SaaS / Cloud KPIs

What are you measuring?

KPIs is SaaS is a good way to measure your business. It is not the only way to measure and you often end up measuring the business looking backward. This is wrong. You NEED to measure the business looking forward. So your backward analysis is to define the trends and you project forward looking KPIs.

Don’t start measuring when you get your first customer. Call them instead and understand. A minimum expectation is to get 100 customers before measuring your SaaS business. Anything else, is measuring the mess and have no trends or validity.

In addition, you create levels of acceptable ranges. For example, churn can be between 1-4% monthly. Anything higher is unsustainable and as you measure you can call the red flags.

Each KPI can be viewed in a range of dimensions/segments.

• Dates: Often monthly, quarterly and yearly.
• Channels: License models, sales channels, geography etc.
• Customer segmentation: size, type, profile etc.

SaaS KPI list

KPI	Description	Calculation
ACV	Annual Contract Value.	Total contract value / 12
ARPU	Average revenue per user/unit. An indicator of revenue based on the user or unit base of your business.	Total revenue / total number of user/units assigned to the revenue
ARPA	Average revenue per account. Unlike ARPU, ARPA is calculated on the number of customers.	Total revenue / total number of accounts assigned to the revenue.
MRR	Monthly recurrent revenue. RR on a monthly scheme.
ARR	Annual recurrent revenue. RR on an annual scheme.
RR	Recurrent revenue. Often mistaken by run-rate. Not the same.   Recurrent revenue is the portion of your business, which will auto-bill and reoccur automatically.
CAC	Customer acquisition cost. To cost assigned to acquiring a new customer including sales and marketing cost.
CRR	Customer renewal rate.
Churn	Churn is an indication of a loss in your business. We define churn into different elements:   ·         Customer churn ·         Revenue churn ·         Seat/user churn   100 customers at the start of the period, 7 of them cancel by the end. Your churn rate is 7/100=0.07 = 7%   You can use customer churn rate to calculate average customer lifetime if you divide 1 by your churn rate. By dividing 1/0.07, we see that a 7% churn rate equates to a customer lifetime of 14.2 months.   Revenue churn may not be loss of customer. But simply customers moving to another tier or plan.	Customer churn: Lost customers / total customers   Revenue churn (monthly): Lost MRR / total MRR   Seat churn: Lost users / total users
COGS	Cost of goods sold
CLTV	Customer lifetime value, also indicated LTV.   The value a given customer delivers to your business over the time.
CMRR	Committed Monthly Recurring Rate. More or less a modified version of MRR, the goal of tracking committed monthly recurring revenue is to show what a SaaS company’s revenue stream will be going forward if the business halted its sales and marketing efforts.
LTV	Customer lifetime value. See CLTV.   Example:   $100 ARPA / 0.1 churn rate = $1000 LTV Your LTV / CAC should be >= 3x.	ARPA / Customer churn rate: ( Sum of all customer MRR / Total # of customers ) / ( # of customers who churned / Total # of customers ) Simple: MRR * Gross Profit % * #lifetime in months
PBP	Payback Period. The period before any customer is paid of the investment to acquire. Your PBP should be <= 12 months.	PBP = CAC / MRR * Gross profit %
ROI	Return of investment.

This list will be regular updated.

Please move billing to monthly

.. a kind request to a business I help advice on their transition to a subscription and service based business. They deal in consumer insurance which is not tech related.

The response I got was a stare. The company spend several years in moving customers from quarterly invoicing and annual invoicing to a long term (2-3 year) billing model. The company needed the upfront cash flow; and they got a benefit.

Let me explain why I believe they made a big mistake.

The drawback of the upfront cash flow is a direct impact to the business. Revenue capture is 80-90% – all good. But customer renewals <60%. Why? Very often I get this response, and companies spend millions to analyze excel, call customers, drive rebates to recapture, change their product and review the scope. All of this is a reactive, inside-out and none optimized way to understand how customer behave.

I asked the business to offer 0% discount if customers were to move to a monthly manually billing, 2% discount if customers moved to an automated billing (using Upodi) and 4% uplift if customers want to pay annually.

The core reason is behavior. When you push customers to an annual/long term billing cycle, and dealing with non-tech companies, the real only touch points you have with your customers is the time of renewal or additional purchase. If you sell 1-2-3 year agreements, you basically have to over deliver on your product innovation to keep ahead of any competitor and this creates a huge churn. You then employ people to call customers yearly, or have customer success managers. But reality this is an increased cost, and yes – you end up discount anyhow.. P&L is effected by increase cost of operations, and product value decline year over year.

When you move customers to a monthly billing, you have a strict KPI to measure if a customer is about to churn. In addition you can automate your business workflows, capture changes and impact – keep the legal binding on a 12, 24 or 36 month contract – but autobill every month. Using a creditcard, no longer do you have to wait for money (revenue capture increases) but you claim. AND you get the opportunity to embed cross and up sell campaigns into the monthly invoice.

Let me stress this may not work in all scenarios. And the company I worked with had the benefit of a huge cash reserve. You might need to loan money for operations to withstand the billing incurrance, yet consider wisely how you operate.