Everyone loves to talk about MRR. It's the headline number, the one you see in all the TechCrunch articles. And sure, it feels good to watch that number go up. But I'm going to tell you something that might be controversial: MRR is a vanity metric. It doesn't tell you nearly enough about the health of your business.
I learned this the hard way. When we were scaling RemoteTeam, we were obsessed with top-line growth. We hit our first $1M in ARR and thought we had it all figured out. But the journey from $1M to $10M was a completely different game. The things that got us to the first million were not the things that would get us to the next level. We had to look deeper.
Scaling a vertical SaaS company is about building a sustainable, long-term business. It's not just about acquiring customers; it's about keeping them, growing with them, and doing it all profitably. The metrics that matter in this phase are the ones that measure the underlying health and efficiency of your business. Here are the three I live by.
1. Net Revenue Retention (NRR)
If you track only one metric, make it this one. NRR tells you how much your revenue from existing customers is growing (or shrinking) over time. It includes upgrades, downgrades, and churn. In other words, it’s a measure of your product's stickiness and your ability to deliver increasing value.
Why is it so important? Because a high NRR means your business can grow even if you don't acquire a single new customer. It's the ultimate sign of a healthy, scalable model. When I'm looking at a company to invest in, NRR is one of the first things I ask for. For a vertical SaaS, a good NRR is over 100%. A great one is over 120%.
Think about it. If your NRR is 120%, your revenue from your existing customer base will grow by 20% every year, without you having to spend a dime on sales or marketing. That's powerful.
2. LTV/CAC Ratio
This one is a bit more complex, but it's just as critical. The LTV/CAC ratio measures the relationship between the lifetime value of a customer (LTV) and the cost of acquiring that customer (CAC). It’s the ultimate measure of your go-to-market efficiency.
You can have the best product in the world, but if it costs you more to acquire a customer than you'll ever make from them, you have a failing business. I’ve seen it happen. Companies with impressive MRR growth that are just burning through cash because their CAC is out of control.
A good LTV/CAC ratio for a SaaS business is at least 3:1. That means for every dollar you spend to acquire a customer, you expect to get three dollars back over the lifetime of that customer. A great ratio is 5:1 or higher.
To calculate this, you need to have a good handle on both your LTV and your CAC. CAC is relatively straightforward to calculate. LTV can be a bit trickier, especially for early-stage companies. But even a rough estimate is better than nothing. It will force you to think critically about your pricing, your churn rate, and your customer-facing roles.
3. Product Engagement Score
This isn't a standard metric you'll find in a textbook. It's something you have to create for your own product. A product engagement score is a way of measuring how much value your customers are actually getting from your product. It's a leading indicator of both retention and expansion.
To create a product engagement score, you need to identify the key actions within your product that correlate with long-term customer success. At RemoteTeam, we knew that if a company invited their entire team within the first week, they were much more likely to stick around. That was a key action for us.
Once you've identified these key actions, you can assign a weight to each one and create a composite score for each customer. This score can then be used to identify customers who are at risk of churning, as well as customers who are prime candidates for an upsell.
It takes work to set up, but a product engagement score can be one of the most valuable tools in your arsenal. It shifts the focus from what customers are paying you to what they are doing with your product. And in the long run, that's what really matters.
Stop Chasing Vanity
Look, I get it. It's tempting to focus on the headline numbers. They're easy to track and easy to brag about. But the journey from $1M to $10M ARR is a marathon, not a sprint. It's about building a business with a strong foundation.
So stop obsessing over MRR. Start obsessing over the metrics that actually predict your future. Your NRR, your LTV/CAC ratio, and your product engagement. Get those right, and the MRR will take care of itself.
Frequently Asked Questions
What's the most common pushback you get on this?
People often push back by citing exceptions or edge cases. And they're usually right that exceptions exist. But building a strategy around exceptions rather than patterns is a losing game for most founders.
What experience informs this perspective?
This perspective comes from over a decade of building companies in Silicon Valley, two successful exits (RemoteTeam to Gusto, MovieLaLa to Gfycat), and investing in 200+ startups including Anthropic, OpenAI, and Scale AI. I write about what I've lived.
Do all experts agree with this view?
No, and that's fine. The best ideas in business are often contrarian. I share my perspective based on my experience and data, but I encourage you to seek out opposing viewpoints and form your own conclusions.