7 key SAAS metrics you should be watching
Besides the core financials that must be presented in all board decks, seven key metrics matter the most for early-mid-stage SaaS companies.
Cash Runway indicates how long your company can continue operating before depleting its cash reserves. It is calculated by dividing the current cash on hand by the monthly burn rate (the rate at which the company spends its money). A healthy cash runway is crucial for planning future funding rounds and ensuring operational stability. In today’s environment, a healthy cash runway should exceed 18-24 months, depending on how recently the company has raised, its growth stage and market conditions
Monthly Recurring Revenue (MRR) reflects the predictable revenue stream from subscription services. It helps gauge the company's financial health and growth over time. Breaking MRR Growth into new, expanded, and churned revenue can provide deeper insights into business performance.
Net Revenue Retention (NRR) measures the percentage of recurring revenue retained from existing customers, accounting for upgrades, downgrades, and churn. A high NRR indicates strong customer retention and the ability to grow revenue from the existing customer base.
Customer Lifetime Value (CLV) estimates the total revenue a company can expect from a customer throughout their relationship. This metric helps understand the long-term value of customers and informs strategies for customer acquisition and retention.
Customer Acquisition Cost (CAC) measures the cost of acquiring new customers, including marketing and sales expenses. It is crucial to assess the efficiency of customer acquisition strategies and ensure they are cost-effective.
LTV:CAC Ratio compares a customer's lifetime value to the cost of acquiring them. A higher ratio indicates a more profitable customer acquisition strategy. It's a critical metric for understanding unit economics and ensuring sustainable growth.
The Payback Period indicates how long it takes to recover the costs of acquiring a customer. A shorter payback period is preferable, allowing quicker reinvestment into growth activities.
These metrics are instrumental in aligning strategic objectives and facilitating informed decision-making. Understanding and monitoring them will help keep your leadership team focused on what matters and give your board members a transparent and comprehensive view of your company's present performance and prospective outcomes.