Business Metric Calculations
Metrics That Drive Decisions
Business metrics translate raw numbers into actionable insights. Revenue alone does not tell you whether your business is healthy — growth rate, margins, and unit economics do. Here are the calculations behind the metrics that matter most.
Revenue Growth Rate
Growth rate measures how fast revenue (or any metric) is changing over time.
Growth rate = ((Current period - Previous period) / Previous period) × 100
Example: Revenue went from $120,000 last quarter to $156,000 this quarter.
Growth rate = ((156,000 - 120,000) / 120,000) × 100 = 30%
| Period | Revenue | Growth Rate |
|---|---|---|
| Q1 | $100,000 | — |
| Q2 | $120,000 | 20% |
| Q3 | $156,000 | 30% |
| Q4 | $187,200 | 20% |
Compound monthly growth rate (CMGR) smooths this over multiple periods:
CMGR = (Ending value / Starting value)^(1/months) - 1
For Q1 to Q4: ($187,200 / $100,000)^(1/9) - 1 = 7.2% per month.
Customer Acquisition Cost (CAC)
CAC tells you how much you spend to acquire one customer.
CAC = Total sales and marketing spend / New customers acquired
Example: You spent $50,000 on marketing and sales last month and acquired 200 new customers.
CAC = $50,000 / 200 = $250 per customer
CAC by channel helps you allocate budget wisely:
| Channel | Spend | New Customers | CAC |
|---|---|---|---|
| Google Ads | $20,000 | 120 | $167 |
| Content marketing | $15,000 | 50 | $300 |
| Referrals | $5,000 | 80 | $63 |
Referrals deliver the lowest CAC. Content marketing needs optimization.
Customer Lifetime Value (LTV)
LTV estimates total revenue from one customer over their entire relationship with you.
LTV = Average revenue per user (ARPU) × Gross margin × Customer lifetime
Customer lifetime = 1 / Churn rate
Example: ARPU is $50/month, gross margin is 70%, monthly churn is 5%.
Customer lifetime = 1 / 0.05 = 20 months
LTV = $50 × 0.70 × 20 = $700
The LTV:CAC ratio determines sustainability:
| LTV:CAC | Interpretation |
|---|---|
| Below 1:1 | Losing money on every customer |
| 1:1 to 3:1 | Marginal — difficult to grow |
| 3:1 to 5:1 | Healthy — efficient acquisition |
| Above 5:1 | Under-investing in growth |
Churn Rate
Churn measures customer loss over a period.
Churn rate = (Customers lost in period / Customers at start of period) × 100
Example: Started the month with 1,000 customers, lost 45.
Churn rate = (45 / 1,000) × 100 = 4.5%
Revenue churn tells a different story than customer churn:
| Metric | Formula | What It Reveals |
|---|---|---|
| Customer churn | Lost customers / Starting customers | How many users leave |
| Revenue churn | Lost MRR / Starting MRR | How much revenue leaves |
If high-paying customers churn faster, revenue churn exceeds customer churn — a warning sign.
Gross Margin
Gross margin shows how much of each dollar is profit after direct costs.
Gross margin = ((Revenue - Cost of goods sold) / Revenue) × 100
Example: $200,000 revenue, $80,000 COGS.
Gross margin = (($200,000 - $80,000) / $200,000) × 100 = 60%
| Business Type | Typical Gross Margin |
|---|---|
| SaaS | 70–85% |
| E-commerce | 20–40% |
| Professional services | 40–60% |
| Manufacturing | 15–35% |
Software companies operate at high gross margins because the cost of serving one more customer is nearly zero.
Conversion Rate
Conversion rate measures the percentage of visitors who complete a desired action.
Conversion rate = (Conversions / Total visitors) × 100
Example: 10,000 landing page visitors, 350 signups.
Conversion rate = (350 / 10,000) × 100 = 3.5%
| Page Type | Typical Conversion Rate |
|---|---|
| SaaS free trial signup | 2–5% |
| E-commerce purchase | 1–3% |
| Newsletter signup | 5–15% |
| Lead generation form | 3–8% |
Key Takeaways
- Growth rate measures momentum; compound growth rate smooths volatility
- CAC reveals acquisition efficiency — calculate it by channel for actionable insights
- LTV depends on margin and retention — a high-ARPU customer who churns fast may have low LTV
- LTV:CAC ratio above 3:1 signals a sustainable business model
- Revenue churn and customer churn tell different stories — track both
- Gross margin varies by industry; compare against benchmarks, not absolute numbers
Try It Yourself
Run these calculations instantly with our Percentage Calculator. Enter your values for growth rate, margin, or churn — get results in one click.