Question 1

What does Net Revenue Retention (NRR) tell me?

Accepted Answer

NRR measures whether your existing customer base is growing or shrinking in revenue terms, accounting for upgrades, downgrades, and churn. An NRR above 100% means expansion revenue from existing customers outpaces churn — your revenue base grows even with zero new customers. Best-in-class SaaS businesses (Snowflake, Twilio early on) achieve 120–130% NRR. Below 90% signals a serious retention problem.

Question 2

What's a healthy LTV:CAC ratio?

Accepted Answer

A ratio of 3:1 or higher is the standard benchmark — for every £1 you spend acquiring a customer, you should generate £3 in lifetime value. Below 1:1 means you're losing money on every customer you acquire (unsustainable without massive capital). 1–3x is marginal and typically means either CAC is too high or LTV is too low. For early-stage companies still finding PMF, a ratio below 3 is acceptable if the trend is improving.

Question 3

How should I interpret my CAC payback period?

Accepted Answer

CAC payback is the number of months before a customer generates enough gross profit to cover what you spent acquiring them. Under 12 months is excellent — the business is capital-efficient. 12–24 months is acceptable for most SaaS. Over 24 months creates cash flow pressure, particularly if you're pre-profit. Companies with very long contracts (3-5 year enterprise deals) can tolerate longer payback periods since churn risk is lower.

Question 4

What gross margin should I use?

Accepted Answer

Use your SaaS gross margin — revenue minus cost of goods sold (hosting, support, third-party services directly tied to delivering the product). For pure SaaS, this is typically 70–85%. If you include professional services or heavy implementation, it may be lower. Do not use operating margin — that includes R&D, sales, and G&A which are not relevant to LTV calculation.

Question 5

What is a good churn rate for SaaS?

Accepted Answer

For B2B SaaS, a monthly churn rate below 1% (under 12% annualised) is considered healthy. Best-in-class enterprise SaaS companies achieve 0.5% or less per month. B2C and SMB SaaS tolerate slightly higher churn — 2–3% monthly — because customer acquisition is typically cheaper and faster. Above 5% monthly churn signals a product-market fit or customer success problem that growth alone cannot solve.

Question 6

What's the difference between MRR and ARR?

Accepted Answer

MRR (Monthly Recurring Revenue) is the normalised monthly revenue from all active subscriptions. ARR (Annual Recurring Revenue) is simply MRR × 12 — it is not the sum of all annual contracts, but an annualised snapshot of your current recurring revenue. ARR is the preferred top-line metric for investor communications and valuation multiples. Use MRR for operational tracking and growth rate calculations; use ARR for fundraising decks and board reporting.

Question 7

How do I improve my LTV:CAC ratio?

Accepted Answer

You can improve LTV:CAC from either side: increase LTV by reducing churn (better onboarding, customer success, or product stickiness), increasing ARPU through upsells and expansions, or improving gross margin; or reduce CAC by improving marketing efficiency, investing in product-led growth, or focusing on higher-converting channels. Expansion revenue — charging existing customers more over time — is typically the fastest lever because it simultaneously increases LTV and requires no additional acquisition spend.

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