The importance of SaaS metrics to attract investors and grow your company
SaaS (Software as a Service) is experiencing major growth, with the sector growing from $120.7 bn in 2020 to an estimated $171.9 bn in 2022 (Gartner, 20211). This has attracted new companies to the sector, each offering a new perspective as they attempt to attract new investors and find new customers in different markets.
Even with the increased market size, it can be challenging to stand out from the crowd. So, how can you ensure your company gets the investment it needs?
The simple answer is metrics. Reliable and consistent metrics are an important benchmark for potential investors. However, defining the right metrics and following them up correctly is easier said than done. Let’s take a look at four industry standard metrics your SaaS company needs to be monitoring.
- Monthly recurring revenue (MRR)
This measure of predictable revenue flow makes accurate financial predictions about your SaaS business, making it a key indicator of growth. You can also use MRR to monitor the momentum of your business, gain insights into your overall profitability and cashflow, and help set future goals.
How to calculate your MRR:
average revenue per customer per month x the total number of monthly users
MRR can also be used to calculate your MRR growth rate:
(current net MRR – last net MRR)/last net MRR
- Annual recurring revenue (ARR)
While MRR looks at your monthly recurring revenues, ARR takes a longer view and reflects your revenue throughout the year. It is particularly useful for companies with lower transaction volume but higher transaction values.
Companies of all sizes can use ARR to measure their positive momentum (new sales, renewals, and upgrades) and negative momentum (downgrades and lost customers). This clarifies the overall health of your company, showing performance in specific areas and generating insights into customer wants and needs, including suggestions for cross-selling and upselling.
- Customer acquisition cost (CAC)
CAC tells you how much it costs to acquire each new customer, lead, or subscriber. It enables you to evaluate your effectiveness at each phase of the customer acquisition journey, as you move from attracting visitors to converting them into users then subscribers. The insights generated from this evaluation allows you to optimize your investments to lower your CAC, which has a direct impact on your potential CLV (see next section).
- Customer lifetime value (CLV)
How valuable is each customer to your business over the entire period of your relationship? The answer is the CLV, which includes your customers’ revenue value, CAC, and expected lifetime as an active customer.
Finding ways to increase the CLV is a good way to stimulate growth as it costs less to retain an existing customer than to acquire a new one. Plus, the CLV enables you to identify the most valuable customer segments in your target market so you can optimize your strategy to maintain (or improve) profit margins.
Talk to the experts
How well does your company monitor and evaluate these important metrics? Contact CFOrent if you would like expert help to ensure reliable and consistent follow up of your SaaS metrics to improve your company’s financial strategy or attract new investors.