Key performance indicators (KPIs) are crucial tools for SaaS executives, as they allow them to track their business and make informed decisions.
By tracking these KPIs, SaaS executives can assess the effectiveness of their strategies, identify areas where they can improve performance, and take steps to achieve their short- and long-term goals.
In this article, we explain which KPIs are essential for a SaaS and which tools allow you to calculate them automatically.
1. Top-line KPIs for a SaaS: MRR, ARR and ARPA
Recurring revenues : ARR and MRR
MRR is a financial indicator that measures the monthly recurring revenue embedded in a company's subscriber base. It is calculated by multiplying the number of paying customers by their monthly subscription fee.
A SaaS typically offers pricing packages in the form of a monthly, quarterly, semi-annual or annual subscription. In all cases, with MRO, this type of company calculates monthly revenue by smoothing out the revenue from plans that run for more than one month.
ARR or Annual Recurring Revenue is another basic KPI for a SaaS. ARR corresponds to MRR * 12 and gives a vision of the recurring revenue embedded over the next 12 months. It is therefore a very good indicator of activity, because it provides visibility on the projected revenue. It also serves as an objective for managers, by setting an ARR target (a business volume objective for the current year).
Note that it is also important to track your non-recurring revenue (setup fees for example) which can be a major growth lever.
ARPA: average revenue per account
This indicator measures the average revenue per customer. The objective of a SaaS, regardless of its plans and options, is to maximize this revenue. The strategy ofup-selling (switching to a more expensive subscription) or cross-selling (adding other services to the subscription) contributes to increase the ARPA.
Churn and Life Time Value
Keeping a customer costs less than winning a new one. So it's important to track your retention with :
- The churn rate, which measures the percentage of MRR or lost customers. Its analysis allows you to understand what needs to be optimized in your offer.
- LTV (Life Time Value), which calculates the total revenue a customer will generate over the estimated duration of their subscription.
2. KPIs related to costs and expenses
In a SaaS business, the main costs are found in customer acquisition expenses (sales, marketing and advertising costs). In addition, there is the management of the website, the maintenance of the application or services offered to customers, as well as the payroll.
The CAC: customer acquisition cost
The cost of customer acquisition is the total monthly expenditure divided by the number of new customers in the same period. The main acquisition expenses are salaries for sales and marketing staff, as well as marketing and advertising.
The amount of the CAC and its evolution should be closely monitored. It is an absolutely essential indicator to follow your commercial performance and the profitability of your activity.
CAC payback period : number of months of subscription to cover the CAC
This is the calculation of the ROI of your expenses. It answers the following question: how many months of subscription do you need to cover the cost of acquiring a customer?
KPIs related to cash flow
The growing start-up spends before it collects. This classic pattern requires close monitoring of cash flow. Unfortunately, it is the lack of reporting and monitoring in this area that explains the high failure rate in the first months.
The cash burn measures the consumption of your cash. It can be broken down into several indicators:
- The Gross Burn Rate, which measures the total expenses for the period.
- The Net Burn Rate, which corresponds to the number of months of cash remaining, integrating both the Gross Burn Rate and the revenue for the period.
The fundamental KPI to manage the cash flow of a SaaS company is the cash runway (current cash position / projected Net Burn Rate).
It can be compared to the life expectancy of the company: depending on the cash available today, and future expenses, how long do you have before you run out of money? This is a ratio to be closely monitored in order to find the right financing, at the right time, and continue to develop.
Performance indicators
Here are some important KPIs to measure the performance of your SaaS. Performance can be global, financial, operational or environmental. Insert these key indicators in your monthly dashboard, in order to monitor your performance throughout the year.
LTV/CAC ratio
This ratio is monitored by investors and compares the total revenue expected from a customer with the cost of acquiring that same customer. Ideally, aim for a ratio of more than 3 to 1. As you can see, the longer a customer remains a subscriber to your services, the higher the profitability of your company will be: the ultimate goal!
New MRR / Cash Burn
This ratio compares new subscriptions in a given month with expenses for the period. It is also a measure of the effectiveness of the cash burn in generating new MRR. If it is greater than 1, cash flow is improving. If it is not, it is deteriorating.
EBITDA
This indicator is now widely used in the financial world and is similar to EBITDA (gross operating surplus). It measures the company's profitability before any financing or investment policy. It reflects the operation. It is the first item in the calculation of Free Cash Flow or FCF.
The break-even point (breakeven point)
When the break-even point is reached, the amount of sales covers the company's expenses. This is called "break-even point". The more a company has high fixed costs, the longer it will take to reach the break-even point. But once this breakeven point is exceeded, the company makes a profit.
5. Which tool to calculate your KPIs?
Calculating KPIs is a particularly time-consuming exercise because it requires aggregating different data sources and making calculations in a spreadsheet. If your reporting is monthly, you will spend dozens of hours calculating your figures.
Fincome is a platform that allows you to automatically calculate your main SaaS KPIS in real time. Its benefits are multiple:
- Time saved: Fincome automates the process of calculating and compiling financial data. This saves a lot of time compared to a manual calculation.
- Errors avoided: Fincome eliminates calculation errors that can occur when using spreadsheets or manual calculations. These errors can have a significant impact on strategic decisions made by management.
- 360° vision: Fincome allows you to compile data from different sources (invoicing, banks, etc.) and to automatically integrate them into the calculations. This provides a more accurate and reliable global view of the company's financial performance.
- Facilitation of comparison: Fincome allows a comparison of the company's financial performance with that of its competitors. This makes it possible to better evaluate the company's evolution and identify trends to follow.
- Easy access to information: Fincome makes data easily accessible to team members or investors for effective decision making.
