Who it's for: SaaS finance and FP&A team members who produce efficiency metrics for the board pack, investor updates or a fundraise.
What you'll get: a plain-text formula sheet for CAC, CAC payback, LTV, LTV:CAC, magic number, burn multiple and Rule of 40, with the common variations for each, one fully worked MonthEndClub Co Ltd example, and a one-slide summary for your boss.
Reading time: about 12 minutes. Keep it open next to the pack.
Why a formula sheet matters
None of these metrics is defined by an accounting standard. Two companies can report the same "CAC payback" with very different maths behind it, and the same company can drift between methods without noticing. A one-page sheet that says exactly which formula you use, with which inputs, keeps the numbers consistent month to month and makes investor questions much easier to answer.
Key terms
- S&M (sales and marketing) spend: salaries, commissions, advertising, events and tools for the sales and marketing teams for the period.
- New ARR: annual recurring revenue from customers won in the period.
- Net new ARR: closing ARR minus opening ARR (new + expansion − contraction − churn).
- ARPA (average revenue per account): ARR ÷ number of customers.
- Gross margin: (revenue − cost of sales) ÷ revenue. Usually subscription gross margin for these metrics.
- Net burn: cash out minus cash in for the period, excluding financing (equity raised or loans drawn).
- LTM (last twelve months): the total for the most recent 12 months.
The formula sheet
| Metric | Common formula | Common variations | What it tells you |
|---|---|---|---|
| CAC (customer acquisition cost) | S&M spend in the period ÷ new customers won in the period | Lagged spend (prior quarter); sales-only vs fully loaded S&M; excluding spend aimed at existing customers | What it costs to win one customer |
| CAC payback (months) | S&M spend ÷ (New ARR × Gross margin %) × 12 | Using new + expansion ARR; using MRR (then × 1, not × 12); ignoring gross margin (flatters the result) | How long gross profit from new customers takes to repay what it cost to win them |
| LTV (lifetime value) | ARPA × Gross margin % ÷ Annual revenue churn rate | Logo churn instead of revenue churn; capped at 5 years; discounted to today's value; using net churn (can give infinite LTV if expansion beats churn) | Gross profit expected from an average customer over its life |
| LTV:CAC | LTV ÷ CAC | Inherits all the variations above | Return on acquisition spend. 3:1 is a widely quoted rule of thumb |
| Magic number | (This quarter's subscription revenue − last quarter's) × 4 ÷ last quarter's S&M spend | Net new ARR ÷ last quarter's S&M; using this quarter's S&M (no lag); adjusting for gross margin | How much new annualised revenue each pound of S&M produced |
| Burn multiple | Net burn ÷ Net new ARR (same period) | Annual rather than quarterly; operating burn only | How much cash is spent to add each pound of ARR. Lower is better |
| Rule of 40 | Revenue (or ARR) growth % + Profit margin % | Margin as EBITDA, operating profit or free cash flow; growth as ARR or revenue; LTM vs run-rate | Balance between growth and profitability |
Two general rules make the sheet work. First, use the same period for numerator and denominator unless the formula deliberately lags. Second, state each variation you've chosen in a footnote.
AI shortcut: paste this table into an approved AI assistant along with last quarter's board pack metric page. Ask it: "For each metric in the pack, which formula and variation from this table does our calculation appear to use? List any metric where the inputs look inconsistent with the stated formula." You'll get a quick audit of your own definitions. A person checks each finding against the spreadsheet.
How to calculate the set each quarter
| Step | What "done" looks like | |
|---|---|---|
| ☐ | Close the quarter's ledger and lock it | Inputs come from final numbers |
| ☐ | Pull S&M spend by quarter from the departmental P&L | Agrees to the ledger; mapping of costs to S&M follows the written policy |
| ☐ | Take new ARR, net new ARR, customer counts and churn from the ARR bridge | Agrees to the reviewed bridge |
| ☐ | Take subscription gross margin from the management accounts | Same figure as the pack |
| ☐ | Take net burn from the cash flow, excluding financing | Agrees to the bank movement less funding received |
| ☐ | Calculate each metric using the formula sheet, inputs linked not typed | Every input cell references its source |
| ☐ | Compare with last quarter and explain any big movement | Short comment for each change above your threshold |
| ☐ | Footnote the definitions and get the page reviewed | Reviewer sign-off |
Worked example: MonthEndClub Co Ltd, quarter to 30 September 2026
MonthEndClub Co Ltd (fictional) inputs for Q3 (July to September 2026):
| Input | Value | Source |
|---|---|---|
| S&M spend, Q3 | £180,000 | Departmental P&L |
| S&M spend, Q2 | £170,000 | Departmental P&L |
| New customers won, Q3 | 15 | ARR bridge |
| New ARR from those customers | £150,000 | ARR bridge |
| Expansion ARR, Q3 | £30,000 | ARR bridge |
| Contraction and churn ARR, Q3 | £60,000 | ARR bridge |
| ARR at 30 June 2026 | £840,000 | ARR bridge |
| ARR at 30 September 2026 (128 customers) | £960,000 | ARR bridge |
| ARR at 30 September 2025 | £762,000 | ARR bridge |
| Subscription revenue, Q3 / Q2 | £234,000 / £204,000 | Management accounts |
| Subscription gross margin | 70% | Management accounts |
| Annual revenue churn (1 − GRR) | 10% | Retention workings |
| LTM revenue / LTM EBITDA | £900,000 / (£108,000) | Management accounts |
| Net burn, Q3 | £150,000 | Cash flow |
Check on the ARR inputs: 840,000 + 150,000 + 30,000 − 60,000 = 960,000. Net new ARR for the quarter is £120,000.
The calculations
| Metric | Workings | Result |
|---|---|---|
| CAC | 180,000 ÷ 15 | £12,000 |
| CAC payback | 180,000 ÷ (150,000 × 70%) × 12 = 180,000 ÷ 105,000 × 12 | 20.6 months |
| ARPA | 960,000 ÷ 128 | £7,500 |
| LTV | 7,500 × 70% ÷ 10% = 5,250 ÷ 0.10 | £52,500 |
| LTV:CAC | 52,500 ÷ 12,000 | 4.4 : 1 |
| Magic number | (234,000 − 204,000) × 4 ÷ 170,000 = 120,000 ÷ 170,000 | 0.71 |
| Burn multiple | 150,000 ÷ 120,000 | 1.25 |
| ARR growth (year on year) | 960,000 ÷ 762,000 − 1 | 26.0% |
| EBITDA margin (LTM) | −108,000 ÷ 900,000 | −12.0% |
| Rule of 40 | 26.0 + (−12.0) | 14 |
How the variations change the answers
| Metric | Variation | Workings | Result |
|---|---|---|---|
| CAC payback | Include expansion ARR | 180,000 ÷ (180,000 × 70%) × 12 | 17.1 months |
| CAC payback | Ignore gross margin | 180,000 ÷ 150,000 × 12 | 14.4 months |
| CAC payback | Lagged spend (Q2 S&M) | 170,000 ÷ (150,000 × 70%) × 12 | 19.4 months |
| LTV | Capped at 5 years | 7,500 × 70% × 5 | £26,250 |
| Magic number | Net new ARR basis | 120,000 ÷ 170,000 | 0.71 |
The same business can report CAC payback anywhere from 14.4 to 20.6 months, and LTV of £26,250 or £52,500, just by choosing a variation. That's why the footnote matters more than the number.
Uncapped LTV here assumes a 10-year average customer life (1 ÷ 10% churn). The 5-year cap is a common, more cautious choice; with it, LTV:CAC falls to 26,250 ÷ 12,000 = 2.2 : 1.
Where the accounting affects the metrics
Capitalised sales commissions are a common source of confusion. Under IFRS 15, many SaaS companies capitalise commissions as contract costs and amortise them. For CAC, many teams use the commissions earned in the period (the cash or accrual cost), not the amortisation charge in the P&L, because CAC is about the cost of winning this quarter's customers. If MonthEndClub capitalised £18,000 of Q3 commissions, the journal would be:
| Account | Dr | Cr |
|---|---|---|
| Capitalised contract costs (balance sheet) | £18,000 | |
| Commissions payable | £18,000 |
The £180,000 S&M figure used above includes that £18,000 earned, even though it isn't all in the P&L this quarter. Whichever approach is used, it belongs in the written definitions.
If you report under US GAAP (ASC 606)
ASC 340-40 has broadly similar rules to IFRS 15 for capitalising incremental costs of obtaining a contract, so the commission point above applies to both. Both frameworks also offer a practical expedient allowing these costs to be expensed straight away when the amortisation period would be one year or less. US-listed companies presenting these metrics as key performance indicators face SEC staff expectations on clear definitions and consistent use.
Common mistakes and audit watch-outs
- Mixing periods. Annual LTV with quarterly CAC, or monthly churn in an annual formula.
- Using net churn in LTV. If expansion is bigger than churn, net churn is negative and LTV becomes infinite. Use gross revenue churn.
- Leaving gross margin out of payback and LTV. It flatters both. Revenue isn't profit.
- S&M that excludes salaries or commissions. Fully loaded S&M is the common default. Partial definitions make CAC look cheaper.
- Typed-in inputs. Hard-coded numbers drift from the ledger. Link every input to its source.
- AI-generated metrics with invented inputs. An AI tool asked for "our LTV" without the data may fill gaps with assumptions. Give it the input table, ask it to show workings, and check every input against source.
Tools that can help
Excel or Google Sheets work well for a linked formula sheet that pulls from the ledger export and ARR bridge. Reporting tools such as Fathom and Syft can calculate several of these metrics from Xero or QuickBooks data; check their default formulas against your written definitions. Billing platforms such as Chargebee report churn and ARPA. None of them decide which variation is right for your pack; that's a documented choice.
Take it to your boss: one slide
One set of metric definitions, used everywhere
The problem: our efficiency metrics can move by several months or tens of thousands of pounds depending on which formula variation is used, and we haven't written ours down.
Three changes
- Adopt a one-page formula sheet with one chosen variation per metric, approved by the CFO.
- Link every input to its source (ledger, ARR bridge, cash flow) instead of typing numbers in.
- Footnote definitions in every pack and investor update, and log any change with restated comparatives.
| Risk | Control |
|---|---|
| Inconsistent definitions between packs | Approved formula sheet and change log |
| Inputs don't agree to the ledger | Linked inputs and reviewer check |
| Flattering variations chosen ad hoc | Variations fixed in advance; changes need CFO approval |
| AI-calculated figures with wrong inputs | AI shows workings; every input checked to source |
How we'll measure it: share of metric inputs linked to source (target 100%), definition changes per year, and investor follow-up questions about methodology.
Key takeaways
- CAC payback = S&M ÷ (New ARR × Gross margin) × 12; LTV = ARPA × Gross margin ÷ Annual revenue churn; Burn multiple = Net burn ÷ Net new ARR.
- Every metric has several accepted variations, and the choice can change the answer a lot.
- Write down one variation per metric and footnote it in the pack.
- Keep periods consistent and include gross margin where the formula calls for it.
- Link inputs to the ledger and ARR bridge, and check any AI-calculated metric input by input.
FAQs
What's a good CAC payback period?
Many investors look for under 12 to 18 months for small and mid-market SaaS, and accept longer for enterprise, but benchmarks vary by stage and source. The method used matters as much as the number.
Is the Rule of 40 relevant for early-stage companies?
It's most often used for scaling and later-stage businesses. Early-stage companies with very high growth and deep losses can produce odd results, so many investors focus on burn multiple and growth at that stage.
Should expansion ARR count in CAC payback?
Some teams include it, especially when the same sales team handles upsell. Others keep CAC payback to new customers only and track expansion efficiency separately. Either is common; consistency matters more.
Can AI produce these metrics for the board pack?
An approved AI tool can calculate them from an input table and draft the commentary, and it's useful for spotting inconsistent inputs. The definitions, inputs and final numbers are still checked and signed off by a person before they go to the board.
Related guides
- Net and Gross Revenue Retention: How to Calculate Them Correctly
- SaaS Gross Margin: What Belongs in Cost of Sales
- Capitalising Sales Commissions (Contract Costs)
- Burn, Runway and the 13-Week Cash Forecast
More in Metrics and Reporting guides.
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This guide is general information about common practice. It isn't tailored to any business, and standards, tax rules and figures change. Check your own circumstances, the latest rules and, where needed, a qualified professional before acting.
Last reviewed: October 2026.