Whether you're trying to grow your business, secure VC funding or simply improve user experience, there are a handful of crucial SaaS performance metrics you should be tracking, day-in and day-out.
Unfortunately, SaaS metrics can be complex, confusing and contradictory; and keeping a finger on the pulse of your business can be easier said than done.
That's why I've compiled a straightforward glossary of 17 essential SaaS metrics. I've explained each metric in clear, simple language, and made the formulae as easy to understand (and use) as possible.
A Booking is simply the total value of all new deals obtained during a particular period.
Crucially, Bookings calculations don't differentiate between up-front payments and recurring payments. This can often lead to a misreporting of each month's finances, as monthly subscriptions and one-off payments (like a customer paying for a year's subscription in-full) are all bundled together into a single month's Bookings figure.
As most software-as-a-service companies work with a subscription-based model, it's better to calculate Monthly Recurring Revenue instead.
Learn more about the difference between Bookings and MRR: The Mistake We Made in Measuring Our Revenue: Confusing Bookings Revenue with MRR
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue is the amount of monthly subscription revenue generated by a customer.
With a monthly subscription model, MRR is calculated as the price paid for each month's subscription.
However, if customers are paying for more than one month up-front, it's important to spread out their payment over the duration of the subscription (known as 'amortizing'), and calculate MRR by dividing the amount paid by the number of months in their subscription:
For example, if we were to sell a 2-year subscription for an up-front price of $20,000, reporting that month's MRR as $20,000 would be wrong, as it implies that the sale would generate recurring revenue of $20,000 for each month of the subscription.
That $20,000 is actually a Booking, and to calculate MRR, the payment needs to be amortized. If we do that, MRR becomes $833.
Recurring revenue can also be calculated quarterly (QRR) or annually (ARR); and used to analyse the recurring revenue generated by individual users, or summed up to provide an aggregate measurement of total recurring revenue over a time period.
New Business MRR
MRR at the moment a lead converts into a paid customer.
MRR at the moment a customer cancels (or fails to renew) their subscription.
MRR generated by up-selling or cross-selling an existing customer.
MRR lost as a result of an existing customer down-grading their subscription.
MRR generated by a previously churned customer returning to a paid subscription.
Monthly Recurring Revenue (MRR) Churn Rate
This looks at the rate at which Monthly Recurring Revenue is lost, as a result of downgrades and cancelled subscriptions.
In its simplest form, you can calculate the percentage MRR churn rate by dividing this month's churned MRR by last month's MRR.
It can also be calculated by adding together Churn MRR and Contraction MRR, subtracting Expansion MRR and Reactivation MRR, and dividing the result by the MRR at the start of the period.
Monthly Recurring Revenue (MRR) Renewal Rate
The MRR Renewal Rate looks at the rate at which Monthly Recurring Revenue is renewed, as a result of existing customers renewing their subscriptions.
To calculate, divide the MRR of your renewed subscriptions by the total MRR of all subscriptions up for renewal in that period.
Customer Churn Rate
The rate at which existing customers cancel their subscription to your service, measured over a particular period of time (typically a year).
To calculate your customer churn rate as a percentage, divide the number of customers lost during period X by the total number of customers at the start of period X.
This is a simple variant of customer churn rate, and it can often be helpful to factor in customers that were unable to churn over each time period.
For an example of this calculation in action, check out: Why Your SaaS Customer Churn Metrics Are Probably Wrong.
Customer Renewal Rate
The rate at which existing customers renew their subscriptions.
To calculate, divide the number of customers who renewed their contract in a given period by the total number of contracts that came up for renewal over the same period.
Average Sale Price (ASP)
Average Sale Price helps you estimate the average MRR of new customers, and is useful for measuring your sales team's ability to increase deal sizes over time.
To calculate ASP, add together all New Business MRR from a particular period, and divide by the number of new customers obtained in that period.
Average Revenue Per Account (ARPA)
Average Revenue Per Account (also referred to as Average Revenue Per User, or ARPU) refers to the average MRR across all of your active customers.
To calculate, simply divide the sum total of all your customers' MRR by your total number of customers.
Customer Acquisition Cost (CAC)
CAC refers to the amount you spend to acquire each new customer. To calculate it, divide your combined sales and marketing expenditure by the number of new customers it generated.
Customer Lifetime Value (CLV or LTV)
CLV provides an estimate of the total revenue generated by an average customer over their entire lifetime.
There are a multitude of ways to calculate CLV, ranging from the overly-simplistic to the downright complicated. To help you get started, I've covered two of the most most popular.
1. Divide the total revenue from all customers by the total number of customers.
2. Divide Average Revenue Per Account (ARPA) by Customer Churn Rate.
Learn more about the different CLV calculations here: What is a SaaS Customer's Lifetime Value?
This metric compares the costs of acquiring a new customer with the revenue they'll generate over their lifetime.
As a general rule, healthy SaaS companies will have a CLV:CAC ratio of 3:1 or better.
Months to Recover CAC
This SaaS metric calculates the number of months a customer needs to continue paying for their subscription to generate enough revenue to cover the costs of acquiring them.
To calculate, divide Customer Acquisition Cost by Monthly Recurring Revenue per customer.