Learn about the commonly-used SaaS metrics here.
Monthly recurring revenue is the amount of revenue you’re adding (or losing) that you expect to receive every month. It really doesn’t matter if you have a record-breaking month for revenue. The real question is “Will that revenue be here tomorrow?”
The major takeaway: monthly recurring revenue is the single most important metric that a SaaS business should be tracking.
Contracted Monthly Recurring Revenue is the value of contracted recurring portion of subscription revenue. This includes only contractually guaranteed revenues, making it different from MRR.
The increase in MRR from new customers in the current month.
The increase in MRR from expansion in your installed base in the current month.
The lost MRR from churning customers in the current month.
Net Monthly Recurring Revenue (MRR) Growth Rate measures the month over month percentage increase in net MRR. It’s one of the most common and important SaaS metrics. Since MRR changes as new revenue is added and customers churn, upgrade or downgrade, the growth rate shows the net variation of those factors from month-to-month. The net growth rate provides a solid indicator of how quickly your SaaS company is growing.
The portion of GMV [gross merchandise volume] that the marketplace “takes”. Revenue consists of the various fees that the marketplace gets for providing its services; most typically these are transaction fees based on GMV successfully transacted on the marketplace, but can also include ad revenue, sponsorships, etc. These fees are usually a fraction of GMV.
To calculate churn, all you should do is to sum the number of customers that have discontinued their subscription on a given period. In case you sum all the churned customers in a month you'll have monthly churn.
Or you can calculate churn rate, representing the percentage of churned customers compared to total number of customers.
Churn Rate = Total # of Churned Customers / Last Month Total # of Customers
MRR Churn = SUM (MRR of Churned Customers)
MRR Churn can also be represented in a percentage, referring to how much it represents of your total MRR.
MRR Churn % = Churned MRR / Last Month's Ending MRR
Average Revenue per Account (sometimes known as Average Revenue per User or per Unit), usually abbreviated to ARPA, is a measure of the revenue generated per account, typically per year or month. You could also say that it represents the Average Revenue per Customer, but remember that a customer may have more than one account depending on your product/services characteristics.
Average revenue per account allows for the analysis of a company's revenue generation and growth at the per-unit level, which can help investors to identify which products are high or low revenue-generators.
The one-time cost of all marketing and sales activities plus all physical infrastructure and systems required to motivate a customer to purchase, including fully loaded labor costs, usually quoted as an average unit cost per new customer.
Average selling price is the intersection of supply and demand and as such it measures external factors like customer value and competitiveness, while it constrains operational metrics like costs, volume and risk.
The sales metric Average Sales Cycle Length is the amount of time from your first touch with a prospect to closing the deal, averaged across all won deals.
Sales Qualified Lead (SQL): Those who have shown interest in your product or service by requesting a live demonstration.
At its simplest, a “sales qualified opportunity” is a lead that sales has worked with enough to believe the lead has a high potential of closing. Every sales team in every company must create its own criteria.
The number of closed opportunities that you won.
(Closed-Won Opportunities) / (Total Opportunities that were both Closed-Won + Closed-Lost)
Win rate tells you the success rate of your sales team.
At its simplest, a “marketing qualified lead” is a lead that has met some benchmark(s) that identifies it as having enough potential to warrant attention from your marketing department. It’s met the first, most basic level of qualification that your sales and marketing teams have agreed on.
Another important annualized metric to keep track of is the Annual Contract Value, or ACV.
ACV measures the value of the contract over a 12-month period. So let’s say a customer commits to a 24-month contract of $120,000. Considering this money will be recognized as revenue ratably, we’ll have $5,000 in MRR and therefore $60,000 as your ACV.
Gross Margin is how much profit you make from your sales, expressed in percentage terms. Calculating it is simply (Revenue – COGS) / Revenue.
The higher your gross margin, the more valuable the revenue is to your business. SaaS companies typically have gross margins of 70% or higher.
Calculating COGS individually for each of your products will allow you to compare gross margins and see which lines of business are most profitable.
Marketing expenditure per dollar of annual contract value (ACV): Essentially, this metric is the marketing component of CAC. It is designed to help you determine how much you are spending on marketing programs relative to how much revenue those programs bring in.
Total opportunities closed including both closed-won and closed-lost opportunities.
Most people begin to calculate churn by subtracting the number of customers remaining at the end of a month from the number of customers at the beginning of a month and divide by the number of customers at the beginning of the month.
Then they multiply the monthly churn rate by twelve to get the annual churn rate.
Annual Churn Rate Calculation = Monthly Churn Rate x 12
The economic value of a customer over its lifetime. Can be built up for increasing accuracy by components as follows:
- recurring revenue
- acquisition cost
- cost of service
- capital interest rate
CAC Payback Period is the number of months required to pay back the upfront customer acquisition costs after accounting for the variable expenses to service that customer. S
Gross Margin Adjusted Payback Period = CAC / (MRR per customer * Gross Margin)
The SaaS Magic Number is a widely used formula to measure sales efficiency. It measures the output of a year’s worth of revenue growth for every dollar spent on sales and marketing. To think of it another way, for every dollar in S&M spend, how many dollars of ARR do you create.
[Gross dollar renewal rate] looks at the dollar value of the renewed contracts.
Revenue Generated/Number of Leads = RPL
RPL can reveal whether or not your funnel is actually filled with Sales-Qualified Leads (SQL). It will also outline how well your team is converting SQLs and able to achieve additional revenue on each sale as the business scales.
This formula can be interpreted as dollars earned per day by the sales team. The key point with pipeline velocity is to focus on each input not the final output metric.
The equation for Pipeline Velocity is:
The Lead Velocity Rate is the growth percentage of qualified leads month over month. It measures your pipeline development. That is, how many (quality) potential customers you’re currently working on converting to actual customers.
The sales metric MQL to SQL conversion rate is the percentage of marketing qualified leads that get converted to sales qualified leads. It’s one of the best ways to determine lead quality and an excellent indicator of how well your marketing team is qualifying and screening leads to maintain a high quality pipeline.
Productivity per rep (PPR) is the average revenue generated each month by sales reps. It too has the potential to make a significant impact on the business, is aligned with company and sales leadership goals, and is simple to track. However, many factors impact PPR, such as quality of hiring, onboarding and training, so attribution is a challenge. To track PPR effectively you should create separate cohorts based on sales rep tenure or exclude sales reps that are ramping as this will skew the figures.
The Quick Ratio of a SaaS company is the measurement of its growth efficiency. How reliable can a company grow revenue given its current churn rate? That’s the question the Quick Ratio metric answers.
To calculate your Quick Ratio you simply divide new MRR by lost MRR. The higher the ratio, the healthier the growth is at the company.
Takes into consideration Expansion MRR
If your Dollar Renewal Rate is greater than 100%, you have a negative churn, which is a very good thing to have achieved.
Net New MRR = New MRR + Expansion MRR – Churned MRR. This is the sum of the three different components that will change MRR during each month.
Updated over 2 years ago