customer lifetime value to customer acquisition cost is the widely cited heuristic for healthy SaaS unit economics. It is a benchmark, not a GAAP standard or a guaranteed target. The ratio inherits every assumption inside LTV, especially the churn rate and gross margin you choose, so a high ratio built on optimistic churn means little. Always report LTV:CAC alongside its underlying inputs.
- How is the SaaS magic number calculated?
- The magic number divides net new recurring revenue in a period by sales-and-marketing spend in the prior period, which reflects the lag between spend and revenue. State your numerator, because a net-new-ARR delta and a GAAP-subscription-revenue delta give different results and both are in use. A magic number around 0.75 or higher is a common signal of efficient go-to-market spending.
- What is the burn multiple?
- The burn multiple, introduced by David Sacks, divides net cash burned by net new ARR over a period. It answers how much a company spends to generate each unit of new recurring revenue, and lower is better. A burn multiple under 1.0 is strong, while a figure above 2.0 usually warrants scrutiny. It is a capital-efficiency complement to growth-only metrics like the magic number.
- Are SaaS metrics the same as GAAP financial statements?
- No. SaaS metrics such as ARR, NRR, CAC, LTV, and the Rule of 40 are industry conventions with variable definitions, not requirements under GAAP, FASB, or any accounting standard. Two companies can compute the same metric differently and both be defensible. Revenue recognition and billing, by contrast, are governed by standards such as ASC 606. This glossary is general educational information from Lightbridge, not financial, accounting, or investment advice.
Lightbridge turns SaaS metric definitions into a growth-finance plan.
When the vocabulary is settled and the real question is how your numbers should move, Lightbridge advises founders, CFOs, and RevOps leaders on the growth-finance metrics that drive the business.