AI advisor. Alikhan
At an early stage, investors look at revenue growth. After Series A and Series B, the question changes: how sustainable that growth is and what it costs you.
Level: for beginners
Language: Russian
Duration: 1:57
At an early stage, investors look at revenue growth. After Series A and Series B, the question changes: how sustainable that growth is and what it costs you. ARR shows scale but says nothing about whether customers stay and whether your spending pays off. For that, you need other metrics.
Retention. The first group shows whether customers stay. Gross retention counts only losses: customers who left and those who reduced their payments. Net revenue retention (NRR) adds to this the growth in payments from the remaining customers. If NRR is above 100%, you grow even without new customers. For the stage between Series A and B, industry benchmarks most often cite an NRR of 105–115%, and 120% and higher at a more mature stage. Also track the share of customers who left (logo churn) separately from revenue loss.
Acquisition cost. CAC payback shows how many months it takes for a customer to pay back the cost of acquiring them. Under 12 months is considered efficient, while over 24 is cause for concern. Alongside it, people look at the LTV to CAC ratio: the benchmark is about 3 to 1.
Spending efficiency. Burn multiple is calculated as net cash burn divided by new ARR for the same period. A simple example: you spend $350,000 a month, and new ARR for the month is $180,000, so the burn multiple is about 1.9. Below 1 is considered an excellent result, 1 to 1.5 is good, and above 2 needs improvement. Magic number shows how much new ARR each dollar invested in sales and marketing brings in; a value above 1 is considered very efficient.
Business quality. Gross margin for software companies is expected to be 75% or higher. Rule of 40 adds up the growth rate and the profit margin, with a benchmark of 40% or higher. Another indicator of a mature company is revenue per employee.
The emphasis differs by stage. For Series A, retention, CAC payback and growth efficiency matter more. By Series B, NRR and burn multiple come to the fore.
An example is Snowflake before its IPO in 2020. Its NRR was 158%: existing customers spent noticeably more on the platform every year. But the same filing showed that a year earlier the figure had been higher, at 160–180%, gross margin hovered around 60–66%, and the net loss for the year was $348 million. Later, NRR fell even further when customers started cutting costs. The lesson is that one impressive metric is not enough: look at a set of metrics and how they change over time.
Cheat sheet: growth metrics after Series A/B
What to track beyond MRR/ARR, how to calculate it and what to compare it with. All calculations use the same hypothetical example.
Example inputs
A B2B SaaS company between Series A and B. Figures for the last 12 months:
| Metric | Value |
|---|---|
| ARR at the start of the year | $4,000,000 (200 customers, $20,000 a year on average) |
| Lost to churned customers | $320,000 (16 customers) |
| Lost to plan downgrades | $80,000 |
| Additional revenue from remaining customers (expansion) | $800,000 |
| New customers for the year | 50 customers × $20,000 = $1,000,000 |
| Sales and marketing spend (S&M) | $1,000,000 |
| Revenue for the year | $4,700,000 |
| Gross margin | 75% |
| Net cash burn (net burn) | $1,500,000 |
| Employees | 35 |
ARR at the end of the year: 4,000,000 − 320,000 − 80,000 + 800,000 + 1,000,000 = $5,400,000 (+35% growth).
Net new ARR: 5,400,000 − 4,000,000 = $1,400,000.
1. Retention
Gross Revenue Retention (GRR)
How much revenue from existing customers remained, not counting growth. It cannot exceed 100%.
Formula: (Starting ARR − churn − downgrade) / Starting ARR
Example: (4,000,000 − 320,000 − 80,000) / 4,000,000 = 3,600,000 / 4,000,000 = 90%
Net Revenue Retention (NRR)
The same, but including growth in payments from the remaining customers. Above 100% means the base grows even without new customers.
Formula: (Starting ARR − churn − downgrade + expansion) / Starting ARR
Example: (3,600,000 + 800,000) / 4,000,000 = 4,400,000 / 4,000,000 = 110%
Logo churn — customer churn (by count)
Formula: Churned customers / Customers at the start of the period
Example: 16 / 200 = 8% (customer retention of 92%)
2. Acquisition cost
CAC — the cost of acquiring one customer
Formula: S&M spend / New customers
Example: 1,000,000 / 50 = $20,000
CAC payback — acquisition payback period, in months
It is calculated on gross profit, not revenue.
Formula: CAC / (Monthly revenue per customer × Gross margin)
Example: monthly revenue per customer is 20,000 / 12 = $1,667. Gross profit = 1,667 × 75% = $1,250 a month. Payback = 20,000 / 1,250 = 16 months
LTV and LTV:CAC
LTV is the gross profit a customer brings in over their entire lifetime. Customer lifetime = 1 / annual churn. At 8% churn, that comes to 12.5 years, which is too optimistic, so in practice the lifetime is often capped at 5 years.
Example: annual gross profit per customer = 20,000 × 75% = $15,000. LTV = 15,000 × 5 = $75,000. LTV:CAC = 75,000 / 20,000 = 3.75
3. Spending efficiency
Burn multiple
How much money is burned for every dollar of new ARR.
Formula: Net cash burn / Net new ARR
Example: 1,500,000 / 1,400,000 = 1.07
Magic number
How much new ARR each dollar invested in sales and marketing generates. In a simplified annual version:
Formula: Net new ARR / S&M spend
Example: 1,400,000 / 1,000,000 = 1.4
4. Business quality
Gross margin
Formula: (Revenue − cost of revenue) / Revenue
Example: (4,700,000 − 1,175,000) / 4,700,000 = 75%
Rule of 40
Adds up growth and profitability. For mature companies.
Formula: Revenue growth rate (%) + free cash flow margin (%)
Example: growth is +35%, cash flow margin = −1,500,000 / 4,700,000 = −32%. Total: 35 − 32 = 3. This is far from 40: growth is still “bought” at the cost of heavy spending. That is normal for the Series B stage, while from Series C onward the metric becomes important.
Revenue per employee
Example: 4,700,000 / 35 = $134,000. The benchmark for growing companies (from $10 million in revenue) is $200,000 or more.
Benchmarks for comparison
| Metric | Weak | Normal | Good |
|---|---|---|---|
| GRR | below 85% | 85–90% | above 90% |
| NRR | below 100% | 105–115% | 120% and above |
| CAC payback | over 24 mo. | 12–18 mo. | under 12 mo. |
| LTV:CAC | below 2 | 2–3 | 3 and above |
| Burn multiple | above 2 | 1.5–2 | below 1.5 (below 1 is excellent) |
| Magic number | below 0.5 | 0.5–0.75 | 0.75 and above (above 1 is very good) |
| Gross margin | below 60% | 70–75% | 75% and above |
| Rule of 40 | below 20 | 20–40 | 40 and above |
Takeaway from the example: the strengths are retention (NRR 110%), burn multiple (1.07) and magic number (1.4). Weaker areas are acquisition payback (16 months is acceptable but not excellent) and revenue per employee.
What to focus on at each stage
Common mistakes
Sources:
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