The total number of customers / accounts.
MRR is all of your recurring revenue normalized to a monthly amount.
The % Growth Rate of MRR.
ARR is the yearly version of MRR. It assumes there is no churn, new customers or growth. It’s literally MRR x 12.
The Net MRR Churn which includes Expansion MRR expressed as a % of the starting MRR for the period. If your Net MRR Churn is above 2% per month you have an issue. The median SAAS business loses about 10% of its revenue to churn each year and that works out to about 0.83% revenue churn a month (Tomasz Tunguz). Bessemer Venture Partners say that an acceptable churn rate is in the 5 – 7% range annually.
ARPA is the average MRR per account.
The money that is collected in the period and will be different from revenue due to timing.
Revenue happens when the service is actually provided. To keep this simple it’s been assumed all the billings have been recognized in the same month, this is often not the case, and in the case of annual upfront payments we could only recognize 1/12 in any month. Also, real historic account values have not been used and instead new account ARPA has been used.
There are no Generally Accepted Accounting Principles (GAAP) rules on the type of costs that are included in Cost of Goods Sold (COGS). It’s recommended you do not include: sales commissions, allocated overhead charges, customer success costs associated with cross-selling/up-selling, product development costs, third-party software use in-house for operations but not packaged in your product.
This is the Revenue less the Cost of Goods Sold.
For SaaS companies this is often targeted at over 80%.
Typically includes: Sales & Marketing, Research & Development, General & Administrative, Professional Services.
EBITDA (Earnings before interest, taxes, depreciation and amortization is a measure of a company’s operating efficiency.
EBITDA as a % of Gross Margin / Gross Profit.
Your Y-on-Y MRR Growth rate + your Profit should add up to 40%. For maturing SaaS companies this is a good metric, but for early stage companies, whose Gross Profit metric may exceed 100% or more, founders should focus more on the unit economics.
A simple way to evaluate the growth efficiency of early-stage SaaS startups. A rule of thumb is that high-growth companies should aim for a Quick Ratio of 4 (meaning that for every dollar they lose in a month they add 4).
The best companies are able to maintain or even accelerate their revenue per employee. It indicates that the company is achieving economies of scale and understand the increasing or decreasing efficiency of the business.
No Credit Card Required