SaaS Metrics


Here’s a shout out to Dave Kellogg’s Key SaaS Metrics podcast, recently released on Aznaur Midov’s SaaShimi series.  Dave does a terrific job explaining the current state of the art on important SaaS metrics.  The podcast is an excellent SaaS Metrics 101 listen even for experienced SaaS finance experts. Dave was most recently CEO of […]

By Lauren Kelley | May 22, 2020

Whether you’re trying to retain more customers or accelerate new customer acquisition, your customer success strategy needs to start with the right performance metrics. Today, I’m taking a look at 5 of the most revealing SaaS customer success metrics – from the ever-present customer churn rate, through to your SaaS product’s viral coefficient. 1) CUSTOMER CHURN RATE I won’t […]

By Cobloom | April 14, 2020

The world of SaaS is awash with cryptic acronyms. If your business model relies on annual subscriptions, ACV will be a term that’s constantly on your mind as your company grows. So, what is ACV in sales and what is a typical SaaS ACV? We explain all that and more, below. What is ACV in […]

By Lighter Capital | March 24, 2020

Gross margin is one of the key metrics for e-Commerce businesses, and one of those metrics that businesses tend to be sensitive about. After all, would you reveal how profitable your e-commerce store is to random strangers on the internet? I didn’t think so. So let’s dive in what Gross Margin is, how to look at […]

By Rob te Braake | March 10, 2020

At SaaS Capital, we have a lot of respect for GAAP financial statements. We think GAAP financials generally do a better job than cash-based financial statements in reflecting the underlying financial performance of a SaaS business. GAAP is the standard, and if your numbers are not based on GAAP, then they do not actually conform […]

By SaaS Capital | February 18, 2020

Whether you’re trying to work out how efficient your sales and marketing strategies are, or determine how profitable your current customers are, it’s vital to keep a pulse on the health of your SaaS business. Thankfully, there’s a simple performance metric that does both. Today we’re taking a deep-dive into one of the most crucial SaaS metrics around: customer acquisition cost (CAC). […]

By Cobloom | February 4, 2020

Downward trending cost of goods (COGs) benchmarks are improving SaaS gross margins.  Competitive service offerings and new technologies are driving down costs to maintain SaaS infrastructures. As SaaS gross margins are rising, investors are becoming a bit more savvy about gross margin analysis, with increasing scrutiny of SaaS financials, especially in the wake of the […]

By Lauren Kelley | January 17, 2020

One SaaS metric we monitor closely is net dollar retention.  It tells you what percent of revenue from current customers you retained from the prior year, after accounting for upgrades, downgrades, and churn.  Formulaically it’s beginning of period revenue + upgrades – downgrades – churn all divided by beginning of period revenue.   If that formula […]

By Sammy Abdullah | December 31, 2019

Last week, Bessemer released interesting new research regarding the return on invested capital.  Three key take-aways from their analysis: Founders and CEOs should evaluate how effectively they are turning their capital into ARR instead of the size of their funding rounds. A new metric, called the Cash Conversion Score (CCS), shows the return on investment […]

By Lauren Kelley | December 5, 2019

THE BIGGER YOUR SAAS COMPANY IS, THE LARGER THE SIZE OF YOUR SUBSCRIPTION BASE. AND THE LARGER THE SUBSCRIPTION BASE, THE MORE DETRIMENTAL CHURN BECOMES. As your subscriber base grows larger, the loss of revenue caused by even a low churn rate will begin to compound. The number of new bookings needed to replace the customers […]

By SaaSX | December 3, 2019

During the annual budget and planning process, SaaS Finance leaders focus on making sure that resources are allocated appropriately across the company so the company achieves its performance goals – usually revenue and profitability goals – for the upcoming year.   Resource allocations should be fine-tuned by looking at how the Return on Investment (ROI) can […]

By Lauren Kelley | November 21, 2019

Heading into the 2020 planning season, SaaS FP&A teams are working to finalize 2020 budgets and planning. Over the past decade benchmarking software and SaaS companies, I’ve had the chance at OPEXEngine to work with hundreds of amazing Finance execs who work incredibly hard at getting the right data to support their company’s goals.  I’ve […]

By Lauren Kelley | October 31, 2019

SaaS pricing is difficult to master, and just a few tweaks to your strategy can have a huge impact on your revenue. Today, I’m looking at how you can determine the most appropriate value metric for pricing your SaaS product. WHAT IS A VALUE METRIC? A value metric is the metric that best correlates with where your buyer perceives […]

By Cobloom | October 29, 2019

Eighty percent of economic profit created by companies globally comes from 20% of the companies. Yes, the Pareto principle applies here too! What’s the secret sauce for becoming one of the 20%? The bad news? There is indeed a sauce and a recipe for how to make it. The good news? The recipe is not […]

By Adaptive Insights, A Workday Company | October 22, 2019

SaaS gross margins have been getting attention lately as investors dig into SaaS cost structures and revenue growth rates going into 2020. Gross margin is simply revenue minus cost of revenue, expressed as a percent.  Gross margin shows what is left over after you deliver your products and services.  SaaS cost of revenue is comprised […]

By Lauren Kelley | October 17, 2019

WeWork, a so-called tech company, just pulled its IPO, and a couple of recent high-flying IPOs – Peleton, Uber, Lyft – are trading below their opening prices.  Given market jitters about the economy, very high valuations of some private tech companies, and the massive $s invested by VCs and PE firms in the sector, it’s […]

By Lauren Kelley | October 3, 2019

We often get questions from SaaS companies about GAAP versus non-GAAP expenses, and whether the benchmarks for expenses are distorted by GAAP accounting.  According to GAAP, expenses typically include charges, like stock option expense and other SaaS expense benchmarks which may be associated with acquisitions, and aren’t necessarily relevant to operational budgeting and planning.    GAAP […]

By Lauren Kelley | September 19, 2019

When it comes to FP&A forecasting, most companies base their long-range forecasts on static planning processes, rather than more relevant, dynamic plans that reflect the complexities of the business. Relying on a forecast that doesn’t enable continuous monitoring of company performance, instead of implementing a modern, rolling forecast approach, is like using an old-school road map to guide you […]

By Adaptive Insights, A Workday Company | September 17, 2019

Coming to the end of August, we have a fairly mundane topic – the difference between SaaS Bookings and Billings. It seemed like a good idea as the question has come up recently quite a bit. Metrics have no value unless their definition is clear, so it is worth spending a few minutes on the topic. […]

By Lauren Kelley | August 30, 2019

Did you ever hear the phrase “you are your numbers”? In most companies, business leaders live and die by their numbers regardless of the circumstances in which they hit or miss them. External conditions could be favorable, and you could hit them with little effort. Being faced with a lot of headwind and missing your […]

By Adaptive Insights, A Workday Company | August 22, 2019

Cost of Revenue (COR) is the second highest expense bucket for most SaaS companies, yet it often gets overshadowed by the highest expense category, Sales & Marketing.  Sales and Marketing gets a lot of deserved attention since it can make or break a company’s revenue growth. Yet, COR spending directly affects the customer and losing […]

By Lauren Kelley | August 2, 2019

In looking at this issue across several companies, I’ve noticed a disturbing trend / missed opportunity in how many SaaS companies classify the reason for customer churn.  Roughly speaking, if companies were hospitals, they’d too frequently be reporting the cause of death as “stopped breathing.” Yes, the patient who died stopped breathing; the question is […]

By Dave Kellogg | July 16, 2019

If you don’t prepare ahead of time, you could get stuck not producing the top 5 SaaS metrics that investors want to see when they’re considering whether to invest in your next round. Not preparing the right SaaS metrics by venture stage for your VCs can ultimately reduce valuation, or even kill your fund raise. […]

By Sage Intaact | July 9, 2019

I often talk about B2B SaaS metrics from the perspective of what investors want. If you don’t have easy access to the metrics they expect (or, worse, if they’re wrong), your valuation could suffer, and that’s the last thing SaaS founders, CEOs and CFOs want to hear. But on occasion, I’ll hear prospects say they […]

By SaaSOptics | June 18, 2019

In this week’s 2019 State of the Internet presentation, Mary Meeker, the Midas List Kleiner Perkins/Bond Capital partner behind Spotify, Dropbox, Instacart, Slack, Square, Airbnb and Houzz, as well as Facebook and Twitter, captured how the internet is transforming the consumer and enterprise world, and even the political and regulatory sphere.   Given at Vox/Recode’s Code […]

By Lauren Kelley | June 14, 2019

Slack has transformed the way we work. By replacing email with beautiful and simple internal chat, Slack has productized productivity. Founded as a gaming company called Tiny Speck in 2009, the company’s initial product, Glitch, didn’t catch on as expected. So the business pivoted to commercialize an internal tool – a Searchable Log of All […]

By Tomasz Tunguz | June 11, 2019

Everyone loves recurring revenue and rightly so: it’s far more valuable than one-time revenue to VC and acquirers.  But, don’t forsake one-time revenue.  Whether it’s for services, onboarding, licensing, or some other one-time event, revenue of this type is incredibly valuable especially at early stages.   There are three big reasons it’s valuable: It’s a Source […]

By Sammy Abdullah | June 4, 2019

As the ways in which we do business change and evolve, the tools we use for SaaS revenue recognition should, ideally, change as well. Unfortunately, that’s not always the case. A recent study found that just 40% of CFOs felt confident about their system’s ability to provide relevant insights, and half reported that their systems did […]

By SaaSX | May 28, 2019

Sales is the Growth Engine Sales is the engine driving SaaS company value. Top and bottom line performance are totally dependent on the sales organization and its performance. And sales expense is typically the largest expense item on a growth SaaS company’s income statement. When scaling the business, sales typically averages roughly 30% of revenue, […]

By Lauren Kelley | May 16, 2019

Customer Acquisition Cost (CAC) is one of the key SaaS metrics to track and benchmark in your business.  By accurately calculating SaaS CAC and benchmarking it against peers and market leaders, companies can better allocate resources to improve growth and profitability.  And with accurate calculations, companies can identify the most profitable customer segments.  Yet, getting […]

By Lauren Kelley | April 26, 2019

PagerDuty was founded in 2009 by 3 former Amazon engineers who were often on-call. To engineers, being on call means carrying a pager to respond to crises when software breaks or services go down. In the 10 years since that day, PagerDuty has built an exceptional business. Their product has evolved from on-call management, which […]

By Tomasz Tunguz | April 16, 2019

Ever had a discussion or sat in a meeting to review metrics and the meeting didn’t accomplish much because the discussion got mired in questions about the metrics, not what the metrics were saying about the company’s performance? Or your executive team looks at metrics one way, but your investors, or bank lenders or new M&A […]

By Lauren Kelley | April 12, 2019

Anna and I are about a year into our SaaSX and Beacon9 stories and about 15 months removed from the acquisition of our SaaS company. We worked with some amazing recurring revenue SaaS companies in 2018. Our journey, our clients, and the new year have caused me to reflect on our mission to help SaaS […]

By SaaSX | April 9, 2019

A benchmark floating around the SaaS blogging community is that SaaS net retention rates have to be over 100% – or your company isn’t valuable.  In fact, according to this school of thought, your net retention rate should be way over 100%, at least 125% or more.  Some investors are even associating net retention rates […]

By Lauren Kelley | March 22, 2019

This post won’t save your life, or your company.  But it might save you a few precious hours at 2:00 AM if you’re working on your company’s SaaS metrics and can’t foot your quarterly and annual churn rates while preparing a board or investor deck. The generic issue is a lot of SaaS metrics gurus […]

By Dave Kellogg | March 19, 2019

SaaS Cost of Goods (COGs) is the fulcrum on which gross margin and key SaaS metrics balance.   SaaS Finance managers have to think strategically as they define exactly how to calculate COGs. More expense in the SaaS COGs bucket brings down gross margin but might improve Customer Acquisition Cost (CAC) – but this can have […]

By Lauren Kelley | March 8, 2019

“If you need more revenue, invest in Sales.” Why is that the default—some might say “kneejerk”—response to the basic question of how to make more money? One of the reasons Sales is such an obvious economic driver for companies is because its core Key Performance Indicator (KPI) is meaningful and well-defined: bookings. But for businesses […]

By Nick Mehta | March 5, 2019

Ever had a discussion or sat in a meeting to review metrics and the meeting didn’t accomplish much because the discussion got mired in questions about the metrics, not what the metrics were saying about the company’s performance? Or your executive team looks at metrics one way, but your investors, or bank lenders or new M&A […]

By Lauren Kelley | March 1, 2019

Investors love SaaS customer cohort analysis. It shows that you are analyzing your business, using data to identify areas of strength and weakness. It shows that you know your customers and can analyze which segments are likely to grow and which are at risk for churn. If you can identify the groups most likely to […]

By Lauren Kelley | February 15, 2019

How much can a customer success manager manage? I’d heard the wisdom of $1-2M in ARR per year and around 80 accounts. But I hadn’t come across any data. Last summer, Gainsight posted the results of their survey on the topic. The truth is most CSMs manage between $2-5M in ARR and somewhere between 10-500 accounts. But […]

By Lauren Kelley | February 12, 2019

One of the most important metrics for B2C companies is customer acquisition cost or “CAC”.  One debate is whether the cost rises or falls over time.  The argument for rising CAC is the next marginal customer is generally harder to acquire than your last customer.  The argument for falling/stable CAC is that as companies get […]

By Sammy Abdullah | January 22, 2019

CAC can be difficult to calculate.  If you have 1000 customers paying $1,000/year plus 100 customers paying $10,000/year, is it good, bad or indifferent if your average CAC is $5,000/customer?  In the B2B SaaS world, most companies have different customer segments who pay somewhat or very different prices based on a variety of different licensing […]

By Lauren Kelley | January 17, 2019

When I first heard about the Lifetime Value (LTV) to Customer Acquisition Cost (CAC) metric many years ago, the economics major in me got very excited. I was already well into the SaaS financing business at the time, and this ratio seemed like the most elegant way to express how the business model really worked. […]

By SaaS Capital | December 11, 2018

Here’s a super interesting perspective from Sunir Shah, founder of the Cloud Software Association, a 2000 member organization dedicated to promoting partnerships and business development among SaaS companies that we like a lot.  From the early SaaS days when few believed the SaaS subscription business model could support partners and indirect channels, the SaaS partnership […]

By Cloud Software Association | October 16, 2018

Harvard Business Review published an article last year describing a new method they dubbed the Customer Based Corporate Valuation (CBCV) method focused on SaaS valuations and subscription companies. CBCV takes a “bottoms-up” approach to determining a company’s value, focusing on its customer base and the value of its customers.  By contrast, traditional valuation methods take a […]

By Lauren Kelley | September 27, 2018

As many of you know, Red Rocket has been looking for a businesses to buy.  We have previously written about all the challenges that come with buy-side mergers and acquisitions work.   But, there is a new wrinkle we have been running into, that is worth talking about.  Most businesses we have looked at were […]

By George Deeb | September 25, 2018

As a SaaS business matures, the importance and value of SaaS metrics increase. Most SaaS businesses begin their journey down the SaaS metrics path by tracking recurring revenue in relation to customer acquisition costs. After building a solid customer base, churn becomes a priority. These fundamental SaaS metrics are all apparent in the standard SaaS […]

By Joel York | August 30, 2018

SaaS customer acquisition cost (CAC) is one of the key indicators to define a profitable SaaS business model.  The difference between customer acquisition cost and the lifetime value of a customer defines the value of the business. CAC is defined as the cost involved in acquiring one new customer.  The easiest way to determine customer acquisition […]

By Lauren Kelley | August 23, 2018

Hiring and retaining skilled and productive employees in SaaS companies is an ongoing, competitive exercise.  Human assets are the biggest investment and a huge driver of SaaS company valuations – but a lot of organizations don’t check SaaS HR benchmarks regularly or keep it in front of management the way they do customer lifetime value, […]

By Lauren Kelley | July 31, 2018

Growth is the primary driver of value for early- and mid-stage SaaS companies.  In subscription models, you invest in revenue acquisition up – front and then generate value over time by managing churn. Acquiring new recurring revenues burns cash, mostly in Sales and Marketing. SaaS executives need to understand how efficient their organizations are in […]

By Lauren Kelley | June 19, 2018

SaaS companies track income with a variety of different metrics, and it can be confusing.  Some companies track bookings, ARR and recognized revenues, others track billings.  Sometimes companies only include recurring revenues when they talk about bookings or billings, but they also sell Professional Services (and must book and bill them somehow).  Definitions and reporting […]

By Lauren Kelley | June 5, 2018

Company X is a fast growth SaaS company, surpassed $20M ARR in 2017 and on a plan to hit $35M ARR in 2018, and $50M ARR in 2019.  Their growth plan is based on: more enterprise customers; opening an office in Europe/UK and increasing European revenue to 15% of total revenue; and adding new functionality […]

By Lauren Kelley | May 21, 2018

SaaS G&A expense is surprisingly high.  Unlike traditional software companies where G&A expense was expected to be in the 12-14% of revenue range at the time a company went public and then drop to 8-10%, SaaS companies present G&A expense between about 15% to 20%, and sometimes more, of revenue.   Why is this and what […]

By Lauren Kelley | April 30, 2018

The importance of unit economics and the associated metrics (CAC, LTV, LTV/CAC ratio) is well established in the SaaS world.  But how you calculate your operating numbers isn’t as well understood – these critical non-GAAP metrics aren’t consistently defined.  And changes in calculations – not the business – can have a real impact on your […]

By Lauren Kelley | February 27, 2018

2017 was a banner growth year for SaaS companies, and particularly for SaaS vendors that went public over the past 12-18 months.  Based on OPEXEngine’s data feed of analyst revenue expectations for the next fiscal year filings, top performing SaaS companies’ annual revenue growth rates keep climbing and it appears as if they will beat […]

By Lauren Kelley | January 29, 2018

Most SaaS companies know that to run your business profitably, it is important to measure SaaS CAC.  Yet, managing this metric over time can become increasingly complicated as a company expands its operations and divides its resources into both acquiring and retaining customers.  Calculating SaaS CAC correctly is not as simple as dividing total Sales […]

By Lauren Kelley | March 1, 2017

Every CFO conference that I’ve been to in the past 5 years stressed the emergence of the CFO as a strategic leader of the company.  Study after study affirms that today’s CEOs expect CFOs, especially in the tech sector, play a strategic role driving company growth rather than just accounting for past performance and policing company […]

By Lauren Kelley | May 18, 2016

With any analysis, it is only relevant if you understand how the data was calculated and the context of how it relates to your business.  The data has to be credible for the analysis to be useful. And when comparing to benchmarks, it becomes doubly important to make sure that both the benchmarks are credible and […]

By Lauren Kelley | May 22, 2015

The social media world and business advisory firms, consultants and other pundits keep alerting businesses that the objective of return on investment (ROI) is diminishing in importance, or even dead, due to the increasing focus on return on user experience (ROE or ROX). We asked three experts to share their advice on ROI versus ROE as […]

By Lauren Kelley | May 5, 2015

Professional services for many SaaS companies have become an important way to on-board customers, keep customers satisfied with the product and using more features of an application or service, making it stickier.  As one CFO recently said, professional services are definitely a churn-reducer.  SaaS companies, particularly high growth, venture-backed firms, are pricing professional services as […]

By Lauren Kelley | November 12, 2014

SaaS Cost of Customer Acquisition (COCA) is one of the most critical SaaS metrics in determining whether a SaaS business is building a profitable business or not. COCA includes all sales and marketing expense aimed at bringing on new customers. In small and midsized companies, COCA is typically calculated as all sales and marketing expenses from a […]

By Lauren Kelley | February 24, 2013

Every SaaS business wants to have very low churn rates. Public SaaS companies often release renewal rates in the mid- or even high 90 percent range, without giving any detail about how the number was derived. But how do you interpret SaaS churn metrics? In our annual Software and SaaS benchmarking, we’ve been tracking churn […]

By Lauren Kelley | February 18, 2013

If you are a SaaS company, you surely watch customer churn rate like a hawk.  When your company is working hard to add new customers, and then losing a good portion of them every year, that’s a bad thing.  It says a few things about your business: You may not have as good customer relationship […]

By Lauren Kelley | April 23, 2012

We’ve been tracking COCA for SaaS companies for about 5 years now.  We use the metric to calculate benchmarks for customer acquisition expense by size of company, and by type of product offering, ie., whether a company is selling a low cost solution or a relatively high cost solution.  We incorporate COCA into other benchmarks […]

By Lauren Kelley | November 15, 2011

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