27/07/2023, 18:58 Saas Metrics – Kalaari Capital

SaaS Metrics – Cheat-Sheet

Quantitative metrics to drive a scalable, sustainable business in SaaS Kalaari Capital

In the last 6 months, public SaaS companies have lost about half of their market value; at
its high in 2021, the cumulative SaaS market cap was over $2T; it is now down about $1T.
Overall, the average SaaS market cap is down roughly 57% from its 12-month highs.
Forward revenue multiples, the main method used to value public SaaS companies, have
decreased on average by 67 percent from their 12-month highs and by nearly 90 percent
for some businesses. On average, public SaaS revenue multiples have decreased from 15x
during the peak to 7x today.

What are the implications for early-stage SaaS companies? Several VCs have spoken
about extending runway, lowering burn, and aiming for positive unit economics. We wanted
to take this opportunity to dive deep into SaaS metrics – to detail out metrics and
benchmarks needed to grow a sustainable business in SaaS.

Why are metrics important? For external stakeholders, such as investors, metrics indicate
future revenue potential and drive valuations. For internal stakeholders, employees, and
leaders, metrics help streamline the company to a common, measurable goal and drive
sustainability. We hope this serves as a cheat sheet for founders building sustainable SaaS
businesses over the next decade.

“If you can’t measure it, you can’t improve it” But what’s important to
measure?

Who are these metrics relevant for?

SaaS companies that have hit PMF. PMF differs across the board for SaaS companies.

“First to market seldom matters. Rather, first to product/market fit is almost

always the long-term winner.”
Rules of thumb for PMF:
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1. Revenue & Growth: Double-digit growth when you have hit $10K MRR is an indicator of
PMF (Source: SaaStr (https://www.saastr.com/what-are-the-best-indicators-for-
product-market-fit-at-an-early-stage-saas-b2b-startup/)) Additionally, an increase in
ACVs per customer or an increase in usage or accounts per logo can be an indicator of
PMF.
2. Customer Validation: Survey existing users to understand ‘how they would feel if they
could no longer use the product?’ – According to Stephen Millard and Joshua Olusanya,
if over 40% of users say ‘very disappointed’ you have hit PMF (Source: Notion VC, PMF
frameworks (https://www.notion.vc/resources/finding-product-market-fit-models-and-
frameworks-for-saas-companieshttps://www.saastr.com/5-signs-you-finally-have-
early-product-market-fit/)) In other words, hit +40% customer NPS.
3. Marketing spend: Ideally, in the easiest stages of a product development process, pull
is happening organically (i.e., without any advertising spending) (Source: a16z on PMF
(https://future.a16z.com/about-product-market-fit/)) One of the most common ways
that startups die is “premature scaling,” a term first used by Steve Blank. A business is
“scaling prematurely” if it is spending significant amounts of money on growth before it
has discovered and developed PMF.
Few additional resources to understand whether you have hit PMF –
 Andrew Chen: 0 to PMF (https://andrewchen.com/zero-to-productmarket-fit-
presentation/)
 Lenny’s Newsletter: How to know if you’ve got PMF
(https://www.lennysnewsletter.com/p/how-to-know-if-youve-got-productmarket?s=r)
 Kalaari SaaS From Scratch – Decoding PMF
(https://www.linkedin.com/video/event/urn:li:ugcPost:6942090164429041664/)
It is important to note that SaaS metrics become most relevant post the PMF stage –
however, it is good to track metrics early on to get a high-level understanding of what is
working and what is not.
Typically, businesses used GAAP (Generally Accepted Accounting Principles) to measure
the health of their businesses. However, SaaS businesses operate very differently from
normal businesses due to the nature of their recurring revenue. At the start, SaaS
companies need to lose a lot of money to acquire accounts. We typically see a negative
cash flow trough in SaaS companies before they begin generating steady subscription
revenue.

SaaS businesses are highly sensitive to small variables in key metrics. Through this article,
we demystify specific levers of growth as well as outline common benchmarks for some of
these metrics. It is important to note that benchmarks may vary given the stage, customer
acquisition strategy, and average contract value of your SaaS business.

What really matters if you’re raising capital for your SaaS company –
repeatability, scalability, profitability
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What are the core drivers of repeatability, scalability, and profitability?

1. Quantity of Revenue
Revenue, especially for SaaS companies, can be a deceptive metric. SaaS companies can
have a mix of services, recurring, and one-time revenues that can be contracted, billed, or
realised. To cut the noise from the clutter, focus on MRR.

Metric Notes Benchmarks (if

applicable)
MRR For a SaaS business, Last 5 Year Averages
monthly recurring revenue Seed: $0-50K MRR
is a much more valuable Series A: $50–200K MRR
metric to track than Series B: $200-500K MRR
traditional revenue. It’s the
total revenue you received
during the month that
came from recurring
subscriptions.
Important to track different
types of MRR –
Existing MRR Monthly revenue from your –
current users.
(Baseline to grow from)
New MRR MRR generated by new Median
customers. 70-60% of MRR (When
(Note: measure marketing total MRR is < $250K)
spends against New MRR) 50% of MRR (When total
MRR i >$1M}
Expansion MRR Additional MRR from Median
existing customers. ~30% of MRR, when total
MRR is > $1M
Lost MRR Lost MRR from Determines churn rate
cancellations &
downgrades.
Contraction MRR Lost MRR from customers 30% of Lost MRR
who downgraded.
Churned MRR Lost MRR from customers 70% of Lost MRR
who canceled their
subscriptions.
Re-activation MRR MRR generated by Median
customers who come back 9-13% of MRR
to use the product.
ARR MRR x 12, will be different –
from the last 12 months of
revenue.
ARPA Average Revenue Per Higher ARPA correlates to
Account lower revenue churn
(MRR / # of Active
Accounts)
ACV Value of a customer’s –
contract over a 12-month
period.
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Metric Notes Benchmarks (if

applicable)
Customer Lifetime Value The average amount of –
(LTV) money that your
customers pay during their
engagement with your
company – Indicates what
your average customer is
worth. (ARPA x 1/Customer
churn rate) An effective
way to calculate LTV is to
analyse cohorts (12
months to 3/5 years)
Bookings Bookings represent the Important to track –
commitment of a customer Bookings to Revenue
to spend money with your Conversion (Time taken,
company. (Contract drop-off rates)
signed)
Revenue Revenue happens when –
the service is actually
provided.
Billings Billings is when you –
actually collect your
customers’ money. (Cash
inflow)

2. Quality of Revenue
While the quantity of revenue is the most important metric to track, the quality of revenue
determines the growth and sustainability of future revenues. Key metrics, that indicate the
quality of revenue, are linked to churn. High churn indicates you will not be able to
compound your revenue and your cost of acquisition will not be optimised.

Metric Notes Benchmarks (if

applicable)
Revenue Churn The rate at which monthly –
recurring revenue (MRR) is
lost, as a result of lost
customers and
downgraded subscriptions.
[(Month 1 MRR – Month 2
MRR)/Month 1 MRR]
2 types of Revenue Churn
(Net Churn & Gross Churn)
Gross Churn akes into account the Unsustainable
MRR lost via churn and 10-15% gross MRR churn
contraction from your Post PMF Median
existing custom <5% gross MRR churn
Best in class
1-2% gross MRR churn
For SMBs (10K ACVs)
Target 30% gross ARR
churn

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Metric Notes Benchmarks (if

applicable)
Net Churn akes into account both the Post PMF Median
MRR lost (via churn and 5.8% – 1%
contraction) and gained Target
(via expansion and Negative net churn
reactivation) from your
existing subscriber base.
As ARPA increases, the
potential for negative net
churn increases.
How to achieve a Negative
Churn? Requires variable
pricing axes – important for
the expansion of revenue
• users (#of users in an
org)
• features (advance
features – basic, pro,
enterprise)
• depth of usage (e.g.,
storage, database)
Customer Churn The rate at which existing 90-95% is common for
customers cancel enterprises, 85% for mid-
subscriptions. Also known market, and 70-80% for
as logo churn. small businesses.
(Customers churned at
period t/ Total customers
at period t)
Net Revenue Retention Measures how much Best in Class
(Dollar Retention) revenue is generated in SMB: 100% NRR
each period relative to its Mid-Market: 130% NRR
original size. Dollar Enterprise: 140% NRR
Retention takes expansion
revenue into account and
can be greater than 100% if
expansion exceeds
churned and contracted
revenue.
Quick Ratio Revenue growth over a Best in Class
particular time period (i.e., Quick Ratio = 4
New MRR + Expansion
MRR) with revenue
shrinkage over the same
timeframe (Churned MRR +
Contraction MRR)
Customer Concentration Is growth being driven by a On Average, the largest
few big contracts or many customer pays <10% of the
small ones? total MRR

3. Sales Efficiency
For growth to be effective and sustainable, it is crucial to examine sales efficiency.
Uneconomic expenditure levels can always be used to generate “fake” growth. The
indicators listed below can be used to compare the value of new clients against the cost of
obtaining them in order to assess sales efficiency.
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Metric Notes Benchmarks (if

applicable)
CAC Costs to acquire new –
customers.
(Sales & Marketing Spend /
New Customers)
How to lower CAC?
• Lower cost of leads
• Increase funnel
conversion rates
• Increase PPR
• Reduce human touch
• Simplify lead time (sales
to go live)
$ CAC Costs to acquire new $. –
(Sales & Marketing Spend /
New MRR)
LTV / CAC The lifetime value of your Rule of Thumb
customers and the total LTV/CAC = 3-4x
amount you spend to Best in Class
acquire them. LTV/CAC > 5x
Payback Period Measures the number of Rule of Thumb
months it takes to Payback Period < 12
generate enough revenue months
to cover the cost of Best in Class
acquiring a customer. Payback Period < 5-7
(CAC / MRR x GM) months
For early-stage companies,
payback period is a better
metric than LTV/CAC since
LTV is difficult to determine
accurately.
SaaS Magic # Net New ARR in a period Ideal: >1
divided by S&M expense
from the prior period
Productivity Per Rep (For (New MRR for a specific / # Best in Class
outbound sales) of Sales Reps) 50% reps should be above
PPR is impacted by 2 100% quota
factors: quality of people
hired, also impacted by
onboarding & training
• Important to monitor PPR
(time series), Monitor PPR
by each sales person
Sales Capacity The number of productive –
sales reps is a key driver of
bookings. Planned revenue
should be backed by
sufficient sales capacity.
(# reps x weekly hours x
weeks per year x % hours
spent on sales x % closing
ratio of the team)
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Metric Notes Benchmarks (if

applicable)
Revenue per lead The average amount of –
revenue each lead (as
opposed to customer) will
contribute.
(New MRR / Number of
Leads Per Month)
SaaS sales funnel The metrics that matter for Link to SaaS Funnel
• Lead Generation each sales funnel vary from Conversion Benchmarks by
• Trials one company to the next Industry & Channel
• Pilots depending on the steps (https://firstpagesage.com
• Conversion involved in the funnel. /seo-blog/b2b-saas-
• Onboard Measuring conversion % at funnel-conversion-
• Retain each stage of the funnel benchmarks-fc/)
• Expand can provide transparency
to the sales process.
Early on, important to
experiment with the
conversion of cohorts the
by lead source – and then
double down on the
highest conversion

4. Potential of Future Revenue

In addition to quantity & quality of revenue, below are a few metrics that indicate a healthy
pipeline of future revenue.

Metric Notes Benchmarks (if

applicable)
MRR Growth Growth is faster in the early MoM Growth Medians by
stages. As companies MRR Band
mature, the median • MRR <$10K: ~70%
growth rate slows down. • MRR $10-50K: ~40%
• MRR <$50-100K: ~30%
• MRR <$100-250K: ~25%
• MRR <$250K-1M: ~20%
• MRR >1M: ~18-15%
Rate of expansion [(Expansion MRR month- Best in Class
end – Expansion MRR 15-20% or +20%
month beg) / Expansion Target
MRR month beg] 10-15%
Rate of won contracts Total opportunities won –
over the total opportunity
won + lost

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Metric Notes Benchmarks (if

applicable)
Referral ROI Applies for companies that –
give referral incentives. To
compare the amount we’re
spending on customer
referrals with the revenue
those referrals will
generate over their
lifetime. Measures $X in LTV
for $Y in referrals.
[(LTV – Referral Incentive)/
Referral Incentive]
Customer Engagement Metrics
DAU/ MAU The ratio of daily active Average 40% during non-
users to monthly active holiday weekdays
users. (Defers based on the type
of SaaS)
DAU/ WAU The ratio of daily active Average 60% during non-
users to weekly active holiday weekdays
users (Defers based on the type
of SaaS)
NPS Customer satisfaction is The median NPS score for
key to ensuring low churn. B2B companies is 29
One way to measure that is
through customer surveys.
The net promoter score
(NPS) is the most popular
metric for customer
satisfaction.
CSat CSATs can provide a simple A good CSat score for B2B
window into the type of companies is +60%
service you offer, and
function as a valuable
complement to NPS
measurements.

5. Profitability
Metrics and benchmarks of profitability in a SaaS business.

Metric Notes Benchmarks (if

applicable)
Gross Margin Gross Margin reflects a +75% is good, privately-
company’s margin after held SaaS is 70-80%, below
subtracting the cost of 70% is red flag
goods sold (COGS) from
revenue. For SaaS (Note: gross margins might
companies, COGS typically vary if pass-through costs
consist of hosting costs, are high or if the SaaS is
any data or software implementation or
needed for the product to customer success heavy)
operate, and the cost of
frontline operations.
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Metric Notes Benchmarks (if

applicable)
EBITDA Margin Most important for mature TTM revenue growth rate +
SaaS companies. A useful adj. The EBITDA margin is
metric to calculate Rule of 37%
40 (Note: Rule of 40 is not
a relevant metric for early-
stage companies, only
becomes important at the
pre-IPO stage – currently <
50% of publicly traded
SaaS companies hit the
Rule of 40)
Gross Burn Rate Amount of money a –
company spends in a
month.
Net Burn Rate The amount the company Profitable companies have
loses in a month. (Gross a negative net burn rate
Burn Rate – Revenue)
Zero Cash Date Predicted date your –
startup runs out of cash, as
a result of your current
burn rate, and assuming no
new revenue generation.
Burn Multiple Net Burn is divided by its Best in class
Net New ARR in a given <1-1.5
period. Target
1.5-2
Free Cash Flow (FCF) Free Cash Flow is the –
amount of uncommitted
money a business has after
covering all of its expenses.
In many SaaS companies,
FCF can be significantly
greater than op. profits
because – (1) contract-
length/ pre-payments (2)
cash collection policy
(billing 1 month or 1 year in
advance) In certain cases,
high FCFs drive valuation
multiples higher

Have questions? Anything we missed? Would love to hear from you, [email protected]
(mailto:[email protected]) For more updates on SaaS or to subscribe to our ‘SaaS from
Scratch’ speaker series – Subscribe Here (https://form.typeform.com/to/aLPw6F8H?
typeform)

References & additional material:

2022 SaaS Crash – Meritech (https://www.meritechcapital.com/blog/2022-saas-crash)
SaaSholic on Definitions (https://www.saasholic.com/bookings-vs-revenues-vs-
billings/)
Sacks @Substack on SaaS Metrics (https://sacks.substack.com/p/the-saas-metrics-
that-matter) 

https://www.kalaari.com/saas-metrics/ 9/11
27/07/2023, 18:58 Saas Metrics – Kalaari Capital
 Hubspot on SaaS Metrics (https://blog.hubspot.com/service/saas-metrics)
 For Entrepreneurs on SaaS Metrics (https://www.forentrepreneurs.com/saas-metrics-
2/)
 Cobloom on SaaS Metrics (https://www.cobloom.com/blog/saas-metrics)
 Ruler Analytics on SaaS Metrics (https://www.ruleranalytics.com/blog/insight/tracking-
saas-metrics/)
 SaaSTr on Multiples (https://www.saastr.com/your-vcs-are-worried-about-public-
multiples-do-you-need-to-worry-too/)
 Chart Mogul SaaS Benchmarks Report (https://chartmogul.com/saas-benchmarks-
report/)

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