Financial SaaS Metrics That Matter For Savvy Investors and Founders
SaaS metrics that matter, depend on on what specifically is being measured or assessed in a SaaS Business. You may be asking, “Which SaaS metrics are most important?” Most commonly, the SaaS metrics that matter are the Financial Metrics of the SaaS Company in question. Another common set of SaaS metrics that matter are those related to Marketing Effectiveness. We’ll write specifically about Financial SaaS metrics that matter.
Financial SaaS metrics that matter are a set of measurements that are used to assess the financial performance of a SaaS company. These metrics provide insight into the health of the business and can be used to make strategic decisions about growth, marketing, and product development. Some common reasons to uses these metrics are to assess the financial strength of a SaaS Company, to assess the value of a SaaS Company for Merger or Acquisition, or to make equity sharing decisions for founders or key employees.
In this article, we will discuss some of the most important SaaS metrics that matter, including:
List of SaaS Metrics That Matter
Our product, SaasCaster, will calculate most of these metrics for you. The following is a saas metrics cheat sheet that you can use to calculate them yourself.
MRR (Monthly Recurring Revenue)
The monthly recurring revenue mrr measures the monthly revenue that a company generates from its recurring revenue streams, such as subscription-based services. To calculate MRR, simply add up all of the recurring revenue streams for a given month and divide by the number of customers.
How To Calculate MRR
For example, if a company has 100 customers paying $50 per month for a subscription service, the MRR for that month would be $5,000.
ARR (Annual Recurring Revenue)
This metric measures the annual recurring revenue generated by a company.
How To Calculate ARR
To calculate ARR, simply take the MRR and multiply it by 12. In the above example, the ARR would be $60,000
Churn (Customer Churn)
Churn, generally refers to Customer Churn measures the rate at which customers cancel their subscriptions or stop using a company’s services. To calculate churn, divide the number of lost customers by the total number of customers.
How To Calculate Customer Churn
For example, if a company loses 10 customers out of 100 in a month, the churn rate for that month would be 10%.
Revenue Churn
Revenue Churn is a metric that measures the rate at which a company is losing revenue from its customer base. It is calculated by taking the total revenue lost from churned customers during a specific period, divided by the total revenue generated during the same period. The result is expressed as a percentage. A high revenue churn rate indicates that a company is losing a significant amount of revenue from its customer base, which can negatively impact its overall growth and profitability.
How To Calculate Revenue Churn
For example, if a SaaS company generated $100,000 in revenue in a month and lost $10,000 in revenue due to churned customers, the revenue churn rate would be 10%.
ARPU (Average Revenue per User)
ARPU is a financial metric that measures the average revenue generated per user for a particular period of time. It is calculated by dividing the total revenue generated by the number of users during a specific period. This metric helps companies understand how much revenue is generated per user and can provide insight into how well the company is monetizing its customer base.
How To Calculate ARPU
For example, if a SaaS company generated $100,000 in revenue and had 10,000 users in a month, the ARPU would be $10 per user.
Growth
This metric measures the rate at which a company is growing its revenue. To calculate growth, subtract the previous month’s MRR from the current month’s MRR and divide by the previous month’s MRR.
How To Calculate Growth
For example, if a company’s MRR for the current month is $5,500 and its MRR for the previous month was $5,000, the growth rate for that month would be 10%.
NPS (Net Promoter Score)
The net promoter score nps measures customer satisfaction and loyalty. To calculate NPS, ask customers to rate their likelihood of recommending a company’s products or services on a scale of 0 to 10. Subtract the percentage of detractors (customers who gave a score of 0 to 6) from the percentage of promoters (customers who gave a score of 9 or 10).
How To Calculate NPS
For example, if 60% of customers gave a score of 9 or 10, and 20% gave a score of 0 to 6, the NPS would be 40%.
LTV (Lifetime Value)
This metric measures the total revenue that a customer is expected to generate for a company over the lifetime of their relationship. To calculate LTV, multiply the average revenue per customer by the average customer lifespan.
How To Calculate LTV
For example, if a company’s average revenue per customer is $500 and the average customer lifespan is 2 years, the LTV would be $1,000.
CAC (Customer Acquisition Cost)
This metric measures the cost of acquiring a new customer. To calculate CAC, divide the total cost of sales and marketing efforts by the number of new customers acquired.
How To Calculate CAC
if a company spends $10,000 on sales and marketing efforts and acquires 100 new customers, the CAC would be $100.
CAC Payback Period
The CAC Payback Period is a metric that measures the amount of time it takes for a SaaS company to recoup its customer acquisition costs (CAC). It is calculated by dividing the CAC by the monthly recurring revenue (MRR) generated by a new customer. This metric is important because it helps a company understand how long it takes to recoup its investment in acquiring a new customer, which can aid in making strategic decisions about marketing and sales expenses.
How To Calculate CAC Payback Period
For example, if a SaaS company’s CAC is $1,000 and the MRR generated by a new customer is $100, the CAC payback period would be 10 months.
Burn Multiple
This metric measures the multiple of months a company can continue to operate at its current burn rate before it runs out of cash. To calculate the burn multiple, divide the company’s cash balance by its monthly burn rate.
How To Calculate Burn Multiple
For example, if a company has $1,000,000 in cash and a burn rate of $100,000 per month, the burn multiple would be 10.
Comprehensive Article on SaaS Burn Rates
Hype Ratio
This metric measures the ratio of hype to actual revenue, it gives insight into how much of the company’s growth is driven by marketing and how much is driven by actual product-market fit. To calculate the hype ratio, divide the company’s revenue growth rate by its customer acquisition cost growth rate.
How To Calculate Hype Ratio
For example, if a company’s revenue growth rate is 30% and its customer acquisition cost growth rate is 10%, the hype ratio would be 3.
ACV (Annual Contract Value)
This metric measures the average annual revenue per customer. To calculate ACV, divide the total annual recurring revenue by the number of customers.
How To Calculate ACV
For example, if a company has an annual recurring revenue of $1,000,000 and 100 customers, the ACV would be $10,000.
Bookings
Bookings is a financial metric that measures the value of sales contracts signed during a specific period of time. It is used by SaaS companies to track the amount of revenue that is expected to be generated in the future. Bookings are different from revenue, as they are the value of sales that are committed to, but not yet recognized as revenue. Bookings are important for SaaS companies as they provide an early indicator of future revenue, and can be used to forecast future revenue growth.
How To Calculate Bookings
For example, if a SaaS company signs a contract for $10,000 for a one-year subscription, the $10,000 would be recorded as bookings for that period.
Sales Rep Ramp
Sales rep ramp is a metric that measures the time it takes for a new sales representative to reach full productivity. It is usually measured in the number of months it takes for a new sales representative to reach their targeted quota. This metric is important for SaaS companies as it helps them understand how long it takes for new sales representatives to become productive and contribute to the company’s revenue. It also allows them to identify any roadblocks or training needs that may be impacting the ramp-up time of new sales representatives and make appropriate adjustments.
How To Calculate Sales Rep Ramp
For example, if a company’s targeted quota for a sales representative is $100,000 in revenue per quarter, and a new sales representative takes 3 months to reach that quota, the sales rep ramp would be 3 months.
SaaS Metrics That Matter, Final Thoughts
These are just a few of the important SaaS financial metrics that matter. By regularly monitoring these metrics, SaaS companies can gain valuable insights into their business and make data-driven decisions about growth, marketing, and product development. These metrics also serve as the key saas metrics for investors.
It’s important to note that these metrics should be considered in the context of the company’s overall business strategy and goals. For example, a high MRR growth rate may be positive in the short term, but if it’s not sustainable in the long term, it may not be a positive indicator of the company’s overall health.
In conclusion, SaaS metrics that matter are crucial for any SaaS company to measure their financial performance and make strategic decisions. By regularly monitoring MRR, ARR, Churn, Growth, NPS, LTV, CAC, Burn Multiple, Hype Ratio, ACV and other important financial metrics, SaaS companies can gain valuable insights into their business and make data-driven decisions about growth, marketing, and product development. SaaS Metrics That Matter are essential for any SaaS company to measure their financial performance and make strategic decisions.
