"What's your LTV:CAC?" "What's your burn multiple?" "How's your Net Revenue Retention?"
If these questions make you nervous, you're not alone. Many founders build amazing products but struggle to articulate their business in the language investors speak: financial metrics.
Here's the good news: you don't need an MBA to master these numbers. You need to understand 15 key metrics, know how to calculate them correctly, and—most importantly—know what "good" looks like.
This guide breaks down every metric investors will ask about, with formulas, benchmarks, and red flags to avoid.
What it is: Your normalized annual revenue from subscriptions and recurring contracts.
Formula: MRR × 12
Why investors care: ARR is the primary measure of SaaS business scale. It shows predictable, recurring revenue—the kind investors love.
Benchmarks:
Gotcha: Don't include one-time revenue, implementation fees, or professional services in ARR. Investors will catch this in diligence.
What it is: Your monthly recurring revenue from all active subscriptions.
Formula: Sum of all monthly subscription revenue
Why investors care: MRR shows your baseline monthly revenue and is essential for understanding growth trajectory.
Break it down further:
What it is: Month-over-month percentage growth in MRR.
Formula: (Current Month MRR - Previous Month MRR) / Previous Month MRR × 100
Benchmarks:
Context matters: Early-stage companies can grow faster percentage-wise. A company at $50K MRR growing 20% MoM is different from one at $500K MRR growing 20% MoM.
What it is: Revenue minus cost of goods sold (COGS), expressed as a percentage.
Formula: (Revenue - COGS) / Revenue × 100
What counts as COGS:
Benchmarks by business type:
Why it matters: Higher gross margins mean more money available for R&D, sales, and marketing. Low gross margins limit growth potential.
What it is: The total cost to acquire a new customer.
Formula: (Sales + Marketing Expenses) / Number of New Customers Acquired
Important nuances:
Benchmarks: CAC varies wildly by business model. What matters is CAC relative to LTV (see below).
What it is: The total revenue you expect from a customer over their lifetime.
Simple Formula: Average Revenue Per User (ARPU) × Customer Lifetime
More precise formula: ARPU × Gross Margin % / Monthly Churn Rate
Example:
ARPU: $500/month
Gross Margin: 80%
Monthly Churn: 2%
LTV = $500 × 0.80 / 0.02 = $20,000
Why the precise formula matters: Including gross margin ensures you're calculating the profit from a customer, not just revenue.
What it is: How much value you get from a customer versus how much you spend to acquire them.
Formula: LTV / CAC
Benchmarks:
What investors look for: A 3:1 ratio means for every $1 spent acquiring a customer, you get $3 in lifetime value. This leaves room for other expenses and profit.
What it is: How many months it takes to recover your customer acquisition cost.
Formula: CAC / (ARPU × Gross Margin %)
Example:
CAC: $6,000
ARPU: $500/month
Gross Margin: 80%
Payback = $6,000 / ($500 × 0.80) = 15 months
Benchmarks:
Why it matters: Shorter payback means you can reinvest in growth faster without burning through cash.
What it is: The percentage of customers who cancel in a given period.
Formula: Customers Lost During Period / Customers at Start of Period × 100
Benchmarks (monthly):
Annualize for perspective: 3% monthly churn = ~31% annual churn. That means you need to grow 31% just to stay flat!
What it is: The percentage of MRR lost to cancellations and downgrades.
Formula: MRR Lost During Period / MRR at Start of Period × 100
Why it differs from logo churn: If you lose a $50/month customer but retain a $5,000/month customer, your logo churn and revenue churn will look very different.
What it is: The percentage of revenue retained from existing customers, including expansion revenue.
Formula: (Starting MRR + Expansion - Churn - Contraction) / Starting MRR × 100
Example:
Starting MRR: $100,000
Expansion: $15,000
Churned MRR: $8,000
Contraction: $2,000
NRR = ($100,000 + $15,000 - $8,000 - $2,000) / $100,000 = 105%
Benchmarks:
Why investors love high NRR: NRR above 100% means you grow even without acquiring new customers. It's compounding revenue.
What it is: How much cash you spend (net) each month.
Formula: Beginning Cash Balance - Ending Cash Balance (over a month)
Two types:
Investors typically care about Net Burn because it shows your true cash consumption.
What it is: How many months you can operate before running out of cash.
Formula: Current Cash Balance / Monthly Net Burn
Example:
Cash: $2,000,000
Monthly Net Burn: $150,000
Runway = $2,000,000 / $150,000 = 13.3 months
Best practices:
What it is: How much you're burning relative to ARR growth. This is the efficiency metric VCs love in 2024-2025.
Formula: Net Burn / Net New ARR
Example:
Net Burn: $500,000/quarter
Net New ARR: $300,000/quarter
Burn Multiple = $500,000 / $300,000 = 1.67x
Benchmarks:
Why it matters: Burn multiple shows if you're efficiently converting cash into growth. In the current market, efficient growth matters more than growth at all costs.
What it is: Sales and marketing efficiency metric showing how much ARR you generate per dollar spent.
Formula: (Current Quarter ARR - Previous Quarter ARR) / Previous Quarter S&M Spend
Example:
ARR Growth: $200,000
Previous Quarter S&M: $250,000
Magic Number = $200,000 / $250,000 = 0.8
Benchmarks:
Have a single document with:
In investor meetings, you should be able to recall:
Fumbling on basic metrics signals lack of operational rigor.
Numbers alone aren't enough. For each metric, be ready to explain:
At seed, investors focus on product-market fit signals: engagement metrics, early retention, and revenue growth rate matter more than perfect unit economics. By Series A, unit economics must be solid—LTV:CAC, CAC payback, and NRR become critical. Burn multiple becomes important in any environment where capital efficiency matters.
Not necessarily. Early-stage companies often have sub-optimal unit economics while finding product-market fit. What matters is the trend and your plan. If LTV:CAC was 1.5:1 six months ago and is 2.5:1 now with a clear path to 3:1, that's a compelling story. Show you understand the problem and have a plan to fix it.
Focus on leading indicators: waitlist growth, engagement metrics (DAU/MAU), user activation rates, and qualitative signals like NPS or user feedback. For financial metrics, use market benchmarks and bottoms-up estimates based on pricing tests or letters of intent.
Building an investor-ready metrics package requires both finance expertise and fundraising experience. Consider working with:
Financial metrics are the language of startup investing. Mastering these 15 metrics—knowing your numbers, understanding what "good" looks like, and articulating the story behind them—separates fundable founders from everyone else.
Build your metrics dashboard. Track these numbers monthly. And most importantly, understand what each metric tells you about your business, not just what it tells investors.
Amit Patel is a startup advisor with 12 years of experience working with early-stage companies on fundraising, financial strategy, and growth. He has helped founders build metrics-driven businesses that have raised over $200M in venture capital.
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