The software-as-a-service (SaaS) industry is flooded with metrics to guide organizations throughout their growth. On one hand, this can make it easier to set achievable goals, but on the other, you don't even know what half of them mean! We've compiled 14 SaaS metrics you need to understand in order to expertly fuel your growth.
Basic SaaS Metrics
- CAC: Customer Acquisition Cost, or CAC, is the amount of money your business spends on marketing and sales efforts to acquire a single customer. A low CAC will enable you to acquire more customers (at lower cost), decrease the time it takes to recover that cost and increase the value-add of that customer.
- MRR: Monthly Recurring Revenue is a measurement of the amount of revenue you can expect to receive on a recurring monthly basis — either from entirely new sales or existing business expansions.
- ARR: Similar to MRR, Annual Recurring Revenue is the amount of revenue you expect to receive on an annual basis — from completely new sales or from existing business up-sells.
- Months to Recover CAC: This metric measures how long it will take to recover the CAC, or initial investment, of a single customer. For example, if it cost you $1,000 to acquire a new customer and your average MRR is $100, it will take 10 months to recover your CAC.
- Customer Lifetime Value (LTV): Your customer lifetime value is a measurement of the average amount of revenue you generate per customer over their entire engagement with your products or services.
- Churn Rate: Churn is a measurement of how many customers you lost and the amount of revenue lost within a specific time period. In the age of customer loyalty, this is one of the most important metrics you can measure as it's a reflection of how well you're retaining your existing customers.
- NPS: Net Promoter Score is a measurement from 1-10 of how willing a customer is to recommend — or promote — your products or services. A high NPS should indicate that you have a pretty solid LTV and Churn Rate.
- Quick Ratio: The quick ratio is the average ratio of increase to decrease change in monthly contract values. It's a high-level comparison of MRR gained to MRR lost.
- Revenue Growth Rate: Revenue growth is one of the best measurements of success as it clearly shows the market's demand for your products or services and how quickly your revenue is growing. It's measured by the percentage increase of ARR year over year.
- Workforce Efficiency: Your workforce efficiency is a measurement of the productivity of your employees, or workforce. It divides your annual revenue by your number of employees to calculate the revenue per employee. If you have a productive workforce, your revenue will grow exponentially as you expand your team.
Advanced SaaS Metrics
- Net New MRR: MRR on its own can be a limited metric because it doesn't account for existing customers leaving your organization or decreasing their monthly commitment to it. Your Net New MRR accounts for these additions and subtractions. It's a measurement of your new and expansion monthly business, minus churned monthly business (from customers leaving or decreasing their commitments).
- CAC to LTV Ratio: With CAC as your Cost to Acquire a new Customer and LTV as the Lifetime Value of that customer, this ratio provides insight on the return you should expect from your investment in a new customer for that relationship to be profitable.
- Normalized Sales and Spending Levels: This metric can be quite similar to CAC depending on how closely your organization chooses to monitor your CAC. Normalized Sales and Spending Levels analyzes your entire marketing and sales expenditures as a percent of total revenue. This analysis includes not only the budget associated with bringing in your new customers (paid advertising), but also the budget associated with compensating the individuals on those teams. Some organizations choose to take all of this into account while calculating CAC, while others choose to keep CAC higher-level.
- Burn Rate: This metric is more relevant to startups that just received funding as it measures how quickly a company is burning through their cash. It calculates how much money your company is losing over a given period of time and provides insight into how long you can keep burning cash at that rate. Overall, it's a measurement of how long your cash balance can actually cover all of those losses.
Now that you understand the important SaaS metrics necessary to measure your growth, this guide will take you through comprehensive and actionable ways to drive growth for your business. It will help you create a highly effective SaaS marketing strategy, from goal setting all the way through to customer success and retention:
Julia is a former New Breeder.