The Metrics That Matter: How to Measure and Grow Your SaaS Like Netflix Does

If you can't measure it, you can't improve it. This is especially true for SaaS businesses, where a few key metrics can tell you everything about your company's health—and future.

The difference between SaaS companies that scale to $100M+ and those that stagnate? They obsess over the right metrics and make data-driven decisions.

In this guide, we'll break down the essential SaaS metrics, show you how companies like Netflix and HubSpot use them, and give you a practical framework to track and improve your numbers.

Why Most Founders Track the Wrong Metrics

Early-stage founders often focus on vanity metrics:

• Total signups
• Social media followers
• Page views
• Feature launches

These feel good but don't predict success. Meanwhile, they ignore the metrics that actually matter:

• Monthly Recurring Revenue (MRR)
• Customer Churn Rate
• Customer Acquisition Cost (CAC)
• Lifetime Value (LTV)
• Net Revenue Retention (NRR)

The 5 Essential SaaS Metrics You Must Track

Let's break down each metric, why it matters, and how to calculate it.

1. Monthly Recurring Revenue (MRR)

What it is: Predictable revenue you can expect every month from subscriptions.

Why it matters: MRR is the heartbeat of your SaaS. It tells you if you're growing, stagnating, or declining.

How to calculate:

MRR = Number of customers × Average revenue per customer

Example:
50 customers × $100/month = $5,000 MRR

MRR Components (track these separately):

• New MRR: Revenue from new customers
• Expansion MRR: Revenue from upgrades/upsells
• Contraction MRR: Revenue lost from downgrades
• Churned MRR: Revenue lost from cancellations

Target: 10-20% monthly growth for early-stage, 5-10% for scale-stage

2. Churn Rate: The Silent Killer

What it is: The percentage of customers who cancel their subscription in a given period.

Why it matters: High churn means you're losing customers faster than you can acquire them—a leaky bucket.

How to calculate:

Monthly Churn Rate = (Customers lost in month / Customers at start of month) × 100

Example:
Lost 5 customers, started with 100
= (5 / 100) × 100 = 5% monthly churn

Annual churn: Compound monthly churn over 12 months

Annual Churn = 1 - (1 - Monthly Churn)^12

Example with 5% monthly:
= 1 - (1 - 0.05)^12 = 1 - 0.54 = 46% annual churn

Benchmarks:

• Excellent: <3% monthly (<30% annually)
• Good: 3-5% monthly (30-46% annually)
• Problem: >7% monthly (>58% annually)

Netflix's Churn Strategy: They track churn by content genre. When a genre's churn increases, they invest in more content for that category. This data-driven approach kept their churn below 2.5%—best in industry.

3. Customer Acquisition Cost (CAC)

What it is: How much it costs to acquire a new paying customer.

Why it matters: If CAC is too high relative to LTV, you'll burn through cash even while growing.

How to calculate:

CAC = Total sales & marketing costs / Number of new customers acquired

Example:
Spent $10,000 on ads and marketing
Acquired 50 new customers
CAC = $10,000 / 50 = $200 per customer

Include in sales & marketing costs:

• Advertising spend (Google, Facebook, LinkedIn, etc.)
• Marketing tools (email, CRM, analytics)
• Marketing salaries
• Sales salaries and commissions
• Content creation costs

Don't include:

• Product development
• Customer success (after acquisition)
• General admin

4. Customer Lifetime Value (LTV)

What it is: The total revenue you expect from a customer over their entire relationship with your company.

Why it matters: LTV tells you how much you can afford to spend on acquisition while remaining profitable.

How to calculate (simplified):

LTV = Average revenue per customer per month × Customer lifetime (in months)

Customer lifetime = 1 / Monthly churn rate

Example:
ARPU = $100/month
Monthly churn = 5% (0.05)
Customer lifetime = 1 / 0.05 = 20 months
LTV = $100 × 20 = $2,000

More accurate LTV (includes gross margin):

LTV = (ARPU × Gross margin %) / Monthly churn rate

Example:
ARPU = $100/month
Gross margin = 80%
Monthly churn = 5%
LTV = ($100 × 0.80) / 0.05 = $1,600

5. The Golden Ratio: LTV:CAC

What it is: The relationship between customer value and acquisition cost.

Why it matters: This single ratio tells you if your business model is sustainable.

How to calculate:

LTV:CAC Ratio = LTV / CAC

Example:
LTV = $1,600
CAC = $200
Ratio = $1,600 / $200 = 8:1

Benchmarks:

• <3:1 → Unsustainable. You're spending too much to acquire customers
• 3:1 to 4:1 → Healthy. Good balance of growth and profitability
• >5:1 → Under-investing. You could grow faster by spending more on acquisition

HubSpot's Approach: They maintain a 5:1 LTV:CAC ratio by investing heavily in content marketing (low CAC) and continuously improving product value (increasing LTV through lower churn and upsells).

Advanced Metrics for Scaling

Once you've mastered the basics, these metrics become critical:

6. Net Revenue Retention (NRR)

What it is: The percentage of revenue retained from existing customers, including upgrades and downgrades.

Why it matters: NRR shows if your product grows with customers or if they churn/downgrade over time.

How to calculate:

NRR = (Starting MRR + Expansion - Contraction - Churn) / Starting MRR × 100

Example:
Started with $100k MRR
+ $15k from upgrades
- $3k from downgrades
- $5k from churned customers
= ($100k + $15k - $3k - $5k) / $100k = 107%

Benchmarks:

• >120% → Best-in-class (Snowflake: 158%, Datadog: 130%)
• 110-120% → Excellent
• 100-110% → Good
• <100% → Problem (losing revenue from existing customers)

Why this matters: Companies with >120% NRR can reach $100M ARR without acquiring a single new customer—they grow purely from existing customers.

7. Payback Period

What it is: How long it takes to recoup your CAC.

How to calculate:

Payback Period = CAC / (ARPU × Gross margin %)

Example:
CAC = $200
ARPU = $100/month
Gross margin = 80%
Payback = $200 / ($100 × 0.80) = 2.5 months

Benchmarks:

• <6 months → Excellent
• 6-12 months → Good
• 12-18 months → Acceptable for enterprise
• >18 months → Problematic (cash flow risk)

8. Activation Rate

What it is: Percentage of signups who reach your "aha moment"—the point where they experience core value.

Examples of aha moments:

• Slack: Send 2,000 messages
• Dropbox: Upload first file
• Facebook: Connect with 7 friends in 10 days
• Superhuman: Process inbox to zero

Why it matters: Users who reach the aha moment are 10x more likely to convert to paid customers.

How to calculate:

Activation Rate = (Users who reached aha moment / Total signups) × 100

Example:
1,000 signups
400 uploaded first file (aha moment)
Activation rate = (400 / 1,000) × 100 = 40%

Case Study: How Netflix Uses Metrics to Dominate

Netflix doesn't just track metrics—they use them to make every decision.

Churn Rate by Content Type

Netflix discovered that subscribers who watched at least one documentary in their first month were 30% less likely to churn. Result? They invested heavily in original documentaries.

Viewing Completion Rates

They track how many people finish a series:

• >70% completion → Order more seasons
• <50% completion → Cancel the series
• This is why they canceled expensive shows like "The Get Down" despite critical acclaim

A/B Testing Everything

Netflix runs thousands of A/B tests annually:

• Thumbnail images
• Titles and descriptions
• UI layouts
• Recommendation algorithms

They measure impact on:

• Engagement (hours watched)
• Retention (churn rate)
• Subscription conversions

Result: 2.5% monthly churn (vs 5-7% industry average) and $31.6B in annual revenue.

Case Study: How HubSpot Hit $1B ARR

HubSpot's growth was driven by obsessive focus on three metrics:

1. Content-Driven Low CAC

Average SaaS CAC: $250-500 HubSpot's CAC: $150-200

How: They published 50+ blog posts per month, creating a content flywheel that generated organic leads at 1/3 the cost of paid ads.

2. Product-Led Expansion (High NRR)

HubSpot started with marketing software, then added:

• Sales Hub
• Service Hub
• CMS Hub

Customers who used multiple hubs:

• Churned 50% less
• Had 3x higher LTV
• Created 130% NRR

3. Rigorous Cohort Analysis

They tracked every customer cohort:

• Which marketing channels had best retention?
• Which customer segments expanded most?
• Which features drove activation?

Result: Scaled from $0 to $1.5B ARR with best-in-class unit economics.

Your SaaS Metrics Dashboard

Don't track everything. Track what matters. Here's your essential dashboard:

Week 1 Dashboard (Getting Started)

• MRR: Track weekly
• New customers: Track daily
• Churn: Track monthly
• Signups → Paid conversion: Track weekly

Month 3 Dashboard (Early Traction)

Add these:

• CAC: By marketing channel
• LTV: Estimate based on early churn
• LTV:CAC ratio: Aim for >3:1
• Activation rate: Define your aha moment

Month 6 Dashboard (Scaling)

Add these:

• NRR: Track cohorts
• Payback period: Optimize for <6 months
• Expansion MRR: Track upsells separately
• Customer health scores: Predict churn before it happens

Tools for Tracking

Free/Low-Cost:

• Stripe Billing: Built-in MRR, churn tracking
• Google Analytics: Activation funnel
• Spreadsheets: Custom dashboards

Paid ($50-500/month):

• ChartMogul: MRR analytics and cohorts
• ProfitWell: Free tier, great metrics
• Baremetrics: Beautiful Stripe dashboards
• Mixpanel: Product analytics and activation

Enterprise ($500+/month):

• Looker: Custom BI for large teams
• Amplitude: Advanced product analytics
• Salesforce: Full CRM + analytics

The 30-Day Metrics Action Plan

Don't get overwhelmed. Start small and build up.

Week 1: Set Up Basic Tracking

1. Calculate current MRR
2. Set up Stripe webhooks to track revenue automatically
3. Create a simple spreadsheet with weekly MRR
4. Define your "paid customer" (trial converts, first payment, etc.)

Week 2: Understand Your Churn

1. Track last 90 days of cancellations
2. Calculate monthly churn rate
3. Email 5 churned customers to understand why
4. Identify patterns: Are specific segments churning more?

Week 3: Calculate CAC and LTV

1. Add up last month's marketing costs
2. Count new customers acquired
3. Calculate CAC
4. Estimate LTV (even if rough)
5. Calculate LTV:CAC ratio

Week 4: Build Your Dashboard

1. Choose a tool (start with free ProfitWell or spreadsheet)
2. Set up weekly tracking for MRR, customers, churn
3. Create a monthly review process
4. Share metrics with team

Common Metrics Mistakes to Avoid

Mistake 1: Vanity Metrics Over Real Metrics

Wrong focus:

• We got 10,000 signups!
• Our website has 50,000 monthly visitors!
• We launched 5 new features!

Right focus:

• 10,000 signups, 200 activated (2% activation rate → needs work)
• 50k visitors, 500 trials (1% conversion → needs work)
• 5 features launched, users engaging with 1 → focus there

Mistake 2: Not Tracking Cohorts

Aggregate metrics hide problems. Track cohorts monthly:

• Are newer cohorts churning faster? (product-market fit weakening)
• Are newer cohorts cheaper to acquire? (marketing improving)
• Are older cohorts expanding more? (product growing with users)

Mistake 3: Ignoring Leading Indicators

Lagging indicators: Show what already happened (MRR, churn) Leading indicators: Predict what will happen (activation rate, engagement)

Track both. Leading indicators let you fix problems before they become disasters.

Mistake 4: No Target Metrics

Tracking without goals is pointless. Set targets:

• "Reduce churn from 7% to 5% in Q1"
• "Improve activation from 30% to 40% this quarter"
• "Reduce CAC by 20% while maintaining growth"

Mistake 5: Analysis Paralysis

Don't build a perfect dashboard before you start. Start tracking today with a simple spreadsheet. Iterate as you grow.

Your Next Steps

Today:

1. Calculate your current MRR
2. Calculate your monthly churn rate (last 90 days)
3. List your top 5 metrics to track

This Week:

1. Set up automated MRR tracking (Stripe, ChartMogul, or ProfitWell)
2. Interview 3 churned customers
3. Define your product's "aha moment"

This Month:

1. Calculate CAC and LTV
2. Build a simple metrics dashboard
3. Set Q1 targets for your top 3 metrics
4. Review metrics weekly with your team

This Quarter:

1. Implement cohort analysis
2. Track NRR for expansion opportunities
3. Connect metrics to specific initiatives
4. Use data to make at least 5 major decisions

The Bottom Line

Metrics are your compass. Without them, you're building in the dark.

The best SaaS companies obsess over metrics because you can't improve what you don't measure. Netflix uses data to decide which shows to produce. HubSpot uses metrics to guide their multi-product expansion. Stripe optimizes every step of their funnel.

Start small:

• Track MRR weekly
• Understand your churn
• Know your CAC and LTV
• Calculate your LTV:CAC ratio

Then expand:

• Add cohort analysis
• Track activation rates
• Monitor expansion MRR
• Predict churn before it happens

The metrics don't lie. Trust the data, make better decisions, and watch your SaaS grow.

Ready to put everything together? Check out our complete guide on building a profitable SaaS from scratch.

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