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.