LTV/CAC, Churn, MRR, and Burn Multiple: How SaaS Metrics Connect

Key points

What to take from this guide

• MRR movement should be split into new, expansion, contraction, and churned MRR.
• Churn needs a clear denominator and period before it can explain retention.
• LTV/CAC and burn multiple are useful only when assumptions, gross margin, cash burn, and ARR change are labeled consistently.

Guide section

Each metric answers a different question

MRR shows how normalized monthly recurring revenue moved during a period. Churn explains what leaked from the starting customer or revenue base. LTV/CAC estimates whether acquisition economics are plausible. Burn multiple compares cash burned with net new ARR added.

No single metric is enough. A company can grow MRR while churn worsens, show a strong LTV/CAC from optimistic assumptions, or burn heavily for growth that does not improve runway.

• MRR: recurring revenue movement.
• Churn: customer or revenue leakage.
• LTV/CAC: estimated value compared with acquisition cost.
• Burn multiple: cash spent compared with ARR added.
• Runway: time left to improve the system.

Guide section

A period-consistent workflow

Start with the same period for every metric. For a monthly review, use starting MRR, new MRR, expansion, contraction, churned MRR, starting customers, lost customers, and monthly burn from that same month.

Then move from revenue movement to efficiency. Use ARPA, gross margin, churn, and CAC for LTV/CAC. Use total burn and net new ARR for burn multiple. Finally, check runway so the team knows how much time it has to improve the inputs.

• Step 1: Calculate ending MRR and net new MRR.
• Step 2: Check customer churn and revenue churn.
• Step 3: Estimate LTV/CAC from ARPA, gross margin, churn, and CAC.
• Step 4: Compare total burn with net new ARR.
• Step 5: Recalculate runway from cash and net burn.

Guide section

Worked example

A SaaS company starts the month at $42,000 MRR. It adds 12 customers at $180 ARPA, adds $1,400 expansion MRR, loses $600 to contraction, and loses $1,100 to churned MRR. Net new MRR is $1,860 and ending MRR is $43,860.

For acquisition economics, assume ARPA is $120, gross margin is 78%, monthly churn is 4%, and CAC is $650. Simplified LTV/CAC is about 3.6x. If the same review period burned $510,000 to add $550,000 net new ARR, burn multiple is 0.93x.

• Starting MRR: $42,000.
• New MRR: 12 x $180 = $2,160.
• Expansion MRR: $1,400.
• Contraction and churned MRR: $1,700.
• Ending MRR: $43,860.
• Estimated LTV/CAC: about 3.6x.
• Burn multiple: 0.93x.

Guide section

Common mistakes

The most common mistake is mixing periods. Monthly churn, annual revenue, quarterly burn, and lifetime CAC do not create a clean read unless the assumptions are converted and labeled.

Another mistake is treating simplified LTV as guaranteed customer lifetime value. A formula using ARPA, gross margin, and churn is a planning shortcut. It does not model cohorts, discounting, expansion, changing retention, or payback risk.

• Counting new customers in the churn denominator.
• Using revenue instead of gross profit for LTV.
• Comparing burn with bookings instead of net new ARR.
• Calling burn multiple meaningful when net new ARR is zero or negative.

Worked example

One SaaS review period

The metrics become more useful when the period and denominators stay consistent.