21 Jul SaaS Metrics for Subscription Businesses
These six performance SaaS Metrics are key indicators of your startup’s health. Your ability to deliver attractive metrics is often the difference between getting your next round of funding and hitting the wall. Each metric includes a definition, why you should care, how to calculate, and an interesting fact. In this guide, we discuss SaaS metrics for subscription businesses.
Table Of Contents
Committed Annual Recurring Revenue (Carr)
CARR is the leading indicator of revenue and the current, most insightful view of the business. ARR alone masks churn issues and potentially paints a false picture of growth. Begin with ARR. Add known new bookings. Subtract known cancellations. Don’t forget upgrades and downgrades.
Formula: ARR + new bookings – cancellations = CARR
Customer Acquisition Cost (CAC)
The cost across all sales and marketing to close a new customer. You need to know how much revenue to generate to
cover your acquisition costs. Costs of all sales and marketing divided by the number of new logos acquired.
Formula: cost of all sales and marketing/number of new logos acquired = CAC
CAC is not just your advertising or marketing program spend.
Customer Lifetime Value (CLTV)
The net profit received throughout your relationship with a customer. CLTV sets a limit on how much you can spend to acquire new customers. CLTV is the net present value of the recurring profit streams of a given customer less the acquisition cost.
Formula: net present value of the recurring profit streams – acquisition cost = CLTV
The lifetime of a customer can be calculated by 1/(churn rate). If your monthly churn rate is 5%, then 1/0.05 = 20 months for customer lifetime.
CLTV / CAC Ratio
The relationship between what it costs your company to acquire a new customer and the total net profit received from the customer. Surprisingly, companies out there spend more to acquire a customer than they receive back over that customer’s lifetime. Once you have your CAC and CLTV, divide CLTV by CAC.
Formula: CLTV / CAC = CLTV / CAC Ratio
A 3 to 1 ratio is healthy but you’ll likely be less than 3. Once you understand your ratio, then work to improve your score. Drop us a line on 011 792 9521 and we’d be glad to guide you further on SaaS metrics for subscription businesses.