Gartner defines software as a service (SaaS) as software that is owned, delivered and managed remotely by one or more provider. SaaS removes the need for organizations to install and run applications on their own computers or in their own data centers.
The most common metrics for SaaS companies:
The percentage of users who take a desired action. The archetypical example of conversion rate is the percentage of website visitors who buy something on the site.
Conversion Rate = New Customers ÷ Total New Signups
The percentage rate at which SaaS customers cancel their recurring revenue subscriptions.
Churn Rate = Lost Customers ÷ Customers Beginning of the Month
MRR – Monthly Recurring Revenue
Monthly Recurring Revenue is normalised monthly revenue, based on all recurring items of a Subscription.
MRR churn rate
The revenue that has been lost from customers cancelling or downgrading their plans.
MRR churn rate = Lost MRR ÷ MRR beginning of the month
ARPA – Average Revenue per Account
Sometimes known as Average Revenue per User or per Unit, usually abbreviated to ARPA, is a measure of the revenue generated per account, typically per year or month. The total revenue generated by all customers (paying subscribers) during that period should be divided by the number total number of customers.
ARPA = MRR end of month ÷ Customers end of month
ARR – Annual Recurring Revenue
The amount of recurring revenue a subscription-based company will collect in one year.
CAC – Customer Acquisition Cost
The cost associated in convincing a customer to buy a product/service.
CAC = Marketing spendings + Sales spendings
Months to recover CAC
Is a measure of time that demonstrates how long you take to recover the amount of money invested on customer acquisitions (CAC).
Months to recover CAC = Total CAC ÷ (MRR end of month ÷ Customers end of month)
CLTV – Customer Lifetime Value
The amount of revenues that you expect to generate from a customer during the period over which your service will be of value.
CLTV = (1 ÷ Churn Rate) X ARPA – Average Revenue Per Account
The movement of money into or out of a business, project, or financial product. It is usually measured during a specified, limited period of time.