Finance & Operations

Measures of Success: SaaS Metrics & Benchmarks Resource Guide

November 16, 2021

For software-as-a-service (SaaS) companies, successfully achieving rapid growth and sustainable profitability is anything but simple. Generally, success hinges on a company’s ability to acquire a deep understanding of the metrics that most accurately gauge company performance and profitability. Then all that information is used to create a finely tuned economic model that maximizes growth while minimizing expenses.

Data is vital, but unfortunately many founders and execs become obsessed with sifting through seemingly endless streams of analytics. Before they know it, analysis paralysis sets in, and they find themselves consumed by a virtual alphabet soup of SaaS metrics and corresponding acronyms (CAC, ARR, ACV, LTV, to name a few).

This guide is meant to serve as high-level overview of the most common SaaS metrics, compiled from years of  tips, best practices, first-hand knowledge, and data on the subject.

A Quick Glossary of SaaS Metrics

Annual Recurring Revenue (ARR)

The value of your contracted subscriptions taking into account revenue added/lost from components such as new sales, renewals, upsells, churn, etc. Note: One-time fees are typically excluded.

Annual Contract Value (ACV) to Marketing Cost Ratio

ACV Ratio = Expense of marketing campaigns : Revenue from marketing campaigns

Essentially, this metric is the marketing component of CAC (see below). It is designed to help you determine how much you are spending on marketing programs relative to how much revenue those programs bring in. In many cases, a healthy ratio is 2-to-1, which is to say that you spend about $2 on marketing to acquire $1 of ACV. The lower the ratio, the more likely it is that your marketing operation is running efficiently. And the more efficient your marketing team is, the easier it will be to scale.

Cash Flow

It may seem like an overly simple KPI, but cash is one of the most important performance indicators for SaaS businesses. Why? Because the nature of SaaS is that it takes significant working capital and initial resources to come up with a good product, and the repayment on that investment occurs over a long period of time. Therefore, SaaS founders must be very aware of — and vigilant with — their cash reserves. If they fail to do that and end up overspending, the company may require outside financing simply to survive. That’s rarely a good position to be in.

Churn Rates

Customer Churn = # of customers lost / total #of customers

Revenue Churn = # MRR lost from last month (quarter) / # MRR at the beginning of last month (quarter)

Too many SaaS businesses overlook this number in favor of more sophisticated or derivative metrics. Big mistake. At the end of the day, there is nothing more important to a SaaS company than its ability to retain existing customers while also acquiring new ones.

The logic is pretty simple: if you want to create revenue growth, you have to add new customers and keep the ones you have.

Committed Monthly Recurring Revenue (CMRR)

More or less a modified version of MRR (see below), the goal of tracking committed monthly recurring revenue is to show what a SaaS company’s revenue stream will be going forward, if the business halted its sales and marketing efforts. To reach the steady state value of its CMRR, a company needs to take its MRR, add future recurring revenue to that number, and subtract the recurring revenue of customers that are unlikely to renew within the fiscal year. Ultimately, this metric gives SaaS executives a much clearer picture of their company’s financial health, and it can be helpful in forecasting future revenue.

Cost of Goods Sold (COGS)

The direct costs attributable to the production of goods or services sold by a company. COGS includes the cost of materials used in creating a good or service, along with the direct labor costs used to produce it. It excludes indirect costs such as sales and distribution costs. For the vast majority of software companies, COGS line items will fall into one of the following four categories: material costs, subscription and hosting costs, support costs, and professional service costs. COGS appears on a company’s income statement and can be subtracted from revenue to calculate a company’s gross profit.

Customer Acquisition Cost (CAC)

CAC = Sales and marketing expenses from previous quarter / Gross margin of annualized new revenue from a quarter

Very simply, this metric describes the fully loaded cost of acquiring an average customer. It includes all sales expenses and allocations, as well as the marketing expenses required to draw prospects into the funnel. To calculate CAC, you simply take the gross margin of annualized new revenue from a given quarter and divide it by the sales and marketing expenses from the previous quarter.

Average Time to Recover CAC

CAC payback time (years) = CAC / Average annual value of customer

Depending on your SaaS company’s pricing model, this metric could be reflected in months or years. The goal is to evaluate how much money you spend to acquire a customer relative to the average annual value that customer will bring in. So, if you spent $2,000 to acquire a customer that brings in $1,000 revenue annually, it will take you two years to break even on that customer.

Again, the lower this ratio is, the better your sales and marketing teams are functioning, the healthier your business is overall, and the easier it will be to scale. 

Inbound Qualified Lead Velocity

As defined by Jason Lemkin, this is the rate at which your qualified inbound leads grow month-over-month. While many companies focus on the usual suspects (revenue growth, churn, and customer lifetime value), Lemkin argues that inbound lead velocity is just as important. Why? It is often a harbinger of organic interest and demand, which is an asset that can very inexpensively and efficiently set SaaS companies up for success in the short- and long-term.

Lifetime Value (LTV)

Calculating LTV can be a little bit tricky, but SaaS expert Joel York does an excellent job of outlining it on his blog Chaotic Flow. Simply put, LTV is a more advanced way to look at a SaaS company’s economics. If LTV is greater than CAC, you’re on steady ground. Expansion-stage SaaS companies should strive to create an economic model in which the net cash they bring in from customers, relative to the cash they spend to acquire and manage them, is positive and grows over a long period of time.

LTV : CAC Ratio

LTV : CAC Ratio = Projected revenue average customer in a lifetime : CAC

This metric allows you to determine the total value that a customer is going to deliver over the life of their contract. This is compared to the money spent to acquire that customer. To do that, you calculate the projected revenue that your average customers bring in over their lifecycle and divide it by CAC.

Ideally, SaaS companies should strive to achieve a 3-to-1 LTV to CAC ratio, which would mean that, on average, customers bring in 3x more revenue than the cost required to acquire them. If, on the other hand, CAC is higher than LTV, your business is likely in trouble. Scaling should be the last thing on your mind. 

Monthly Recurring Revenue (MRR)

Like ARR, MRR is a simple but powerful metric that tracks new sales, up-sells, and renewals less the discounts and churn of revenue that the company receives. In this case, on monthly basis.

Ratio of Sales Qualified Leads (SQL) to Marketing Qualified Leads (MQL)

SQL-to-MQL Ratio = Sales Qualified Leads : Marketing Qualified Leads

The reality of lead generation is that not every lead generated by your marketing team will evolve into a legitimate sales opportunity. And because calculating CAC requires you to factor in the cash spent on lead generation in total, this metric can speak to the efficiency and quality of your lead generation efforts.

The higher your ratio of SQLs to MQLs, the more likely it is that your sales and marketing teams are aligned and making the most of lead gen expenditure. Ultimately, that can have a big impact on CAC and, by default, every other metric on this list.

SaaS Metrics in Action: Tips on Measuring & Improving Results

The 8 KPIs that Actually Matter—and How to Measure Them

There are so many metrics to choose from, but which ones show promising signs of growth? While the each startup’s SaaS metrics may look a little different, we compiled eight that are important for all organizations to monitor.

SaaS Metrics in Context: What Growing Software Companies Can Learn from Their Peers

Discover the actionable insights OpenView developed from a survey of more than 160 SaaS businesses. The report highlights the relationship between key operating metrics and growth drivers and sheds light on how those metrics impact a SaaS company’s growth and profitability.

Infographic: SaaS Operating Metrics & Growth Drivers

For this infographic, OpenView teamed up with the folks at KISSmetrics to illustrate some of key data points.

Product-Led Growth KPIs and SaaS Metrics

Product-Led Growth is the way of the future, but some of the metrics typically used to measure SaaS businesses don’t translate into this brave new world. Which ones do? Learn more about the new SaaS metric you should be tracking.

4 SaaS Customer Acquisition Best Practices

David Skok shares four best practices for improving your customer acquisition strategy and leading the way to scalable growth.

SaaS Growth Levers: Busting Through Bottlenecks

Do you know where the bottleneck of your go-to-market strategy is? SaaS growth strategist Joel York discusses ways to break through it by honing in on the most effective sales and marketing metrics and strategies for your business.

SaaS Metrics for Addressing Churn

High Churn Rate Got You Down? Your Sales Team May Be Your Problem

SaaS expert and consultant Lincoln Murphy reveals why the roots of customer dissatisfaction, attrition, and a high churn rate can often be traced back to problems with your sales process.

The Customer Success Map: A Tool in the Fight Against Churn

In the ongoing battle against churn, you may be your own worst enemy. Here’s why understanding and mapping your customers’ needs is key to keeping them engaged, boosting their satisfaction, and reducing your churn.

A 5-Minute Intro to Customer Success

What does getting serious about Customer Success really entail? Top experts in the industry offered us their top tips on Customer Success metrics and how that affects your future prospects.

Sales & Marketing Efficiency Metrics

9 Sales Benchmarks that Can Help You Build a Scalable Sales Machine

Sales benchmarks are a critical reference tool for startups and expansion-stage companies, particularly those lacking a structured, repeatable lead generation and customer acquisition process. See how you stack up.

SaaS Sales & Marketing Metrics and Conversion Benchmarks

Without a yard stick, measuring the effectiveness of your sales process and marketing channels can be a major challenge. SaaS veteran David Skok outlines a simple process for monitoring — and optimizing — your performance.

Is Your SaaS Sales Model in the Red?

GinzaMetrics co-founder and CEO Ray Grieselhuber explains how to identify your ideal SaaS sales model and determine which levers to pull for sustainable success.

Calculating SaaS Sales and Marketing ROI

For a startup or expansion-stage SaaS company, the ability to accurately measure the return on its sales and marketing investment is critical to informing resource allocation, and therefore crucial for its ongoing growth. Read more.

Which Metrics Demonstrate Sales & Marketing Alignment?

In this short video, HubSpot Chief Revenue Officer Mark Roberge details a few of the analytical measurements HubSpot uses to measure and facilitate sales and marketing alignment. Watch the video.

Additional Saas Metrics

The No-Fuss Guide to Conversion Metrics

Here’s an overview of the most common conversion metrics used in conversion analysis, including conversion rate, conversion time, and cost per conversion.

Key Lead Generation Metrics Your Business Should Be Tracking

Want to make sure your BDRs are successful? OpenView’s Devon McDonald explains why tracking metrics like Call-to-Conversation Conversion Rate and Opportunities/Month is a must.

Top 10 Recruiting Metrics to Track

Your talent is your biggest asset so don’t let a sloppy recruiting process kill your competitive edge. Make sure you’re tracking these ten recruiting metrics.

A Warning Note about Benchmarks

SaaS metrics and benchmarks are helpful to get your mind around your economic model, but many people try to run their companies with too many metrics. OpenView founder Scott Maxwell explains what really matters to your economic model.

Chief Business Officer at UserTesting

Tien Anh joined UserTesting in 2015 after extensive financial and strategic experiences at OpenView, where he was an investor and advisor to a global portfolio of fast-growing enterprise SaaS companies. Until 2021, he led the Finance, IT, and Business Intelligence team as CFO of UserTesting. He currently leads initiatives for long term growth investments as Chief Business Officer at UserTesting.