Au coin du feu 🔥- #05 | The key SaaS indicators you must know.

oct. 31, 2023

SaaS metrics are important for SaaS companies to track and understand, in order to measure their growth, customer retention, and efficiency. These metrics can be used to make informed decisions about product development, marketing, and sales.

I want today to share a list of metrics with you. The main SaaS Metrics you must know.

☝🏻 The definitions below are not always my own. The purpose of this article is to list the key metrics that can help you have a comprehensive understanding of this important topic.

Do you work in a SaaS company? Would you like to work in a SaaS company or learn more about SaaS metrics?

This article is for you! Save this article and use it whenever you need to clarify or/and share these metrics.

Monthly Recurring Revenue

The predictable revenue generated by a subscription-based product every month. It is calculated by adding up the recurring revenue from all of the company's customers.

Annual Recurring Revenue

ARR is the total revenue that a SaaS company expects to generate from its subscription plans over a one-year period. It is calculated by multiplying the monthly recurring revenue (MRR) by 12. ARR is a key metric for SaaS companies to track because it provides a predictable and stable revenue stream.

Committed ARR

Committed Annual Recurring Revenue (cARR) is a metric that measures the annual recurring revenue (ARR) that a SaaS company has already contracted for. It includes revenue from both new and existing customers, and it takes into account churn and expansion.

cARR is a more accurate measure of a SaaS company's future revenue than ARR because it takes into account contracts that have already been signed. This makes it a valuable metric for investors and other stakeholders who want to assess the company's growth potential and financial health.

To calculate cARR, SaaS companies typically start with their ARR and then subtract the revenue from customers who have churned and add the revenue from new customers and expansion deals.

☝🏻 For example, a SaaS company with an ARR of $10 million and a churn rate of 10% would have a cARR of $9 million.

Daily Active Users (DAU)

It indicates the number of users who use the product Daily.

Monthly Active Users (MAU)

It indicates the number of users who use the product Monthly.

Product Stickiness

How your product is “sticky” for your users. It indicates how often users engage with the product (frequency). The more this metric is high, the more is positive. To calculate it, you have to calculate the ratio between DAU & MAU.

20% is considered a good stickiness for a SaaS. Of course, the stickiness depends also on the targeted market, business model, kind of product…

Stickiness  = DAU/MAU

Gross Margin

This metric is a measure of how much revenue a company generates after subtracting the cost of goods sold (COGS). It is calculated by dividing the company's gross profit by its net sales.

The COGS for a SaaS company includes the costs associated with developing, maintaining, and delivering the product. This can include things like software development costs, hosting costs, and customer support costs.

Gross .margin = (Net sales - COGS) / Net sales

AARRR

AARRR is a framework is a model for product growth. It helps the company to measure & improve its product around 05 themes →

Acquisition, Activation, Retention, Revenue, and Referrals.

It helps companies to measure their performance at each stage of the customer lifecycle and identify areas where they can improve.

CAC

CAC is the average cost of acquiring a new customer. It is calculated by adding up all of the costs associated with acquiring new customers, such as marketing, sales, and customer support costs, and dividing by the number of new customers acquired.

CAC payback

CAC payback is a metric that measures how long it takes the company to get back the cost of acquiring a new customer. It is calculated by dividing the CAC by the monthly recurring revenue (MRR) per customer.

A shorter CAC payback period is generally better for SaaS companies because it means that they are able to generate a positive return on their investment in customer acquisition more quickly.

CAC payback period = CAC / MRR per customer

Churn Rate

The percentage of users who stop using the product within a specific time period, e.g., monthly.

Retention Rate

The percentage of users who continue using the product after a specific time period. Often monthly.

Net Revenue Retention (NRR)

The cumulative sum of retained, contracted, and expanded revenue () over a specific period, typically a month/year. This metric is very interesting because it shows how the company is able to retain its existing customer base. It is calculated by subtracting the revenue lost to churn from the revenue generated from upsells and cross-sells.

A SaaS company should aim for an NRR of 100% or higher and a churn rate of 5% or lower. However, the ideal NRR and churn rate will vary depending on the company's business model, target market, and stage of growth.

Average Revenue Per Account (ARPA)

The average revenue generated per account (customer) within a specific timeframe.

ARPA is a metric that measures the average amount of revenue that a SaaS company generates from each of its accounts. It is calculated by dividing the company's total revenue by the number of its active accounts.

Do not be mistaken with ARR.

☝🏻 Example
The company has 10.000 freemium users and 1.000 paid subscribers.
ARPA = (Paid subscribers * Monthly subscription price) / Total number of accounts ARPA = (1.000 * $50) / (10.000 + 1.000) ARPA = $500

Average Revenue Per User (ARPU)

Average Revenue Per User (ARPU) is a term borrowed from the Telecom industry where it is treated as a benchmark metric to project the revenue of a business. ARPU refers to the revenue generated by a user over a specific period of time.

ARPU is your total monthly recurring revenue (MRR) or Committed MRR (CMRR) divided by the total number of active users/subscriptions.

ARPU (monthly) = Total MRR / Total Active Subscriptions (Users)

ARPA VS ARPU

The key difference between ARPA and ARPU is that ARPA takes into account all of the revenue that a SaaS company generates from an account, while ARPU only takes into account the revenue that is generated from the users of that account.

Time To Value (TTV)

Time to value (TTV) is a metric that measures the amount of time it takes for a customer to realize the benefits. It helps to understand how quickly the customers are realizing value from the products and/or services.

TTV = (Time to start seeing value) / (Total time using the product or service)

Customer Lifetime Value (CLTV or LTV)

The total revenue a user generates during their entire contract with the product. It helps to calculate how much money a user will generate in the long term.

It is calculated by multiplying the average revenue per user (ARPU) by the average customer lifespan.

CLV = Customer Lifetime ∗ ARPU

Product Qualified Lead (PQL)

Product Qualified Lead (PQL) is a type of lead that has shown a high level of interest in a specific product or service. PQLs are typically more likely to convert into paying customers than other types of leads, such as marketing qualified leads (MQLs).

The key difference between PQLs and MQLs is that PQLs have shown a more direct interest in a specific product or service. For example, a PQL may have signed up for a free trial of a product, or they may have used the product's freemium plan to a significant extent.

Customer Health Score (CHS)

It tracks how satisfied customers are with the product and/or service. A high score indicates real client satisfaction & a low score helps the team to anticipate potential churn and activate related processes.

Time to Market (TTM)

This metric is not a mandatory metric to follow but I recommend it. It indicates the period between the moment we have the first draft idea & when the customers can use it.

Cycle Time

Cycle Time is a Kanban metric that is a component of Lead Time. It measures the time it takes from when the implementation of an idea begins until it's done.

Who owns these Metrics?

We have an overview of the main SaaS metrics, it can be very interesting to know "who owns which KPIs". Right? It depends on the company and its mode of operation: PLG or Sales-Led.

Here is the work done by

Kyle Poyar