One of the most important things founders building software companies need to understand is how to measure the health of their business.

SaaS metrics help founders understand how quickly their business is growing, how efficiently they are acquiring customers, and whether those customers generate meaningful long-term value.

One of the most important concepts for startup founders to understand is the relationship between Customer Acquisition Cost (CAC) and Lifetime Value (LTV).

Startups often invest heavily in marketing, sales and growth in order to acquire new customers. That investment can drive rapid growth, but it only creates a sustainable business if the value generated by those customers significantly exceeds the cost required to acquire them.

If you spend any time in the startup ecosystem, particularly around software companies, you’ll frequently hear one acronym mentioned more than almost any other: ARR.

ARR, or Annual Recurring Revenue, is one of the most important metrics used to measure the growth of subscription-based businesses.