monitor indicators is essential to maintain the health of any company operating through the SaaS business model. This is because analyzing the SaaS metrics helps to identify problems in the operation in a timely manner, allowing data-driven decision making, without compromising business performance.
In this article, you will better understand how to get out of operational mode and incorporate it into your SaaS company a more strategic vision. To do this, you will see which metrics are considered most important and how to calculate them. Good reading!
SaaS metrics: monitoring your business numbers
According to a the SaaS Report BBrazil, study carried out in 2023 by B2B, the main focus of companies operating in the SaaS model is efficiency (28,6%), followed by scalable growth (22,8%).
To guarantee these aspects, in addition to sustainable growth, it is important that business entrepreneurs SaaS business monitor specific indicators for your operating model.
This way, it is possible to identify bottlenecks in the operation and make the necessary adjustments, avoiding rework costs. Other advantages are the identification of new opportunities and ease of preparing medium to long-term planning.
Something very important to take into consideration is the importance of a broad assessment of various indicators. In other words, analyzing only one or two can bring a certain “myopia” and not allow assertive decision-making.
Key SaaS metrics to track
Some indicators should and can be analyzed by any type of company. However, the SaaS metrics add greater value to this business model. Check out the main ones:
ARR and MRR
Without a doubt, the most relevant metric for monitoring a SaaS business is the evolution of Monthly Recurring Revenue, or Monthly Recurring Revenue (MRR). Through it, it is possible to know whether your company is achieving the expected growth for the operation.
Associated with this metric is the Annual Recurring Revenue (ARR), or the company's annual recurring revenue.
Formula:
MRR = ∑Monthly Subscription Revenue
ARR = MRR X 12
While the first SaaS metric offers a micro view of the health of the business, mainly month-to-month evolution, the second provides a macro view, both of which are essential for analyzing the panorama of the company's financial situation.
To find out the MRR, simply add up the amounts paid by all subscribing customers in a month and subtract by the number of cancellations in the same period, multiplying the result by the amount of the monthly fee charged.
ARR is the MRR value multiplied by 12 months.
Average ticket
Knowing the average ticket paid by customers is essential to understand relevant aspects in pricing strategies, value proposition and commercial strategies.
Formula:
Average ticket = Total revenue/Total number of sales in a given period
This metric is nothing more than the average sales value for a given period, which directly impacts other important indicators for SaaS business models, such as LTV, which we will see below.
LTV and CAC
O LifeTime Value (LTV), or the total amount paid by the customer during their relationship with the company, is a metric linked to consumer satisfaction with the services provided and the company's ability to generate more value for them.
It is directly related to the average ticket, since satisfied users consume more of the service and remain active for longer.
Formula:
LTV= Average ticket x Sales in a period
Already Customer Acquisition Cost (ACC) indicates how much the company spends to acquire new customers, that is, what investment is necessary for each conversion. A possible way to keep this metric healthy could be the use of Artificial Intelligence in marketing and sales processes, reducing investments.
Formula:
CAC= Total cost of investments to acquire customers (marketing and sales)/Total number of new customers in the same period
Ratio – LTV/CAC
A relationship between LTV and CAC is fundamental, as it indicates that the value obtained from each customer over time is greater than the cost of acquiring them, crucial aspect for maintaining the company's financial health.
As a benchmark for more mature SaaS businesses, it is understood that this ratio must be greater than 3,0, i.e. the revenue generated by the customer during their stay is 3 times higher than the acquisition cost.
It is important to highlight that, for companies in more initial stages, where investments in customer acquisition are still significant, this result is much lower, but one should always seek at least a LTV higher than CAC.
Formula:
LTV/CAC
Churn rate
Another extremely important index to monitor is the Churn Rate, or cancellation index, which measures the number of customers lost in a given period.
When identifying a high Churn Rate, you need to pay attention. It's not about retaining all the customers in your base, but about understand why they are failing to use the solution offered.
This can be associated with several factors, such as a lack of good service and even the case of customers in which the solution does not assertively resolve the problem.
Formula:
Churn Rate = (Number of customers lost at the end of a period/total number of customers at the beginning of the period)
A special metric: SaaS Magic Number
O SaaS Magic Number is a widely used formula to measure the efficiency of sales and marketing operations generating new revenue for the business.
Using this metric, it is possible to identify in a given period what incremental recurring revenue is generated and its relationship with the cost of generating this revenue.
Um Magic Number greater than 1,0 indicates better efficiency, while a number less than 1,0 indicates that investments in marketing and sales are not being as efficient.
Magic Number
(Recurring revenue last quarter – Recurring revenue penultimate quarter) x 4 /
marketing and sales expenses in the last quarter
Analysis of SaaS metrics and investors: what is the relationship?
When talking about investments, SaaS metrics are extremely important.
Present to the market how profitable your company is and whether the valuation is coherent
offers security and clarity for this business to receive an investment. The fact is that businesses with good indicators attract good investors.
Not to mention that it is unlikely that an investor will make contributions to a business whose profitability is not known in detail. After all, no one thinks about “throwing money away”, do you agree?
In this sense, we can say that the SaaS metrics they confirm how valuable an idea is to the market and reinforce how much it is worth investing in a certain company. Not to mention that it allows you to predict scenarios and adopt preventive measures more quickly.
Therefore, if you have a company in this model, analyze the numbers and present them assertively. Much more than “tidying up the house” to receive an investment, it is having the sustainability of your business in the palm of your hand.
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