If you're a SaaS business founder or product owner, chances are you're keeping your eye on many metrics.
You want to know how many customers you have, their retention rate, and how much revenue they bring in.
You also might be tracking other metrics—like the number of active users per day or how much time people spend on your product each week—to get a sense of how engaged your customers are with your service.
When reporting this data to investors, however, you need to know which metrics are most important—and how they fit into the bigger picture of your business.
In this article, let's delve into seven important metrics for SaaS businesses and why they're crucial to investors.
Read More: KPI dashboards are a critical tool for any SaaS company. They help you understand what's working and what isn't, giving you the visual feedback and data that can help you grow your business. Learn more about the importance of SaaS KPI dashboards for SaaS businesses.
The best way to evaluate a SaaS company is by analyzing its metrics. Here are seven crucial B2B SaaS metrics every investor needs in their Investor Reporting:
In SaaS, Monthly recurring revenue, or MRR for short, measures how much revenue a company generates from its customers in any given month.
Monthly Recurring Revenue is calculated by multiplying your average monthly subscription price by the number of customers you have in your subscription base.
For example, If your business has 100 customers, each with an average monthly subscription price of $50, the MRR would be $5,000.
A business with a high MRR will likely see steady growth in its current and future revenue. MRR is an essential metric for investors because it gives a sense of how much revenue they can expect to generate in the future.
The higher the MRR, the more revenue you can expect to generate in the coming months. Tracking MRR allows you to see the impact of each new customer on your revenue stream.
If you add a new customer who pays $50 per month, it will be added directly to your monthly recurring revenue figure (MRR), allowing you to see exactly how much revenue that adds up.
Related: Are you struggling to calculate MRR in your business? Here are some common mistakes you should avoid when calculating SaaS MRR.
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MRR growth rate is the percentage change in MRR from one period to another. It's a great metric to track because it indicates how fast your revenue is growing.
To calculate your MRR growth rate, take the difference between your current month's MRR and the previous month's MRR. Then divide that amount by the current month's MRR and multiply the result by 100 to arrive at a percentage.
For example, if your company's MRR for December was $10,000 and for July it was $15,000, then your MRR growth rate is ((15,000, - 10,000) / 10,000) * 100% = 50%.
If you notice a downward trend in your MRR growth rate, it could mean that sales are slowing down or that customers are canceling their subscriptions.
If you see an upward trend in your MRR growth rate, it can indicate that sales are increasing and customers are satisfied with the service.
The churn rate is a measure of customer retention that shows how many customers you have lost over a certain period.
This metric is usually expressed as a percentage and calculated by taking the number of customers who canceled their subscriptions or stopped paying in that period divided by the total number of customers at the beginning.
For example, if you had 1,000 customers at the beginning of a month, and 200 customers canceled their subscriptions that month, your monthly churn rate would be 20%.
The formula for churn rate is:
Churn rates are a crucial metric for SaaS companies, which investors keep an eye on. It reflects how well your business keeps customers happy and engaged.
When investors look at the churn rate, they want to ensure that it's low enough to be sustainable for a business. A high churn rate indicates that you are losing customers faster than you can attract new customers, which is terrible for a business.
A low churn rate means retaining most of your customers and building a solid customer base for future growth.
If you're experiencing high churn rates, it could be a sign of problems with your product or service or something else about the business model that needs to be revamped.
If you pay attention to how users interact with your product and make changes accordingly, you can lower your churn rate.
In a highly competitive market, paying attention to customer feedback and making changes based on this feedback can help you keep your customers happy.
Burn rate is a term used to describe the rate at how quickly a company is spending its capital.
The burn rate is categorized into gross burn rate and net burn rate.
The gross burn rate is the amount of capital spent on business operations, including salaries, marketing, and other expenses.
The net burn rate is defined by calculating the difference between the total operating expense and revenue in a given period. The net burn rate is often known as the burn rate.
For example: If your company generates $10 million (revenue) in sales in a given year but spends $2 million on operating expenses, then your net burn rate would be $8 million.
A negative net burn rate means that a business is profitable. A positive net burn rate means a business's operating costs are higher than its total revenues.
Burn rate can be helpful for investors in determining whether a business will be able to sustain itself over the long term.
If a business is spending its capital every month, but it's growing rapidly—and its investors are willing to keep funding it—the company may still have a chance at success.
However, if it's spending capital every month and not growing quickly enough to justify the losses, that could mean trouble down the road.
In general, if you want your burn rate to decrease over time as you grow your revenue and reduce your expenses. If the burn rate stays the same (or even goes up), that could mean you need to rethink how sustainable your business is.
Cash flow measures how much revenue the company is bringing in and how much it's spending on business operations.
Cash flow is an indicator of the health of a business: if the cash flow is positive, it means that the company is generating more revenue than it's spending on expenses.
The best way to understand this metric is by looking at an example:
Let's say you have a startup that has just launched its first product.
Your company has made $100k in sales this year and has spent $60k on operating expenses—including salaries, marketing, and overhead costs like rent or office supplies. After paying off all these expenses, you have a balance of $40k remaining.
In this scenario, the cash flow is calculated by subtracting your expenses from your revenue: ($100k - $60k = $40k).
Free cash flow is the amount your business has left over after paying for all its expenses, including operating and capital expenditures.
It is significant to note that free cash flow doesn't just mean profits; it also includes depreciation and amortization, which are non-cash expenses that can artificially inflate net income. Free cash flow measures only actual cash flow from operations.
If the company has positive free cash flow, it's generating more revenue than its expenses; this indicates good financial health because the business is profitable and doesn't have to rely on debt or equity as much to fund operations.
For example, if you have high negative free cash flow, your company isn't making much profit and consuming revenue faster than it can generate.
In this case, your business needs to raise more capital or make significant changes to increase revenue to generate greater profits and increase its cash flow in the future.
Cash flow is an essential metric for investors because it helps them understand how much revenue a company has to invest in itself and its business operations.
Active customers are the number of your customers using your product.
It's a good indicator of the health of your business as it represents how many users are actively using your product/service and making monthly payments to you.
The number of active customers can also help determine how much revenue you'll generate in the future because it shows how many total licenses you have sold and how many seats are being used by paying customers.
This metric will also help SaaS investors see if there's room for growth within your current customer base or if you need to acquire customers to fill out future projections.
Many SaaS businesses focus on increasing active users by acquiring new subscribers. Still, this approach can lead to an unsustainable customer acquisition strategy that doesn't scale well over time.
Instead, aim for high retention rates so that you can have more long-term value from each customer account.
New customers are a sign that your product is resonating with the market, and it's the investor metrics to measure that SaaS investors need to know about them.
The number of new customers per month shows how quickly your customer base is growing.
If this number is trending upwards or increasing steadily over time (i.e., not just one spike), then it's a good sign that there's still plenty of room left in the market for further expansion.
The best way to understand how your business is doing is to look at new customer acquisition numbers. These tell you how many new customers you've signed up with and how much they are paying you.
In a SaaS business, there are two types of customers:
You'll want to track both groups in your investor reporting because each has a different narrative about the business.
A clear understanding of your customer acquisition funnel is essential for calculating the percentage of new customers who become paid.
It tells you how many new customers sign up through your marketing efforts and end up paying for your product or service.
You can track this number over time to see if it's increasing or decreasing, which will help you determine the effectiveness of your marketing campaigns.
The new customers metric is significant for investors because it demonstrates the fact that you're able to win new deals and bring in new customers, which are both crucial for a company's growth.
In conclusion, we know that investors are looking for more than just metrics that will help them understand your company's financial health and predict its future success.
Because of this, a B2B SaaS company needs quick access to all these metrics in one place where you can drill down into the details and get an accurate picture of your business.
With tools like Dataflo, you can visualize all your SaaS metrics in one place and turn them into meaningful insights that will help you make better decisions about how to grow your company.
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