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April 28, 2024

16 SaaS Business Metrics: What Matters For a High Valuation

There are many business metrics you can track, but not all of them (really) matter for a successful company sale. Here’s a list of metrics to care about.

16 SaaS Business Metrics: What Matters For a High Valuation

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    There are numerous business metrics to track, but only a handful are critical in a business acquisition. The data collected gives business owners visibility into day-to-day operations, allowing them to optimize processes for higher recurring revenue and profitability.

    When transferring company ownership, these metrics provide buyers with valuable insights about the business's efficiency, including the potential to retain customers in the long term. 

    The following list includes 16 standard business metrics in the software as a service (SaaS) industry, which we've divided into two relevant categories for business buyers: acquisition & retention and financial. 

    Boopos CEO Juan Ignacio García Braschi shares his take on the most critical metrics sellers should gather and keep up-to-date before listing their company for sale. Take note!

    What are the most important SaaS metrics for a buyer?

    The SaaS metrics business buyers care about the most will depend on the stage of the business. Boopos focuses "on companies that are at a certain maturity stage. They are bootstrapped companies that are generating cash flow, so what matters most are customer retention metrics,” says Boopos CEO, Juan Ignacio García Braschi.

    But it's fair to say that there are critical metrics regardless of the business stage, which also matters for Boopos' credit and income stability analysis, similar to the evaluation every equity investor does.

    Here are the key metrics:
    Net Revenue Retention (NRR): To measure the long-term success of your product, it's important to track the revenue generated by clients over a certain period. This is done by comparing their purchases in the past 12 months to see if they are buying more or less, which helps you see if your product provides enough value over time and identify if any changes need to be made regarding pricing to remain competitive.

    Customer Lifetime Value (LTV): It is important to know how long a client has been with the company and their monthly billing amount. Maximizing customer engagement in terms of time and revenue is a key metric at every stage of the business.

    How Boopos helps you get your metrics in order

    Boopos assists online businesses in gathering and validating their metrics, providing value to the seller by offering a clear understanding of what is working well and what areas require improvement. This enables sellers to diagnose the direction in which their business is heading.

    Additionally, Boopos highlights relevant metrics for their qualified buyers.

    According to García Barschi, "there are some small companies where owners have built a very good product but have not paid enough attention to tracking metrics or monitoring KPIs.

    "Therefore some small business owners may be unaware of their company's value."

    16 types of SaaS business metrics to track

    All businesses need to track key performance indicators (KPIs). Still, software-as-a-service (SaaS) companies use specific metrics to evaluate growth, customer engagement, and performance.

    Before focusing on one or the other, put yourself in the buyer's shoes by asking: What results would you expect from a company you are about to buy? 

    According to Boopos CEO, retention metrics matter most, especially for buyers looking to acquire more mature businesses. At an early stage, the most relevant metrics are growth-related.

    Acquisition & retention

    1. Conversion rate (CVR)


    Conversion rate is the percentage of the total number of visitors who become leads or customers.


    It depends on what interaction you're trying to measure, for example, visitors to leads, leads to customers, or freemium users to paid subscriptions. Usually, CVR is the total number of converted users divided by total number of visitors.

    Conversion Rate = (50 Purchases / 1,000 Visitors) x 100% = 5%

    Why it matters

    This is a good indicator of your marketing efforts and sales process success rate because it tells you how many leads or visitors you must impact before making a sale or gaining a new customer.

    2. Customer acquisition cost (CAC)


    How much money does the business need to invest before gaining a new customer, considering marketing, sales, support, and other expenses?


    Divide the total marketing costs to acquire new customers by the total number of customers acquired in a given period.

    CAC = Total Sales & Marketing Costs / Number of New Customers Acquired

    Why it matters

    Calculating the customer acquisition cost (CAC) helps business owners identify the critical steps in their customer acquisition process and areas where they can potentially reduce expenses. Additionally, tracking customer acquisition costs aids in determining pricing strategies by comparing them to the customer's projected value to the business.

    3. Customer engagement score (CES)


    This metric tracks the interactions between your SaaS product value offer and your customers perception of such value.


    CES is calculated by aggregating the scores of various customer interactions. Each type of interaction—such as usage frequency, feature adoption, or user feedback—is assigned a specific score based on its importance and impact on engagement. The total CES for a customer is the sum of these scores, providing a quantitative measure of their engagement level.

    Why it matters

    As it's positioned at the core of your user engagement strategy, it is a metric that can be used to predict both customer and revenue retention as well as churn or identify upselling opportunities within your services.

    Boopos tip

    User Pilot has a great article that provides examples of how to do CES calculations. You can read more about how to calculate the Customer Engagement Score by following this link.

    4. Customer retention rate (CRR)


    The customer retention rate is the percentage of existing customers who remain subscribed to your services over a specific period.


    To calculate the CRR you can:

    1. Start with an initial number of customers for a given period
    2. Subtract the number of new customers acquired during the period from the total number of customers at the end of the period (Final Customers - New Customers)
    3. Divide the result by the initial number of customers
    4. Multiply the result by 100 to get a percentage
    Why it matters

    This metric is important as it can tell you if it's more profitable to implement strategies to retain existing customers or increase loyalty and satisfaction versus acquiring new ones.

    5. Customer churn


    Customer churn rate is the total number of customers or subscribers lost in a given period.


    To calculate customer churn, do the following:

    1. Count the total number of customers lost during the period.
    2. Divide this number by the total number of customers at the start of the period.
    3. Multiply the result by 100 to convert it to a percentage.
    Why it matters

    Tracking churned customers helps businesses understand improvement areas, make decisions, and implement new strategies like loyalty programs.


    6. Months to recover customer acquisition costs (Months to recover CAC)


    Months to recover CAC measures the time required for a company to recover its investment in acquiring a new customer, to understand the efficiency of customer acquisition and profitability over time.


    To get the Months to recover CAC metric, first you need to calculate the CAC and the average revenue per account (ARPA).

    1. Calculate the CAC: total cost of acquiring new customers (marketing and sales expenses) divided by the number of new customers acquired.
    1. Calculate the ARPA: total revenue divided by the number of accounts.
    2. Multiply the ARPA by the gross margin percentage to find the margin-adjusted revenue per account.
    3. Divide the CAC by the margin-adjusted revenue per account to find the number of months required to recover the CAC.
    Why it matters

    Months to recover CAC metrics help businesses define strategies to optimize acquisition costs. A shorter recovery time is usually a reflection of a more sustainable business, as it indicates that it can quickly recover its investment and begin generating profit from each customer.

    7. Lifetime value to customer acquisition cost ratio (LTV-to-CAC)


    This ratio measures the relationship between a customer's lifetime value (LTV) and the cost of acquiring that customer (CAC). It's used to assess the value a customer brings compared to the cost of acquiring them.


    The CAC-to-LTV ratio is calculated by dividing the Customer Acquisition Cost (CAC) by the Lifetime Value (LTV) of a customer.

    A lower number is preferable, as it indicates that the cost to acquire a customer is less than the value they will bring to the business.

    Why it matters

    CAC-to-LTV allows businesses to estimate sustainability, efficiency, revenue forecast, and competitive positioning for better investment, customer acquisition strategy and business valuation.

    8. Gross margin


    For SaaS companies, gross margin measures the difference between the revenue generated from software subscriptions (or other service models) and the direct costs associated with delivering these services. These direct costs primarily include:

    • Cost of Goods Sold (COGS): For SaaS, this often includes costs related to hosting, software licenses, direct labor (if directly associated with service delivery), and support costs. It does not include development costs, as these are typically capitalized and amortized over time.
    • Recurring expenses: Such as third-party service fees (for example, costs for cloud infrastructure or third-party APIs), and other variable costs tied directly to service delivery.

    To calculate the gross margin of a SaaS:

    1. Subtract the cost of goods sold (COGS) -in this case, service delivery- from the recurring revenue.
    2. Divide the result by the total recurring revenue.
    3. Multiply by 100 to convert it to a percentage.
    Why it matters

    This metric is important as it shows the profitability of the business's service or product. High gross margins indicate the business's ability to cover its operational expenses without affecting growth and scalability.

    9. Monthly recurring revenue (MRR) & annual recurring revenue (ARR)


    Monthly Recurring Revenue (MRR): This metric represents the predictable and repeatable revenue that a business can expect to receive every month based on its current subscribers or customers. MRR is essential for subscription-based business models, such as SaaS companies.

    Annual Recurring Revenue (ARR): ARR is similar to MRR but scaled to a yearly basis. It represents the revenue that a business can expect to receive annually from its customers if current conditions continue without change.

    • MRR: Multiply the total number of monthly subscribers by the average revenue per user (ARPU). ARPU is calculated as the total revenue divided by the total number of subscribers.
    • ARR: There are two common ways to calculate ARR based on MRR:some text
      1. Multiply MRR by 12.
      2. Multiply the total number of annual subscribers by the average annual revenue per user (which could be different from ARPU if there are annual discounts or different billing structures for yearly plans).
    Why it matters

    Monthly or annual recurring revenue helps to clearly define the revenue stream and guide budgeting and overall strategy planning.

    10. Gross revenue churn rate


    Gross revenue churn is the percentage of monthly or annual recurring revenue that a company loses during a specific period, usually due to cancellations.


    To get the gross revenue churn rate, do the following:

    1. Calculate the total recurring revenue lost due to churn during the period (this includes cancellations but excludes any reductions due to downgrades if you are measuring gross churn specifically).
    2. Divide this churned revenue by the total recurring revenue at the start of the period.
    3. Multiply the result by 100 to convert it to a percentage.
    Why it matters

    Revenue churn gives insights into the company's financial health and growth. By tracking this metric, the business can also address customer satisfaction issues, improve its service value proposition, and implement strategies to reduce customer churn and increase customer lifetime value (LTV).

    11. Burn rate


    This metric is commonly defined as the rate at which a startup company or any business uses its cash reserves or capital over a given period, particularly when it is not generating significant revenue to cover its expenses.


    The calculation usually focuses on net burn rate and gross burn rate:

    • Gross Burn Rate: This is the total amount of cash a company spends each month. Calculate this by adding up all monthly cash expenditures.
    • Net Burn Rate: This takes into account cash inflows from sales or other sources along with cash outflows.
    Why it matters

    It measures how quickly a company will use up its capital, whether it was bootstrapped or VC-funded. If the shareholder's capital is exhausted, the company must either implement changes to generate more profits, secure additional funding, or close.

    Other SaaS business metrics

    12. Qualified marketing traffic

    This metric differentiates between new and returning visitors. It helps you understand which users are more likely to convert into customers and can guide your retargeting strategies.

    13. Net promoter score (NPS)

    The NPS is basically a customer satisfaction score from 0 to 10, where users can answer the question about how likely they are to recommend your service to others. It categorizes responses into Promoters (9-10), Passives (7-8), and Detractors (0-6).

    14. Customer health score

    The customer health score is similar to the customer engagement score, as it combines different metrics to which scores can be assigned.

    15. Expansion revenue

    The rate at which paying customers are willing to spend more money for your services through upselling or cross-selling, as their relationship progresses as a result of a successful customer experience. It indicates the company's ability to grow revenue internally without acquiring new customers.

    16. Number of active users

    The Number of Active Users is a metric that quantifies the total number of users who engage with a product or service within a specific timeframe.

    SaaS metrics to look for at every stage

    As we stated above, according to Boopos CEO, net revenue retention and lifetime value are two of the most relevant metrics regardless of the business's stage.

    When companies are at a later stage, what buyers want to see is cash flow and growth is not as important.

    "In early stages, other metrics like growth and customer acquisition are more relevant".

    Relevant metrics for early-stage SaaS

    • Monthly recurring revenue (MRR): The first question almost any buyer will most likely ask is how much money the business is making.
    • Customer acquisition cost (CAC): SaaS companies need to monitor CAC closely because the business model relies heavily on continuously acquiring new customers to grow MRR.
    • Churn rate: Customer churn plays an important role in the total revenue. Keeping it to a minimum represents a positive cash flow.
    • Website traffic and user engagement: How many customers are you attracting, how many recurring new customers can you offer the buyer, and how well-established is your current customer base?

    Relevant metrics for middle-stage SaaS

    • Monthly recurring revenue (MRR) growth rate: This metric will show the buyer how promising the business scalability is and how much expansion revenue potential it has.
    • Customer Retention Rate: An established customer base is key when it comes to recurring revenue.
    • Market Penetration Rate: measures the extent to which a product or service is being used by customers compared to the total estimated market for that product or service.

    Relevant metrics for mature SaaS

    • Customer Lifetime Value (CLV): Having lots of users isn't enough if they are not correspondingly contributing to profit margins. Buyers are interested in knowing the total revenue a company can expect from an average customer over the duration of their relationship.
    • Net revenue retention: A high NRR is a sign of a healthy business capable of growing without relying solely on new customer acquisitions.
    • Gross margin: For a mature company, maintaining a healthy gross margin is essential because it reflects the company's efficiency in managing production and service delivery costs relative to its earnings.

    Tools to measure SaaS business metrics

    Here are some tools to measure these SaaS business metrics.

    Is your SaaS business ready to be sold? Get a free valuation

    Boopos helps sellers analyze their business metrics, thereby enabling them to identify areas that require improvement.

    Additionally, Boopos assists buyers in validating the overall status of the company they intend to sell. By extracting transaction data from the payment gateway, Boopos can calculate important metrics such as retention rate and churn, which helps determine the company's multiple.

    If you want help assessing the value of your business, start by getting a free valuation today!

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