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SaaS Metrics

Metrics are crucial for improving SaaS businesses and aligning teams around the goal of creating a "repeatable, scalable, and profitable growth machine".

Key Metrics and Formulas​

  1. Net New ARR = New Customer ARR + Expansion ARR - Churn ARR.
  2. Bookings = Number of Leads x Conversion Rate x Average Deal Size.
  3. Bookings (with sales team) = Number of Salespeople x Productivity per Rep.

Funnel Approach​

  • Visualize the SaaS business as a funnel, including customer retention and expansion.
  • Track visitor-to-trial and trial-to-customer conversion rates over time.

Sales Team Management​

  • Hiring salespeople on time is critical to avoid missing bookings targets.
  • Monitor individual sales rep performance and overall team productivity.

Unit Economics​

  • Focus on Customer Acquisition Cost (CAC) and Lifetime Value (LTV).
  • Aim for LTV to be at least 3 times CAC, with CAC recovery in 12-18 months.

Churn and Negative Churn​

  • Customer churn and dollar churn are distinct metrics to track.
  • Negative churn (expansion revenue exceeding churn) is crucial for long-term success.

Cash Flow Management​

  • SaaS businesses often experience a "cash flow trough" due to upfront customer acquisition costs.
  • Collecting annual payments upfront can significantly improve cash flow.

Growth Stages​

By focusing on these key metrics SaaS businesses can better measure, improve, and scale their operations across the nine stages of evolution to establish a repeatable, scalable and profitable B2B SaaS company:

  1. Discovery - Identifying and evaluating potential business opportunities.
  2. Modelling - Developing the business logic, strategy, and processes.
  3. Startup - Mobilizing resources and beginning to trade or develop the product.
  4. Existence - Gaining enough customers to create a viable business and establishing product quality.
  5. Survival - Becoming cash flow positive with enough satisfied customers for repeat sales.
  6. Success - Capitalizing on accomplishments, expanding, or keeping the company stable and profitable.
  7. Adaptation - Proving ability to grow while moving towards profitability.
  8. Independence - Achieving repeatable, scalable and profitable growth.
  9. Exit - Options like going public or being acquired.

The Journey​

  • Each stage has specific goals and exit criteria before moving to the next.
  • Trying to skip stages or rush through them is a common and often fatal mistake.
  • The focus shifts from product/market fit in early stages to building a repeatable sales process and then scaling.
  • Later stages involve optimizing unit economics, reducing churn, and achieving negative churn through expansion revenue.
  • The endgame is to create a "repeatable, scalable and profitable growth machine" that can predictably turn investment into growth.