SaaS Unit Economics Reference Guide
Why must LTV factor in Gross Margin?
A common mistake in SaaS calculations is multiplying ARPU directly by the customer lifetime (LTV = ARPU / Churn). This represents **Gross Revenue LTV**, which is misleading because it ignores the cost required to support and host the customer (COGS). To calculate **Net LTV (Margin-Adjusted)**, you must apply your Gross Margin % (LTV = ARPU × Gross Margin % / Churn). This provides the actual net gross profit contribution available to pay back your acquisition cost (CAC) and fund operations.
The Math Behind Compounded Churn
When switching between annual and monthly views, simply dividing or multiplying churn by 12 is mathematically inaccurate due to compounding. Our dashboard uses exact mathematical conversions. To find Monthly Churn from Annual Churn: Monthly Churn = 1 - (1 - Annual Churn)(1/12). Conversely, Annual Churn from Monthly Churn: Annual Churn = 1 - (1 - Monthly Churn)12.
Key Benchmarks for Venture-Backed SaaS
- LTV : CAC ≥ 3.0x: Standard target indicating that the value generated by a customer is at least 3x the cost to acquire them. High-performing B2B SaaS models often exceed 5x.
- Payback Period ≤ 12 Months: High efficiency businesses aim to recover their CAC within a year, freeing up cash flow to reinvest into sales velocity. Enterprise tiers often tolerate up to 18 months.
- Monthly Logo Churn ≤ 2%: Stable business models maintain low churn. B2B enterprise models typically target under 1% monthly logo churn (or net negative revenue churn).