Chapter 7: Metrics

The metrics that matter (and the ones that don't)

Most founders track too many metrics or the wrong ones. At each stage, there are 2-3 metrics that actually drive decisions. Everything else is noise.

The SaaS metrics hierarchy

Tier 1: North Star Metrics These are the 1-2 metrics that define your business health.

MRR (Monthly Recurring Revenue) The single most important number. Everything else exists to move this.

` MRR = Number of paying customers × Average revenue per customer `

MRR decomposition: - New MRR: Revenue from new customers - Expansion MRR: Upgrades and add-ons from existing customers - Contraction MRR: Downgrades from existing customers - Churn MRR: Revenue lost from cancellations

Tier 2: Growth efficiency metrics These tell you if your growth is sustainable.

CAC (Customer Acquisition Cost) ` CAC = Total sales + marketing spend / New customers acquired `

LTV (Lifetime Value) ` LTV = ARPU / Monthly churn rate `

LTV:CAC ratio - < 1:1 = You're losing money on every customer - 1:1 to 3:1 = Sustainable but tight - 3:1 to 5:1 = Healthy - > 5:1 = You're underinvesting in growth

CAC Payback Period ` CAC Payback = CAC / (ARPU × Gross margin) ` Target: < 12 months. Ideal: < 6 months.

Tier 3: Operational metrics These are the levers you pull to improve Tier 1 and 2.

Churn rate (monthly): Target < 5% for SMB SaaS, < 2% for mid-market.

Activation rate: % of signups who reach the aha moment.

NRR (Net Revenue Retention): > 100% = existing customers grow your revenue.

ARPU (Average Revenue Per User): Track monthly. Rising ARPU = good positioning.

Metrics by MRR stage

$0-1K MRR: Validation metrics Track only: 1. **Activation rate** — are people getting value? 2. **Week-1 retention** — do they come back? 3. **Qualitative feedback** — what do they say?

Don't track: CAC, LTV, funnel conversion rates. You don't have enough data.

$1-5K MRR: Growth metrics Add: 1. **MRR** — is it growing week over week? 2. **Churn rate** — who's leaving and why? 3. **Signup → Paid conversion** — is the funnel working?

$5-15K MRR: Efficiency metrics Add: 1. **CAC and LTV:CAC** — is growth efficient? 2. **NRR** — are customers expanding? 3. **Cohort retention** — which cohorts retain best?

How to set up metrics tracking

Level 1: Spreadsheet (< $1K MRR) A Google Sheet updated weekly with: - New signups this week - New paid customers this week - Churned customers this week - Current MRR

This takes 10 minutes/week and gives you 80% of the insight.

Level 2: Analytics tool ($1-5K MRR) Add Plausible or Posthog for: - Funnel conversion tracking - Feature usage analytics - Retention cohorts

Level 3: Revenue analytics ($5K+ MRR) Add Baremetrics, ChartMogul, or ProfitWell for: - MRR decomposition - Churn analysis by segment - LTV:CAC tracking - Forecasting

Common metrics mistakes

1. Vanity metrics Signups, page views, social followers. These feel good but don't drive revenue decisions.

2. Measuring too much too early At $500 MRR with 15 customers, your "churn rate" is meaningless statistically. Focus on conversations, not dashboards.

3. Not segmenting Your average churn rate hides the truth. Segment by: - Plan type (free vs. paid) - Acquisition channel - Company size / ICP match - Cohort (when they signed up)

4. Lagging indicators only MRR is a lagging indicator. By the time it drops, the problem started weeks ago. Track leading indicators: activation, engagement, NPS.

The weekly metrics review

Every Monday, spend 15 minutes reviewing: 1. MRR change from last week (absolute and %) 2. New trials started 3. Conversions to paid 4. Churn events (and why) 5. One qualitative data point (user feedback, support ticket, conversation)

Action items

• [ ] Set up a weekly MRR tracking spreadsheet (takes 10 min)
• [ ] Calculate your current churn rate and LTV
• [ ] Define your activation metric and start measuring it
• [ ] Schedule a 15-minute weekly metrics review every Monday