SaaS metrics are a great way to gauge your business and ensure you’re on the right track. They can help you determine whether or not your marketing efforts are paying off, which features users like most, and more.
If you’re involved in a SaaS business, you must know which metrics you need to track. Without them, measuring the success of your product or service and making strategic decisions on how to improve it will be difficult.
An accurate picture of how people use your software is critical for making informed decisions about growing your business.
Monthly recurring revenue (MRR) is your startup’s total revenue from monthly subscriptions. You should know how much MRR you have at any given time to anticipate future growth and revenue needs.
Tracking this metric is important because it lets you know how much cash is coming in every month and helps you gauge whether or not your business model is working.
The average revenue per account tells you how much each customer pays per month on average. You can calculate it by dividing MRR by the number of paying accounts in your system (not including free trials).
The average revenue per account is an essential metric to track because it tells you how much each customer spends with your company. The higher this figure, the better.
The customer acquisition cost (CAC) is a key metric that indicates how much it costs to acquire each new customer. A low CAC suggests that you can acquire customers at a low cost. When the CAC is high, it may indicate that you’re not targeting the right market or that your sales and marketing efforts aren’t paying off.
To calculate, divide the number of new customers by the total amount spent to acquire them (including marketing costs and sales compensation).
The customer lifetime value (CLV or sometimes LTV) is the average revenue a customer generates over their entire relationship with your company.
It includes all future purchases and renewals and can help you determine whether or not certain marketing efforts are worth the investment. Customer LTV can also help inform future decisions about how much you can afford to spend on advertising.
It’s calculated by taking the sum of all future cash flows from that customer and dividing it by the cost of acquiring them.
The churn rate refers to the percentage of customers you lose during a period (monthly, quarterly, annually). It can give you an idea of how satisfied your customers are with your service and what problems they’re having with it. A high churn rate may indicate something wrong with your product or service.
The churn rate shows how well you retain and keep customers happy with your product. It gives you an indication of how likely it is that someone will cancel their subscription or switch products altogether in the future.
If customers cancel their subscription early, it could mean they don’t perceive the value in the product. Although some churn is natural, you ideally want this number to be low because it represents lost revenue for your business.
Cash flow is the lifeblood of any business and shows how much money you have coming into your bank account. More cash going out may indicate a need to raise additional funding or cut costs. If cash flow is negative for too long, you may have trouble paying your employees and bills on time.
Cash flow tracking is essential because it provides a better understanding of how much money is coming in and going out each month. You can use this information to:
Cash burn rate measures how quickly a company spends its capital. A company quickly burning through its money must find a way to generate revenue before running out of cash altogether.
A high cash burn rate can be dangerous if a startup doesn’t have much runway left before running out, and finding ways to cut costs or raise additional funding becomes imperative.
Growing a profitable business typically requires keeping your cash burn rate low without sacrificing growth potential. You can easily calculate this by dividing what you spend over a quarter or other period by the length of the period in months.
Taking it a step further, dividing the cash you have by the burn rate will give you your runway, which shows how much time you have left until you need to break even or become profitable.
When running a SaaS business, it’s easy to get caught up in day-to-day business and forget the big picture. You need to know where you stand and how the future looks.
That’s why it’s essential to track key SaaS metrics that will help you grow your business with more thoughtful decisions.
If you’re not sure you’re on the right track regarding SaaS metrics, Founder’s CPA can help. Contact us today and let an expert get you started.
SaaS revenue recognition requires you to account for subscription-based software services properly. Although it's a…
Financial forecasting software is a powerful tool for predicting business outcomes, making it a critical…
Scaling a startup comes with unique financial challenges that you can best face with the…
Startup growth can have many meanings. Although a startup's growth trajectory often refers to sales,…
Do you know how your business performed this past year? Savvy business owners know that…
Annual planning heats up for most businesses as the weather cools, and financial forecasting is…