SAAS Valution Metrics: MRR, CAC & LTV

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The way SaaS businesses are valued on marketplaces like Flippa, Empire Flippers, FE International, or even through private buyers is fairly standardized, but the multiple depends heavily on quality of revenue and risk.

Here’s the breakdown:

🔑 Key Metrics Buyers Look At

  • MRR / ARR (monthly recurring revenue / annual recurring revenue)

  • Churn (customer + revenue churn)

  • Growth rate (consistent, compounding growth vs flat)

  • CAC:LTV ratio (customer acquisition cost vs lifetime value)

  • Owner involvement (is it turnkey or does it require you daily?)

  • Market niche (boring, defensible niches usually get higher multiples)

  • Tech stack & defensibility (custom code vs no-code, proprietary vs clone)

💰 Multiples (Rule of Thumb for SaaS)

  • Small SaaS (< $10k MRR) → ~2x–3x annual profit (sometimes revenue if expenses are low).

  • $10k–$50k MRR range → ~3x–4.5x annual profit.

  • $50k+ MRR and scaling well → ~4.5x–7x annual profit.

  • Enterprise SaaS ($1m+ ARR, strong retention, low churn, high LTV) → often 7x–12x ARR if sold to strategic buyers or PE firms (not just on Flippa/Empire).

📊 Example With Your Numbers

  • If you’re doing $100k MRR → $1.2m ARR:

    • On Flippa (smaller buyers, less sophisticated) → maybe 3.5x–5x ARR = $4.2m–$6m.

    • On Empire Flippers / FE International (higher quality buyers) → 5x–8x ARR = $6m–$9.6m.

    • To strategic acquirers or PE (if churn is low, growth > 20% YoY, strong margins) → 7x–12x ARR = $8.4m–$14.4m.

⚖️ Quick Note

  • Multiples are applied to profit (SDE/EBITDA), not raw revenue, in most SMB marketplaces.

    • But for SaaS, because of recurring and predictable nature, revenue multiples are more common (especially ARR-based).

  • Profit margins matter: if your SaaS spends $90k/month on ads to make $100k MRR, valuation drops.

👉 In short:
A SaaS making $1.2m ARR with healthy margins and <5% monthly churn could sell anywhere between $6m and $10m on typical marketplaces, and possibly $12m+ with the right strategic buyer.

💵 1. Customer Acquisition Cost (CAC)

  • CAC varies wildly depending on niche (B2B vs B2C, SMB vs enterprise, self-serve vs sales-led).

  • Benchmarks (B2B SaaS, $100/month product):

    • Low-touch/self-serve SaaS (freemium, PLG, inbound SEO/organic) → CAC can be as low as $50–$200.

    • Paid acquisition (Google, LinkedIn, Meta ads, cold outreach) → CAC often $500–$1,500.

    • Sales-led (SDR/AE outbound, demos, contracts) → CAC can reach $2,000–$10,000+ for enterprise.

For your $100/month product (likely SMB or prosumer) → a realistic CAC is $300–$800 if paid channels are your primary source.

📈 2. Advertising Channels / Methods

  • Performance Marketing (direct CAC spend):

    • Google Search Ads (intent-based, high CAC but high conversion).

    • LinkedIn Ads (B2B, expensive CPMs, but targeted).

    • Meta Ads (FB/IG, good for B2C/prosumer SaaS).

  • Inbound / Organic:

    • SEO & Content Marketing (long-term compounding, high ROI, but slow).

    • Social media (LinkedIn posts, Twitter, TikTok for prosumer).

    • YouTube tutorials / thought leadership (drives long-tail leads).

  • Other:

    • Partnerships & integrations (Zapier, marketplaces, AppSumo).

    • Affiliates/referral programs.

    • Cold outreach (email/LinkedIn).

Most healthy SaaS businesses have a mix — inbound to keep CAC low, paid to scale when needed.

🔄 3. Lifetime Value (LTV)

Formula:

LTV=ARPU×GrossMargin×AverageCustomerLifespanLTV = ARPU \times Gross Margin \times Average Customer Lifespan

  • ARPU (Average Revenue Per User): $100/month.

  • Gross Margin: SaaS margins are high (70–90%). Let’s assume 80%.

  • Customer lifespan depends on churn:

    • If churn = 5% monthly → average lifespan = 20 months.

    • If churn = 2% monthly → average lifespan = 50 months.

👉 So:

  • Bad churn (5%/mo) → LTV ≈ $100 × 0.8 × 20 = $1,600.

  • Good churn (2%/mo) → LTV ≈ $100 × 0.8 × 50 = $4,000.

⚖️ 4. Healthy Ratio (LTV : CAC)

  • SaaS investors look for LTV:CAC ≥ 3:1.

    • Example: If CAC = $500, you want LTV ≥ $1,500.

    • If CAC = $1,000, you want LTV ≥ $3,000.

If the ratio drops below 2:1 → scaling gets very expensive.
If it’s above 5:1 → you might be under-investing in growth.

✅ In summary:

  • Expect CAC in the $300–$800 range for a $100/month SaaS using paid channels.

  • Good SaaS blends inbound + paid so CAC doesn’t balloon.

  • Average LTV will be $1,600–$4,000 depending on churn.

  • Aim for LTV:CAC = 3:1 as the benchmark.

Do you want me to map out which acquisition channel is best if you’re bootstrapping with minimal ad budget vs if you’re trying to scale aggressively with VC money?



Perfect — let’s split this into bootstrapped vs VC-backed scaling, because the strategy (and acceptable CAC) changes drastically.

🟢 Bootstrapped SaaS (Minimal Ad Budget)

Goal = profitable growth, low burn, sustainable.

Best acquisition channels:

  1. SEO & Content Marketing

    • Blog posts, tutorials, comparison pages ("X vs Y"), industry guides.

    • Slow to ramp (6–12 months), but CAC can drop below $100 over time.

    • Compounds, builds defensibility.

  2. Product-Led Growth (PLG)

    • Freemium or free trial → upgrades.

    • Viral loops (invite teammates, collaboration features).

    • Examples: Slack, Notion.

    • CAC close to zero if word-of-mouth works.

  3. Communities & Niche Marketing

    • Reddit, Indie Hackers, Facebook/LinkedIn groups, Discord.

    • Target micro-niches (e.g., "SaaS for law firms").

    • Sweat equity instead of cash.

  4. Partnerships / Integrations

    • Launch on marketplaces (Shopify, Zapier, HubSpot).

    • Co-marketing with complementary SaaS.

    • Often free, brings steady pipeline.

Bootstrapped CAC Target:
$50–$200 on average.
The trade-off = slower growth.

🔵 VC-Funded / Aggressive Scaling

Goal = market share, fast ARR growth, winner-take-all play.

Best acquisition channels:

  1. Paid Ads (Google, LinkedIn, Meta, YouTube)

    • High CAC ($500–$1,500+) but scalable.

    • Works when you can afford long payback periods (6–18 months).

  2. Outbound Sales (SDRs + AEs)

    • Prospecting, cold outreach, demos.

    • Common in mid-market/enterprise SaaS.

    • CAC can exceed $5,000, but if LTV is $20k–$100k+, it works.

  3. Events, Webinars, Sponsorships

    • Expensive, but accelerates brand trust.

    • Great for industries that buy slow.

  4. Channel Sales / Resellers

    • Partnerships with agencies, consultants, VARs.

    • Scales distribution, though margins shrink.

VC-Backed CAC Target:
$500–$2,000+ (sometimes higher if LTV is huge).
The trade-off = growth at the expense of short-term profitability.

⚖️ Payback Period Rule

Investors measure how long it takes to earn back CAC.

  • Bootstrapped SaaS: Aim for <6 months payback.

  • VC-backed SaaS: Acceptable to be 12–24 months, if growth is strong.

✅ In summary:

  • If you’re bootstrapping → focus on organic, content-driven, community-led growth (cheap, compounding).

  • If you’re scaling with VC → pour fuel into ads + outbound sales + brand, accepting high CAC with long payback.


Essential SaaS Metrics Explained

MRR (Monthly Recurring Revenue)

The predictable revenue a business can expect to receive every month. Calculated by multiplying the number of paying customers by the average revenue per user.

ARR (Annual Recurring Revenue)

The value of recurring revenue normalized for a single year. ARR = MRR × 12. Important for understanding long-term business viability.

LTV (Lifetime Value)

The total revenue a business can expect from a single customer account throughout their relationship. LTV = ARPU ÷ Customer Churn Rate.

ACV (Annual Contract Value)

The value of a contract over a full year. For multi-year contracts, ACV = Total Contract Value ÷ Number of Years.

Churn

The percentage of customers who cancel their subscription during a given time period. Low churn indicates strong product-market fit.

SaaS (Software as a Service)

A software distribution model where applications are hosted by a service provider and made available to customers over the internet.

ARPU (Average Revenue Per User)

The revenue generated per user or unit: ARPU = Total Revenue ÷ Number of Users. Helps measure revenue generation efficiency.

DAU (Daily Active Users)

The number of unique users who engage with your product in a single day. A key indicator of product engagement and value.

Metrics

Quantitative measurements used to track and assess the status of specific business processes and overall company health.

PQL (Product Qualified Lead)

A lead who has experienced value from your product through a free trial or freemium model and is more likely to become a paying customer.

LVR (Lead Velocity Rate)

The real-time growth of qualified leads month over month. Considered a leading indicator of future revenue growth.

CAC (Customer Acquisition Cost)

The cost associated with convincing a customer to buy a product/service. CAC = Total Sales & Marketing Costs ÷ Number of New Customers.

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