If you sat down with an investor today, do you know what kind of metrics and KPIs they'd want to see for your SaaS or subscription-based business?
Seeing things from their perspective might change what metrics you choose to track each month — or it might even change how you run your business.
That's why we partnered with Fulcrum Equity Partners to create an eGuide to share their insights into SaaS KPIs and metrics like churn, MRR and ARR, lead generation and upsell revenue.
Feel free to download the entire eGuide now or read on to see part one of the eGuide.
Insights from Investors: Revenue Growth Metrics
Revenue growth performance metrics provide visibility into the health of your business and its potential for growth. You’re likely familiar with these, but we’ll recap what they are just in case.
Foundational metrics you should know:
- ARR and MRR
- CAC, CLV and CAC Payback
ARR or MRR
Annual Recurring Revenue (ARR) or Monthly Recurring Revenue (MRR) is the value of the contracted recurring revenue components of your term subscriptions normalized to an annual or one-month period.
We break ARR/MRR down into the following categories:
- New ARR/MRR – new sales to new customers.
- Expansion ARR/MRR – existing customers who expanded their subscriptions or licensed additional products or modules.
- Contracted ARR/MRR – existing customers who downgraded their subscription and/or reduced their consumption.
- Canceled ARR/MRR – existing customers who canceled their subscription.
These components are frequently measured in both absolute value and relative value and are often presented in the context of incremental changes from period to period.
The Investor’s Point of View on ARR or MRR
One of the most essential metrics investors evaluate is quarter-over-quarter ARR or MRR bookings growth.
Quarter-over-quarter bookings growth provides valuable insights into the momentum and velocity of the business and growth investors consider it to be one of the best leading indicators of overall business performance.
Average Contract Value
Average Contract Value (ACV) is a measure of the average revenue generated per customer and is usually calculated on an annual basis.
A growing or contracting ACV is a good indicator of the value you are providing to customers. This metric is also a critical input for your sales and marketing plan and provides visibility into how many leads (MQLs) and opportunities (SQLs) are needed to achieve your plan’s goals.
The Investor’s Point of View on Average Contract Value
Tracking ACV over time is valuable to understand evolving customer behaviors. It helps drive decision making for sales and marketing strategies, customer success and retention strategies and your product road map.
ACV is also a useful metric to measure the success of land-and-expand growth strategies, upsell initiatives and a company’s ability to deliver more and more value to customers.
Customer Acquisition Costs
These metrics help you make important decisions about how you allocate sales and marketing spend and are valuable in understanding how much your company is making from each new customer and how long it takes to surpass the money you spent to acquire that customer.
- Customer acquisitions costs (CAC) – total sales and marketing resources associated with acquiring a new customer.
- Customer lifetime value (CLV) – average revenue or profit a customer will generate before they churn.
- CAC payback – the time it takes in months to recoup the cost of acquiring a customer.
You can also measure your CLV against CAC, which will tell you what you can expect to net for every dollar you spend to acquire a customer.
The Investor’s Point of View on Customer Acquisition Costs
CAC, CLV and CAC payback are used to track and measure the performance of sales and marketing teams and are also extremely valuable in understanding the efficiency of a company’s growth model.
Investors will spend a significant amount of time in diligence analyzing the scalability of your sales and marketing organization, and these metrics are great validations that additional investment in sales and marketing activities will drive value creation.
Download the eGuide to see the full list of KPIs and insights from investors or read part 2 of the blog series.