Glossary
The formulas RevOps teams and CROs use to calculate CAC, retention, and growth, grounded in David Skok's SaaS Metrics 2.0 framework, the industry-standard reference for software unit economics.
The average recurring revenue generated per customer account, a segmentation metric used to compare unit economics across different customer tiers or cohorts.
ARPA = Total Recurring Revenue ÷ Total Accounts.Source note: From David Skok's SaaS Metrics 2.0 (forEntrepreneurs.com), listed as one of the core metrics to track per customer segment.
The total value of new contracts signed in a period, broken into components: New business, Expansion, Contraction, and Churn (negative). The sum of all is Net New ARR or MRR Bookings.
Net New Bookings = New ARR + Expansion ARR − Contraction − Churned ARR.Source note: From David Skok's SaaS Metrics 2.0, which recommends tracking these components separately rather than as one blended number.
The fully-loaded cost to acquire a single new customer, including sales and marketing spend, the denominator in the LTV:CAC ratio that determines whether a SaaS business's growth is financially sound.
CAC = Total Sales & Marketing Spend ÷ New Customers Acquired.Source note: From David Skok's SaaS Metrics 2.0.
How many months it takes for a new customer's recurring revenue to pay back what it cost to acquire them, one of the two guideline metrics Skok identifies for judging whether a SaaS business is financially viable.
CAC Payback Period = CAC ÷ (Monthly Recurring Revenue per Customer × Gross Margin %). Guideline: Best-in-class SaaS businesses recover CAC in 5–7 months. Profitability becomes anemic once payback extends beyond 12 months.Source note: From David Skok's SaaS Metrics 2.0.
Additional recurring revenue generated from existing customers, through upsells, cross-sells, or seat growth, one of the components of Net New Bookings.
Source note: From David Skok's SaaS Metrics 2.0.
The percentage of recurring revenue retained from existing customers over a period, excluding any expansion revenue. GRR can never exceed 100%, since it only measures what was kept, not what was added.
GRR = (Starting ARR − Churned ARR − Contraction ARR) ÷ Starting ARR × 100.The total profit a business expects to earn from a customer over the entire duration of the relationship, the numerator in the LTV:CAC ratio used to judge unit economics. Formula (simplified): LTV = (Average Revenue per Account × Gross Margin %) ÷ Revenue Churn Rate.
Source note: From David Skok's SaaS Metrics 2.0. Skok notes that businesses with strong negative churn require a more complex LTV formula, since customer value increases over time rather than staying flat.
The ratio of customer lifetime value to acquisition cost, the single most-cited guideline for judging whether a SaaS business's growth is financially sound.
LTV:CAC Ratio = LTV ÷ CAC. Guideline: A ratio above 3 is considered healthy. The best SaaS businesses reach 7–8.Source note: From David Skok's SaaS Metrics 2.0.
The actual change in Annual Recurring Revenue over a period, combining new customer revenue, expansion revenue from existing customers, and revenue lost to churn, the clearest single number for whether a SaaS business is actually growing.
Net New ARR = New ARR + Expansion ARR − Contraction ARR − Churned ARRSource note: From David Skok's SaaS Metrics 2.0.
The percentage change in recurring revenue from existing customers over a period, including expansion revenue. Unlike GRR, NRR can exceed 100%, and often does in healthy software businesses with strong negative churn.
NRR = (Starting ARR + Expansion ARR − Contraction ARR − Churned ARR) ÷ Starting ARR × 100.The ratio of total pipeline value to the revenue target it needs to cover, used to judge whether there's enough pipeline in play to realistically hit a quota or forecast.
Pipeline Coverage Ratio = Total Open Pipeline Value ÷ Revenue Target. Guideline: A common industry benchmark is 3x to 4x coverage, though this varies significantly by win rate and sales cycle length.The percentage of an assigned sales quota that a rep or team actually closed in a given period, a core individual and team performance metric in sales and RevOps reporting.
Quota Attainment = Actual Bookings ÷ Quota × 100.Two distinct churn measurements that can diverge significantly. Customer Churn counts the percentage of accounts lost. Revenue Churn counts the percentage of revenue lost. Losing many small accounts can produce a high customer churn rate but a low revenue churn rate, and vice versa. Guideline: Net Revenue Churn above 2% per month (roughly 22% annualized) is a strong signal something is wrong in the business.
Source note: From David Skok's SaaS Metrics 2.0.
A quick health check for SaaS businesses stating that growth rate plus profit margin should add up to 40% or higher. A business growing at 60% with a -20% margin is considered just as healthy as one growing at 20% with a 20% margin.
Rule of 40 Score = Revenue Growth Rate % + Profit Margin %.A measure of how quickly a sales team generates revenue, combining deal volume, deal size, win rate, and sales cycle length into a single throughput number.
Sales Velocity = (Number of Opportunities × Average Deal Value × Win Rate) ÷ Sales Cycle Length.The percentage of sales opportunities that result in a closed-won deal, out of all opportunities that reached a decision (won or lost).
Win Rate = Closed-Won Deals ÷ (Closed-Won + Closed-Lost Deals) × 100.Connect retention and expansion forecasts to the unit economics your board already tracks.
