Companies with customer contracts that can vary both in pricing construct and timeframe rely on SaaS metrics to provide them with business performance measurements.
There is a range of metrics that subscription-based companies, such as Software as a Service (SaaS), or streaming services, use to put data behind which business drivers they may need to adjust. Additionally, these businesses can then compare their metrics to industry benchmarks or investor guidance and see trends to gauge where there may be an opportunity for a new bundle or where a course correction may be needed.
SaaS Metrics may include up to 24 and even more measurements to help you quickly assess the health of your SaaS business and dive into what is working and what is not working. They go beyond GAAP financials to include operational metrics. There are SaaS metrics that help you determine product market fit and others that help you measure customer happiness.
Here are six SaaS metrics that most investors and company boards expect to see:
- Committed Annual Recurring Revenue (CARR): The subscription recurring revenue that your cloud business earns. Divide by 12 to get Committed Monthly Recurring Revenue (CMRR). CARR is the leading indicator of revenue and the current, most insightful view of the business.
- The equation to calculate CARR: ARR + new bookings – cancellations = CARR
- Customer Acquisition Cost (CAC): The cost across all sales and marketing to close a new customer. You need to know how much revenue to generate to cover your acquisition costs. Costs of all sales and marketing divided by the number of new logos acquired
- Churn: The percent of customers that un-subscribe or do not renew their subscription.
- Customer Lifetime Value (CLTV): The net profit received throughout your relationship with a customer.
- Cash Flow: The cash you have remaining after paying operation and capital expenditures. Divide cash balance by monthly net burn rate to determine months of runway (before you hit the wall).
- Customer Count: Trend-lining this will help you see growth and churn.
There are a number of metrics SaaS and subscription-based businesses measure. A few more examples:
- Net Revenue Retention
- Gross Revenue Retention
- Annual Recurring Revenue (ARR)
- Retention Rate
- Calculated Billings
- Cohort Analysis
- Net expansion rate
- Revenue Retention Rate
- Renewal Rate
- Contract renewal date
In many cases, SaaS metrics provide the real-time visibility into the health and trajectory of your subscription-based business that you need to drive business outcomes.