These are KPIs you’re likely to find in Board Packs, Fundraising, and Company OKRs.
What drives these KPIs is the Acquisition and Retention efforts of Marketing, Sales and Customer Success, and the Product and Engineering efforts needed to deliver a high value software solution to a valuable problem.
In the world of SaaS these KPIs are often referred to as SaaS Metrics not SaaS KPIs, although they are exactly the same. One of the goto reference sources for SaaS Metrics is this article from David Skok.
It’s an obvious one but you want to increase the total number of customers / accounts you have. It works independently and as part of calculations like ARPA.
SaaS is all about increasing subscription Billings and that means Monthly Recurring Revenue or MRR. MRR is all of your recurring revenue normalized to a monthly amount.
How fast is your MRR growing? The answer is expresses as % Growth Rate of MRR. Increasing or accelerating you MRR Growth is the name of the game. This can be from New MRR and Expansion Sales. Reducing Churn is critical as well.
The Lifetime Value or LTV of a customer is the expected lifetime revenue from a new customer signed in a time period.
This is an important Marketing KPI because it impacts that you can spend on acquiring a customer, which in turn impacts which channels you can use and what proportion of market demand you can market to. This means that if you’ve a relatively high LTV you job is easier than a competitor with a lower LTV.
But like NPS, LTV is a Company and Team KPI and actually impacts other teams like Product and Customer Service. This means that when it’s set as a Goal it’s often a Collaboration across teams or if it’s an issue could even have a multi-functional squad assigned.
Your Costs Of Acquiring A Customer or CAC is simply that, i.e. the amount it cost to acquire a customer during the period.
It’s a measure of how efficiently you can use your Marketing Spend to acquire a customer. Note that where the customer journey is long using the costs in the same month might not be optimal.
You obviously want your LTV to me much better and higher than your CAC, otherwise you’re losing money with every sale. This is expresses as the LTV : CAC ratio usually.
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. You want to increase this both for new deals and through expansion sales / upgrades.
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.