If you’re a SaaS business, make sure you understand and track these top line metrics on a regular basis. They give you insights in the health of your company AND will the very areas investors will focus on when deciding if, and how much, to invest.
(1) Net new monthly recurring revenue (Net MRR) and gross new monthly recurring revenue (Gross MRR)
- MRR is important as it shows how much ongoing revenueyou are generating each month.
- This will be made up of MRR from existingcustomers plus good news (new customers and upgrades from existing customers) less bad news (lost customers and downgrades from existing customers).
- As there is so much information packed into MRR, it’s good to break out gross new MRR which is the changes from just the goodnews (new customers and upgrades) so you can understand that separately fromthe net change.
- Calculating annual recurring revenue (ARR) is important also and remember this is calculated each month as your latest MRR x 12.
(2) Annual Contract Value (ACV)
- I suggest this is calculated is the total contract value (the sum of all the payments you receive both one off, ongoingand recurring) divided by the number of years the contract is for.
- If this value is going down it is a sign that you are not getting as many higher value customers or your sales team may be giving out too many discounts.
(3) Customer life time value (CLTV)
- It’s very valuable to understand your unit economicsand this metric shows the value you generate from one customer.
- CLTV is a function of the length of time they are a customer for, the frequency with which they repeat and the average revenue they generate.
(4) Customer Acquisition Cost (CAC)
- The cost you incur to acquire a new customer is something you should understand very clearly about your business.
- Comparing this with your CLTV shows the underlying profitability of your business.
Aim to have a CLTV to CAC ratio of more than 3.
- Costs to include are all sales and marketing costs, such as salaries of sales staff, commissions, direct advertising and so on. .
- You can also track the CAC payback so you understand how quickly the dollars invested in acquiring the customer are recouped. This is calculated as CAC divided by MRR multiplied by your gross margin.
(5) Customer and MRR Churn
- Know how many actual customers you are losing and the revenue dollars impacted. If churn trends up this really hits your CLTV, so take decisive action to reduce this.
- Remember that your customer churn should be calculated as the number of leavers divided by the total customers who contractually are able to leave at that point in time.
(6) Sales cycle in days
- This is a useful way to understand how quickly you are able to turn a lead into a closed customer.
- Knowing sales funnel is also important as its hows you how successfully your prospects pass through each stage of the sales cycle.