MRR, ARR, LTV, CAC, churn rate, NRR — the metric alphabet can be overwhelming. Here is what each one means, which ones actually matter for a solo founder, and which ones to ignore.
SaaS is famous for its metric obsession. Investors, bloggers, and course creators have given you a vocabulary full of acronyms that can feel overwhelming when you're trying to focus on building a real business. Here is a plain-English guide to which metrics actually matter for a solo founder — and which ones are noise at your stage.
Monthly Recurring Revenue is the normalised monthly revenue from all active subscriptions. It's the single most important number for a subscription software business and the one to track from day one.
How to calculate: (number of monthly subscribers × monthly price) + (number of annual subscribers × annual price ÷ 12). The ÷ 12 normalisation is critical — annual customers count as monthly contributors, not a single lump sum in month one.
What to do with it: track it weekly. Compare it to last month. If it's growing, you're doing something right. If it's flat, you have either a churn problem or an acquisition problem — and MRR alone won't tell you which.
| Metric | Formula | What it tells you |
|---|---|---|
| MRR | Active subs × monthly price (normalised) | Your recurring revenue base |
| New MRR | Revenue from new customers this month | Acquisition effectiveness |
| Churned MRR | Revenue lost to cancellations this month | Retention health |
| Net New MRR | New MRR − Churned MRR | Whether you're actually growing |
Monthly churn rate = customers cancelled ÷ customers at start of month. Below 5% is healthy. Above 8% means you're running to stand still regardless of how good your acquisition is.
The metric that matters more than churn rate: when churn is happening. Churn in the first 14 days is an onboarding problem. Churn in weeks 2–8 is a habit problem. Churn after month 2 is a product problem. Each type has a different fix.
The percentage of trial users who convert to paying customers. Industry benchmark: 15–25% is good for a card-required trial. Below 10% means something is breaking between the trial start and the conversion moment.
How to diagnose low conversion: check where trial users are dropping off. Are they not completing onboarding? Not returning after day 1? Not reaching the activation event? Each dropoff point has a specific fix.
Lifetime Value (LTV) is the average revenue a customer generates before churning. Simple formula: average monthly revenue per customer ÷ monthly churn rate. If ARPU is $79 and monthly churn is 5%, LTV = $79 ÷ 0.05 = $1,580.
Customer Acquisition Cost (CAC) is what you spend to acquire one customer. For most solo founders in early stage, this is mostly time cost rather than ad spend. Rule of thumb: LTV should be at least 3× CAC to be sustainable.
At early stage with fewer than 50 customers, don't over-optimise for LTV/CAC ratio. Focus on MRR growth and churn reduction first. LTV/CAC becomes a primary decision metric when you're considering paid acquisition channels.
ARR (Annual Recurring Revenue = MRR × 12): useful for fundraising conversations, not for operational decisions. Don't report ARR to yourself — it's just MRR in a bigger font.
NRR (Net Revenue Retention): measures whether existing customers are expanding. Irrelevant until you have a meaningful expansion revenue stream — which requires at least one upgrade path and a meaningful base of customers who could upgrade.
DAU/MAU ratio: engagement metrics matter for consumer apps. For B2B SaaS tools used weekly or monthly, daily active users is a misleading metric that doesn't correlate with retention.
Payback period: how long to recoup CAC. Meaningful once you're spending on paid acquisition. Before that, it's a ratio of two numbers you don't have clearly yet.
Tell Marcus your MRR, churn rate, and conversion rate. You'll get a diagnosis of which number to focus on and one specific action to improve it.
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