How do I calculate CAC for a SaaS company?

Sum all sales and marketing costs (including salaries, tools, advertising, and events) for the period, then divide by the number of new customers acquired. Use a fully loaded figure that includes headcount costs. Some companies lag the S&M spend by one quarter to account for the sales cycle.

What LTV:CAC ratio should I target?

A LTV:CAC ratio of 3x or higher is generally considered healthy for SaaS. Below 3x suggests you are spending too much to acquire customers. Above 5x may indicate you are under-investing in growth. The sweet spot depends on your growth stage and access to capital.

Should I budget ARR or recognised revenue?

Budget both. ARR is the forward-looking metric that tells you about the health of the business. Recognised revenue is what appears on your P&L under IFRS 15. They diverge when you have annual contracts, deferred revenue, or usage-based pricing.

How do I model expansion revenue?

The best approach is to model expansion as a percentage of existing customer MRR, segmented by customer tier or product. Typical expansion drivers include seat growth, plan upgrades, and add-on products. A 2-5% monthly expansion rate on the existing base is common.

Example

SaaS Budget Example

A 35-person B2B SaaS company in Bristol with £2.1M ARR. The company is post-Series A and needs a budget that speaks the language of SaaS metrics while maintaining a proper P&L. This budget bridges operational SaaS KPIs with financial reporting.

Example data

Financial model

SaaS Metric

Starting MRR

£168k

£185k

£204k

£225k

New MRR

£12k

£14k

£16k

£18k

Expansion MRR

£8k

£9k

£10k

£11k

Churned MRR

(£3k)

(£4k)

(£5k)

Ending MRR

£185k

£204k

£225k

£249k

ARR

£2,220k

£2,448k

£2,700k

£2,988k

CAC

£8.2k

£7.8k

£7.5k

£7.1k

LTV:CAC

4.2x

4.5x

4.8x

5.1x

New MRR

New MRR ramps through the year as two new Account Executives hired in Q1 reach full productivity in Q2-Q3. Assumes 3-month ramp to quota.

Churned MRR

Churn increases in absolute terms as the base grows, but churn rate stays flat at ~1.8% monthly. The Customer Success team is focused on keeping this below 2%.

LTV:CAC

LTV:CAC improving from 4.2x to 5.1x demonstrates improving unit economics. Best-in-class SaaS companies target 3x+; this company is well above that threshold.

Formulas

Key formulas

fxEnding MRR = Starting MRR + New + Expansion - Churn

The MRR waterfall tracks every source of revenue change. This company is growing MRR from £168k to £249k over the year, a 48% growth rate.

fxCAC = Total S&M Spend / New Customers Acquired

CAC is improving from £8.2k to £7.1k as the sales team matures and inbound marketing scales. Target CAC payback period is under 18 months.

fxLTV = ARPU / Monthly Churn Rate

With monthly churn at ~1.8%, LTV is approximately £34k. The improving LTV:CAC ratio from 4.2x to 5.1x shows unit economics strengthening over time.

Analysis

What makes this example good

MRR waterfall clearly shows every component of revenue growth

SaaS-specific metrics (CAC, LTV, NRR) alongside traditional P&L metrics

Unit economics improving over time demonstrates operational leverage

Churn modelled as both absolute and percentage to catch both effects

Quarterly granularity appropriate for board and investor reporting

Customisation

How to adapt for your business

Add a cohort retention table to model churn by customer vintage

Break new MRR into inbound vs outbound channels for marketing attribution

Include a conversion funnel (leads, trials, won) above the MRR waterfall

Add a cash bridge to show the gap between ARR growth and cash consumption

Model pricing changes as a separate line in the MRR waterfall

Common variations

--Product-led growth SaaS with free-to-paid conversion funnel
--Usage-based SaaS with consumption-driven revenue
--Multi-product SaaS with separate MRR waterfalls per product
--Enterprise SaaS with annual contracts and quarterly recognition

Keep exploring

Related examples

Revenue Model Example

A 45-person marketplace company in Manchester with three revenue streams: transaction fees, subscriptions, and advertising. The Head of FP&A is building a driver-based revenue model that starts from operational metrics (users, transactions, ARPU) and builds up to total revenue.

View example

Driver-Based Budget Example

A 50-person subscription business in Edinburgh with £3.2M ARR. The FP&A team is replacing last year's static spreadsheet budget with a driver-based model where every line item is linked to an operational assumption. Changing one driver automatically recalculates the entire P&L.

View example

Investor Report Example

A 25-person Series A SaaS startup in London with £1.8M ARR. The CEO sends a monthly investor update to 12 investors. The update covers key metrics, milestones, asks, and a brief narrative. This is the February update, sent on the 5th of March.

View example

FAQ

Frequently asked questions

For early-stage SaaS (under £5M ARR), 10-20% monthly MRR growth is considered strong. For scaling SaaS (£5-20M ARR), 5-10% monthly is healthy. The company in this example is growing at ~4% monthly, which is solid for its stage and trajectory.

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