November 21, 2022

SaaS metrics for startups: Which ones are key for your company?

Vincent Gouedard
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SaaS managers—like their accountants or CFOs—know the`importance of tracking their KPIs through reliable, structured reporting.

But which SaaS metrics yield the best results in our sector?

This article shows you how to define your SaaS metrics. It also gives concrete examples from benchmark studies to help you benchmark your SaaS performance against the market.

1 - Which SaaS metrics for your startup?

Not all SaaS companies set the same objectives for their KPIs. Various factors come into play to determine the metrics for each company.

1.1 - Which metrics for SaaS management?

The term metric is commonly used in SaaS circles. It simply means the numerical target to be reached for each KPI.

Metrics should not be confused with KPIs

  • The key performance indicator (KPI) is a ratio – or raw data – that is tracked over time or compared against previous periods, a     specific budget, or the annual target.
  • Metrics correspond to the figures to be targeted for each KPI.

💡 Example: the monthly churn rate is a KPI, while 2%is the monthly churn metric not to be exceeded.

1.2 - It all starts with the business model

The targets to be achieved generally depend on each SaaS:

  • ARR (annual recurring revenue). This volume of recurring business changes from one period to the next, especially during a company's growth phase.
  • Churn. The importance of this KPI varies with the maturity of the company (see note at the bottom of this paragraph).
  • ARPU (average revenue per user)
  • The average cost of a  subscription, which partly determines the viability of SaaS companies’ business models.

💡 Note that metrics are revised regularly over time, as the company and its ecosystem evolve. Objectives may also vary as a SaaS develops, with, for example, a greater focus on customer acquisition in the launch phase, whereas churn may be the main objective for a more mature SaaS.

1.3 - Track SaaS KPIs with appropriate reporting

To facilitate the tracking and reporting of key indicators, SaaS managers can invest in tools that automatically collect data, calculate KPIs, and display the results in dashboards. Fincome offers a turnkey online solution for tracking SaaS metrics With our application, the company integrates the metrics to be achieved as targets. This helps you analyze your company's performance.

2 - SaaS metrics to be top of your class

In this second section, we present the widely used metrics according to an annual study by KeyBanc Capital Markets, carried out among 350 SaaS companies in 2021.

💡 To understand the indicators that follow, we recommend consulting our article on calculating SaaS KPIs.

2.1 - Growth metrics

Monitor revenue growth using:

  • MRR (monthly recurring revenue) or ARR;
  • MRR or ARR growth rate;
  • and ARPU (average revenue per user).

a - Average growth in ARR

The study highlights a median annual growth in ARR2020 of 31% for all companies, regardless of size. It should be noted, however, that COVID-19 affected these figures. In the previous year, the median growth rate had been 35-40%.

Source: KeyBanc Capital Markets

b - ARR growth: best quartile

Based on 2020 ARR, companies in the top quartile had the following metrics for annual ARR growth:

  • between $1M and $5M: + 103%;
  • between $5M and $15M: +63%;
  • between $15M and $25M: +50%;
  • between $25M and $50M: +37%;
  • over $50m: +43%.

2.2 - Retention and churn metrics

The indicators that measure the retention or loss of customers are:

  • customer churn rate;
  • MRR churn rate (MRR attrition);
  • and NRR (net revenue retention rate).

Pages 23 to 29 of the above study give a number of metrics to achieve for these retention and churn KPIs. Here are a few figures to target for SaaS performance managers.

a - MRR or ARR churn rate (MRR or ARR loss rate)

Excluding companies with less than $5 million in ARR, the median annual MRR churn rate in 2020 was 12.6%. Here's how companies break down by churn rate:

Source: KeyBanc Capital Markets

 b - NRR: net revenue retention rate

According to the study, median NRR was 101.80%. If NRR is more than 100%, this demonstrates effective growth, even if the graph below shows a wide disparity in responses.

If you're aiming to be a top SaaS, you could set your target at 110% or 120% (bearing in mind, however, that less than 10% of the sample achieves such a metric).

Source: KeyBanc Capital Markets

2.3 - Acquisition metrics

To manage SaaS customer acquisition performance, the main KPIs to track are:

  • CAC (customer acquisition cost), i.e. the marketing and sales expenses incurred to acquire a customer or user;
  • LTV (customer lifetime value): total expected revenue per customer;
  • LTV/CAC ratio (average revenue per SaaS customer divided by average acquisition cost);
  • CAC payback period

a - Sales and marketing expenditure as % of ARR

According to the 2021 KBCM study, the higher the expenses in relation to revenues, the higher the growth rate. Here is the breakdown of survey responses as % of sales and marketing expenditure according to ARR 2020 growth rate:

Source: KeyBanc Capital Markets

b - CAC

The study used three types of CAC:

  • Blended CAC represents the total sales and marketing costs required to obtain 1 dollar of additional ARR, whatever the customer.
  • New Customer CAC represents the sales and marketing costs to obtain an additional ARR dollar from a new customer.
  • Upsell & Expansion CAC represents the marketing and sales expenditure to obtain an additional dollar of ARR through new subscriptions or by existing users upgrading to more expensive subscriptions.

Here is a summary of the metrics derived from the American study for 2020:

Source: KeyBanc Capital Markets
  • Median Blended CAC: $1.20
  • Median New Customer CAC: $1.67
  • Median Upsell & Expansion CAC: $0.63

c - CAC Payback Period

This is the number of months of subscription required to cover the CAC. According to the KBCM study,excluding SaaS with sales and marketing expenses of less than $5 million, the average Blended CAC payback period was 18 months (note that KBCM calculates the payback period based on the number of months of gross margin,not subscription).

If you're looking for a metric to measure New Customer CAC Payback Period, you can use the study's average of 26months. Note, however, the wide disparity in results, as shown in the second graph below:

Source: KeyBanc Capital Markets

Calculating and analyzing SaaS KPIs by period enables you to measure how well you’re hitting targets and how your company’s performance stacks up against your peers. To help SaaS companies achieve top performance, Fincome provides a turnkey analysis and management tool. For more about tracking and reporting SaaS metrics with our solutions, request a free demo!

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