Every SaaS founder knows they need to track metrics. MRR, ARR, churn, LTV, CAC, NRR — the list goes on. But when it comes to your financial model, not all metrics are created equal. Including too many creates noise. Including the wrong ones creates false confidence.
Start with unit economics
The foundation of any SaaS financial model is unit economics. What does it cost to acquire a customer (CAC), and what is that customer worth over time (LTV)? If these two numbers don't work, nothing else in the model matters.
But LTV/CAC ratios are only useful if they're based on real data — not aspirational targets. If you're pre-revenue or early-stage, be honest about the uncertainty. Use ranges. Show what the model looks like at different churn rates. Investors will respect the honesty far more than a fabricated 5:1 ratio.
Revenue recognition and cohort behaviour
Monthly recurring revenue (MRR) is the heartbeat of a SaaS model, but it needs to be modelled with nuance. New MRR, expansion MRR, contraction MRR, and churn MRR all behave differently and should be modelled separately.
Cohort-based modelling — tracking how groups of customers acquired in the same period behave over time — is particularly powerful. It reveals whether your product retains users, whether expansion revenue is real, and whether your payback period assumptions hold up.
What to leave out
Vanity metrics like total signups, page views, or social media followers have no place in a financial model. Neither do metrics you can't tie to a financial outcome. If a metric doesn't drive revenue, cost, or cash flow, it's a distraction.
The best SaaS models are surprisingly lean. They focus on the mechanics that actually drive the business — acquisition, monetisation, retention, and cost structure — and model those well.
