When it comes to SaaS metrics, leveraging the right KPIs is essential to driving growth, improving performance, and optimizing decision-making. Here’s a breakdown of key SaaS metrics you should be leveraging and their significance:
1. Customer Acquisition Cost (CAC):
- Measures the cost to acquire a new customer.
- Formula: CAC = (Sales & Marketing Expenses) / (Number of New Customers Acquired).
2. Lifetime Value (LTV) of Customer
- Predicts the total revenue a customer will generate over their life-time.
- Formula: LTV = (Average Revenue Per Customer × Gross Margin %) × (Customer Lifetime)
3. Monthly Recurring Revenue (MRR)
- Shows predictable, ongoing revenue from subscriptions.
- Formula: MRR = (Number of Customers) × (Average Revenue per Customer per Month)
4. Annual Recurring Revenue (ARR)
- Total revenue expected from annual subscription contracts.
- Formula: ARR = MRR × 12
5. Customer Churn Rate
- Measures the percentage of customers who stop using the service.
- Formula: Churn Rate = (Lost Customers / Total Customers at the Start) × 100
6. Net Retention Rate (NRR)
- Measures growth by tracking expansions, contractions, and churn.
- Formula: NRR = (Revenue from Existing Customers – Churned Revenue + Expansion Revenue) / (Revenue from Existing Customers)
7. Gross Margin
- Indicates the profitability of a SaaS business.
- Formula: Gross Margin = (Revenue – Cost of Goods Sold) / Revenue
8. Annual Contract Value (ACV)
- Represents the annualized value of a customer’s contract.
- Formula: ACV = (Monthly Recurring Revenue) × 12
9. Product-Market Fit Score
- Measures how well the product solves customer problems.
- Common survey-based metric: Net Promoter Score (NPS) or Customer Satisfaction Score (CSAT).
10.Payback Period ( in months or years)
- Time it takes to recover the CAC from the revenue generated by the new customer.
- Formula: Payback Period = CAC / (MRR or ARR)
11. Churned Monthly Revenue (CMR)
- Monthly revenue lost from churned customers.
- Formula: CMR = (MRR at the Start of the Month – MRR at the End of the Month)
12. Expansion Revenue
- Revenue growth from existing customers through upselling and cross-selling.
- Formula: Expansion Revenue = (New MRR from Upgrades + Add-ons – Downgraded MRR – Contractions)
Tracking these metrics helps SaaS businesses understand their growth trajectory, optimize customer acquisition strategies, improve retention, and ultimately enhance profitability.
For more information, please contact:
Sanjay Agarwal
Director, CFO Services 
sanjay@finarticonsulting.com