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Common SaaS Accounting Metrics
Empowering Growth, One Data Point at a Time
Accounting-driven metrics are crucial in evaluating a company's financial health and performance. These metrics provide operationally focused CEOs' interstellar insights into the financial galaxy of their business. These metrics also serve as a launch trajectory for Venture Capitalists comparing the performance of SaaS companies across verticals and stages. Let's delve into the specific accounting-driven metrics that contribute to a comprehensive understanding of a SaaS company's success and operational efficiency.
Customer Lifetime Value (CLV): This ratio tracks the total user value generated over a lifetime. LTV is important because it helps a company better understand its current client base and how much it can spend to acquire new customers.
Customer Acquisition Cost (CAC): This ratio tracks all the marketing and sales costs related to attaining a new customer and indicates marketing effectiveness. Tracking CAC helps a company understand the efficiency of its customer acquisition efforts and shows investors how expensive it is to acquire a single customer. Once you have calculated your CAC, you should compare it to your customer lifetime value (LTV) to ensure your customers pay more for your product than you spend to acquire customers.
Annual Recurring Revenue (ARR): This ratio standardizes the contracted monthly recurring revenue (MRR) components from term subscriptions into one year. This normalization facilitates forecasting future revenue and growth trajectories.
Monthly Recurring Revenue (MRR): This vital metric represents the predictable or recurring revenue generated from active subscription-based products or services, excluding one-time fees or variable charges. MRR provides SaaS companies with a clear understanding of their revenue stream's stability and growth trajectory, serving as a fundamental metric for financial planning, forecasting, and performance evaluation.
Churn Rate: This ratio tracks the number of customers who stop using a company’s products or services over a specific period. Tracking churn helps a company understand the health of its customer base and identify changes that may be needed to retain its current client base.
Net MRR Churn Rate: The Net MRR Churn Rate encompasses both the Gross MRR Churn Rate, reflecting lost revenue from canceled contracts, and additional revenue from account expansion such as upgrades, add-ons, or reactivations from existing customers. Comparing the two metrics provides a comprehensive view of churn, as the Gross MRR Churn Rate alone may inflate the perception of churn by not considering revenue from upgrades.
Net Promoter Score (NPS): This is a standardized measure in market research that quantifies customer satisfaction and loyalty. The formal NPS methodology involves asking your customers the survey question, "How likely are you to recommend our company, product, or service to a friend or colleague?" Customer responses are rated on a scale from 0 (not at all likely) to 10 (extremely likely). These responses are divided into three groups (promoters, detractors, or passives). NPS only considers feedback from promoters and detractors.
Average Revenue Per Account (ARPA): This metric shows the revenue generated per account. It provides insights into user cohort dynamics, revealing account expansion and contraction trends. ARPA is particularly valuable for assessing the effects of a new pricing strategy on revenue generation, aiding in strategic decision-making and performance evaluation.
Empowering Your SaaS Journey Through
Data-Driven Metrics
Our business advisory firm is a leader in SaaS accounting, with a wealth of experience and some of the best clients on the planet. Our team is well-versed in the unique accounting and financial needs of SaaS companies, and we have the knowledge and tools to help our clients understand and manage their SaaS metrics effectively.
We understand how much pressure founders are under, and believe that metrics and solid accounting are what help operational focused founders overcome many of the numerous challenges that SaaS companies face. Our team is equipped to help our SaaS clients navigate these challenges and make informed, metric based, decisions that will help them achieve their goals.
In addition to our deep understanding of the SaaS industry, we are also up-to-date on the latest accounting and tax regulations, and we stay current with the most recent trends in the industry. We are available to help with any SaaS metrics needs our clients may have, whether it be providing regular financial statements, forecasting, KPI tracking, or any other financial analysis that can help them make strategic decisions and grow their business.
