Metrics That Matter (3 of 5): Cheat Sheet On SaaS Metrics, The Recurring Beast
A quick reference guide on how specialized metrics turn recurring revenue into predictable, compounding enterprise value
Continuing our series on Metrics That Matter, we’re picking up on SaaS specific metrics. A quick reminder of where we are
Measurement Alone Is Not Enough - Relativity, Levers, and Alignment
Levers - Definitions, Cheat Sheets, and Scenarios
Alignment - Frameworks for getting the enterprise rowing in the same direction
In the prior post, we touched on GAAP. While the typical accounting-centric GAAP metrics provide the essential financial foundation, they don’t fully capture the nuances of a subscription-based business model. That’s where SaaS-specific metrics come into play. These are the specialized indicators designed to reveal the health, growth, and scalability of a company based on a recurring revenue, subscription model.
As a note: while this post is diving into specific metrics for a typical recurring SaaS business, this Tier of management metrics needs to be centered on what’s unique to your business, especially as companies start to experiment or diversify with more business models - usage-based, outcome-based, services, or hybrid models. e.g.
A payments add-on might suggest a volume / usage based model based on GPV, adoption, and take rate, rather than based on annual subscriptions.
A project-based services business (or embedded services org) might need a combination of project profitability, delivery, and utilization to influence predictable EBITDA growth.
**Pull up this quick reference Cheat Sheet (GAAP, SaaS, and unit economics) to follow along in the next few posts**
Why SaaS Needs Its Own Specialized Metrics?
SaaS businesses are fundamentally different from traditional product or service companies. Revenue is recurring, customer relationships are ongoing, and growth is often driven as much by retention and expansion as it is by new sales. The accounting principles of Fra Luca, while vital, aren’t built to highlight these unique dynamics. SaaS metrics are specifically designed to reflect how subscription businesses acquire, retain, and grow their customer base.
I think it was Voltaire (and, later, Spider-Man) who said, “With great power comes great responsibility.” A similar sentiment could be said about SaaS metrics which, because they are not as rigidly defined as GAAP metrics, allow for more flexibility to capture the specific nuances of your unique business. SaaS metrics allow flexibility, but with that comes a need for discipline. Inconsistency undermines insight. It’s essential to define these metrics up front, align everyone in your organization to those definitions, and measure them consistently. Inconsistent definitions between teams or over time can lead to internal confusion and, more critically, send misleading signals about the health of the business or the impact of a particular initiative.
As an example, I recall a time where we tracked GRR and an adjusted GRR metric, each of which slightly changed every 6 months making it extremely difficult to measure the business, explain changes over time, and even to develop comp plans.
Cheat Sheet - SaaS Specific Metrics
The Metrics, Defined
Understanding these metrics is crucial for both internal management and external communication with investors and stakeholders who live and breathe these numbers.
ARR (Annual Recurring Revenue): ARR is the north star for SaaS companies—the value of recurring revenue from active subscriptions, normalized annually. It reflects both historical run rate and forward-looking earning potential. Investors and operators obsess over ARR because it highlights the most attractive part of the SaaS model: predictable, compounding revenue streams. ARR typically includes only repeatable subscription revenue, excluding services or implementations. For usage-based revenue, assess reliability with historical data and apply a consistent translation method. The same applies to contracted or committed revenue not yet realized. However you define ARR, it must be clear, universally understood, and consistently measured. As Todd Gibby notes in Made Not Found, managing ARR requires intentionality: Define, Align/Refine, Baseline, and Trend Line.
NRR (Net Revenue Retention): NRR (sometimes also called NDR or Net Dollar Retention) is perhaps the most powerful indicator of a SaaS company’s health and product-market fit. For every dollar that a particular customer spent a year ago, NRR represents what that customer (and the cohort of all its peers from the same time period) is spending today. This is a simple way to assess an organization’s ability to balance expansion against churn. An NRR well above 100% (according to SaaS Capital’s benchmarks, 110-120% is considered excellent) suggests your existing customers are satisfied and growing in value. Conversely, a low NRR may indicate a problem with churn, lack of expansion opportunities, or pricing stagnation. This notion of being able to grow revenue without needing to acquire new customers is a big positive indicator of the stickiness of your product and the value your customers derive from it.
GRR (Gross Revenue Retention): GRR (sometimes also called GDR or Gross Dollar Retention) is similar to NRR, but it only accounts for retained revenue and excludes any expansion, and so can never exceed 100%. GRR focuses purely on how much recurring revenue you lose from churn and downgrades. While NRR highlights growth, GRR tells you how well you’re preventing revenue erosion from your existing base. A high GRR (typically over 90% from SaaS Capital’s research) indicates strong customer stickiness and a solid product. If you’re seeing GRR scores materially below that level, you may want to look at factors like product/market fit, sales-to-delivery alignment, churn reasons, product stability, and the effectiveness of implementation and support teams.
Bookings (or Contracted Sales): Bookings represent the total value of all new and expansion contracts signed in a period. Unlike GAAP Revenue (recognized over time) or ARR (annualized recurring revenue), Bookings reflect sales activity and its impact on future revenue. For instance, a 1-year, $120K contract counts fully as bookings, even if only $10K is recognized this month. Specific targets depend on strategy, competition, and product maturity. As a rule of thumb, reps should book ~3–6X their on-target earnings (OTE), and organizations aim for pipeline coverage of ~3X bookings targets. Adjust based on sales efficiency, win rate, and cycle length. These ratios help gauge staffing needs and whether to invest in pipeline generation versus conversion.
ACV (Annual Contract Value): ACV is the average annual revenue per customer contract, calculated by dividing the total value of contracts signed in a period by the number of contracts. Tracking ACV over time shows whether you’re moving upmarket or downmarket and signals how customers value new capabilities. For example, a 25% ACV lift by positioning up-market versus a 3X increase from new, monetizable features highlights where future investment may pay off. In an prior post, we discuss segmenting your go-to-market motion which can surface these strategic divergence points.
Rule of 40: The Rule of 40 is a benchmark to assess the balance between a SaaS company’s growth and profitability. It states that revenue growth rate plus EBITDA margin should equal 40 or more. As The SaaS CFO explains, there are multiple calculation methods, each with nuances worth noting. Early-stage companies may not reach 40, often prioritizing market share (e.g., 40% growth + -20% EBITDA = 20). Later-stage companies may trade slower growth for stable profits (e.g., 10% growth + 30% EBITDA = 40). The key isn’t just the score, it’s the path you take to achieve it, driven by thoughtful, intentional choices.
Scenarios
As before, here are a few scenarios that may help put these metrics in context and highlight the different types of decisions and levers to pull in these situations.
Final Thoughts
Ok, Tier 2 of Metrics That Matter is a wrap. While the scenarios above aren’t comprehensive, our hope is that the levers and types of decisions are beginning to get your creative juices flowing. Mastering SaaS-specific metrics is key to understanding the pulse of your business, optimizing your go-to-market and customer success strategies, and driving your company’s growth beyond just the foundational financials.
You may start to wonder, how to measure efficiency of your business? Or maybe some customers are causing a lot more strain on your business than others.
In our next article, Tier 3: y Economics, we’ll dive one level deeper into the unit economics as customers makes their way through the entire acquisition process and customer lifecycle — and the impact that has on deciding when to press the gas, or when to rebuild.