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SaaS metrics are key numbers that help measure the performance of a Software as a Service (SaaS) business. They show how well the company is doing in areas like revenue, customer growth, and retention. By tracking these metrics, businesses can make better decisions and improve their operations. Some important SaaS metrics include Monthly Recurring Revenue (MRR), Customer Lifetime Value (CLV), and Churn Rate. These metrics give a clear picture of the company’s financial health and help in guiding its growth.
Monthly Recurring Revenue (MRR) is the predictable revenue a SaaS company expects to earn every month from its subscribers.
MRR provides a clear picture of revenue stability and helps in forecasting future income, which is crucial for budgeting and financial planning.
How to Calculate It: Multiply the number of active subscribers by the average revenue per subscriber per month. For example, if you have 200 subscribers paying $30 each month, your MRR is 200 x $30 = $6,000.
Customer Acquisition Cost (CAC) is the total cost of acquiring a new customer, including marketing and sales expenses.
CAC measures the efficiency of your customer acquisition strategies and helps determine whether your marketing spend is justified by the revenue generated from new customers.
How to Calculate It: Divide the total cost spent on acquiring new customers by the number of new customers acquired during that period. For example, if you spent $12,000 to acquire 100 new customers, your CAC is $12,000 / 100 = $120 per customer.
Customer Lifetime Value (CLV) is the total revenue a customer is expected to bring to your business over their entire relationship with you.
CLV helps you understand the long-term value of your customers and informs decisions about how much to invest in acquiring and retaining them.
How to Calculate It: Multiply the average monthly revenue per customer by the average customer lifespan in months. For example, if a customer pays $40 per month and stays for an average of 18 months, CLV is $40 x 18 = $720.
Churn Rate is the percentage of customers who cancel their subscriptions during a given period.
It helps you gauge customer retention and identify potential issues in your product or service that may be causing customers to leave.
How to Calculate It: Divide the number of customers lost during a period by the total number of customers at the beginning of the period. For example, if you started with 500 customers and lost 50, your Churn Rate is 50 / 500 = 10%.
Average Revenue Per User (ARPU) is the average revenue generated per user during a specific period.
It helps you understand the revenue contribution of each customer and assess the effectiveness of pricing strategies and upselling efforts.
How to Calculate It: Divide the total revenue by the number of users during that period. For example, if you earned $20,000 from 400 users, your ARPU is $20,000 / 400 = $50.
Annual Recurring Revenue (ARR) is the total revenue your business expects to earn annually from subscriptions. ARR provides a longer-term view of revenue and helps with financial forecasting and planning on an annual basis.
How to Calculate It: Multiply the MRR by 12. For example, if your MRR is $7,000, your ARR is $7,000 x 12 = $84,000.
Gross Margin is the percentage of revenue remaining after subtracting the cost of goods sold (COGS).
Gross Margin indicates how efficiently your business produces and delivers its product or service, reflecting overall profitability.
How to Calculate It: Subtract COGS from total revenue, then divide by total revenue and multiply by 100 to get a percentage. For example, if your revenue is $100,000 and COGS is $30,000, your Gross Margin is (($100,000 – $30,000) / $100,000) x 100 = 70%.
MAU measures the number of unique users who engage with your product or service each month, while DAU measures the number of unique users each day.
Tracking MAU and DAU helps assess user engagement and product usage, which are critical for understanding customer satisfaction and retention.
How to Calculate It: Count the number of unique users who interacted with your product over a month for MAU, and a day for DAU. For example, if 1,000 unique users accessed your app in a month, your MAU is 1,000.
Net Promoter Score (NPS) measures customer satisfaction and loyalty by asking how likely customers are to recommend your product or service to others.
NPS helps gauge overall customer sentiment and predict business growth based on customer advocacy.
How to Calculate It: Subtract the percentage of detractors (those who rate 0-6) from the percentage of promoters (those who rate 9-10). For example, if 60% are promoters and 10% are detractors, NPS is 60% – 10% = 50.
Burn Rate is the rate at which a company is spending its available funds, typically calculated on a monthly basis.
Burn Rate indicates how long a company can sustain its current spending before needing additional funding, crucial for financial management and planning.
How to Calculate It: Subtract total monthly expenses from monthly revenue. For example, if you spend $50,000 per month and earn $30,000, your Burn Rate is $50,000 – $30,000 = $20,000 per month.
The difference between Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) lies in the time frame they cover.
MRR tracks the revenue your business earns from subscriptions on a monthly basis. It provides a short-term view of your income, helping you manage cash flow, spot trends, and make quick adjustments to your strategy.
ARR, on the other hand, tracks the revenue earned from subscriptions over a year. It gives a long-term perspective on your business’s financial health and helps with forecasting and strategic planning.
While MRR is useful for understanding your monthly performance, ARR is better for seeing the bigger picture of your business’s annual growth. Both metrics are essential for different aspects of managing a SaaS business.
Eximius Capital Ventures Private Limited is the investment manager of the funds licensed by SEBI under AIF categories CAT I – Eximius Trust I (IN/AIF1/20-21/0855) and CAT II – Eximius Fund (IN/AIF2/24-25/1566).
Eximius Capital Ventures Private Limited is the investment manager of the funds licensed by SEBI under AIF categories CAT I – Eximius Trust I (IN/AIF1/20-21/0855) and CAT II – Eximius Fund (IN/AIF2/24-25/1566).
