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Download SaaS Metrics Calculations

SaaS metrics are key performance indicators used to assess the financial health, operational efficiency, and growth potential of a Software-as-a-Service (SaaS) business. These metrics provide insights into various aspects of a SaaS company’s performance, helping in decision-making, strategy formulation, and performance evaluation.

SaaS Metrics Calculations

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Key SaaS Metrics and Calculations:

  1. Monthly Recurring Revenue (MRR):
    • Definition: The total revenue generated from subscriptions in a given month.
    • Formula: MRR=Number of Active Subscribers×Average Revenue per User (ARPU)
  2. Annual Recurring Revenue (ARR):
    • Definition: The total revenue expected from subscriptions over a year.
    • Formula: ARR=MRR×12
  3. Customer Acquisition Cost (CAC):
    • Definition: The cost incurred to acquire a new customer, including marketing and sales expenses.
    • Formula: CAC=Total Sales and Marketing Expenses/Number of New Customers Acquired
  4. Customer Lifetime Value (LTV):
    • Definition: The total revenue expected from a customer over their entire relationship with the company.
    • Formula: LTV=ARPU×Customer Lifespan
  5. Churn Rate:
    • Definition: The percentage of customers who cancel their subscriptions over a specific period.
    • Formula: Churn Rate=Number of Lost Customers/Total Number of Customers at the Start of the Period​
  6. Gross Margin:
    • Definition: The percentage of revenue remaining after subtracting the cost of goods sold (COGS).
    • Formula: Gross Margin=Revenue−COGSRevenue×100
  7. Net Profit Margin:
    • Definition: The percentage of revenue remaining after all expenses have been deducted.
    • Formula: Net Profit Margin=Net ProfitRevenue×100
  8. CAC to LTV Ratio:
    • Definition: The ratio of Customer Acquisition Cost to Customer Lifetime Value, indicating the efficiency of customer acquisition.
    • Formula: CAC to LTV Ratio=CAC/LTV
  9. Retention Rate:
    • Definition: The percentage of customers who continue their subscriptions over a period.
    • Formula: Retention Rate=1−Churn Rate
  10. Magic Number:
    • Definition: A metric used to assess the efficiency of sales and marketing spend.
    • Formula: Magic Number=Quarterly Revenue Growth×4/Sales and Marketing Expenses​

When to Use Common SaaS Metrics:

  1. Performance Evaluation:
    • Assessing Efficiency: Use these metrics to evaluate the effectiveness of various aspects of the business, including customer acquisition, revenue generation, and cost management.
  2. Strategic Planning:
    • Informed Decision-Making: Metrics like CAC, LTV, and ARR help in formulating strategies for growth, resource allocation, and financial planning.
  3. Investor Communication:
    • Attracting Investment: Presenting key SaaS metrics to investors demonstrates the financial health and growth potential of the business, enhancing credibility and attracting funding.
  4. Operational Improvement:
    • Identifying Areas for Improvement: SaaS Metrics such as churn rate and retention rate highlight areas where customer experience or product offering may need enhancement.
  5. Budgeting and Forecasting:
    • Resource Allocation: Use metrics like CAC and Magic Number to guide budgeting decisions and forecast future revenue, ensuring efficient use of resources.
  6. Benchmarking and Performance Tracking:
    • Comparative Analysis: Compare metrics against industry benchmarks or competitors to assess your company’s performance and identify best practices.
  7. Customer Value Optimization:
    • Enhancing LTV: Metrics such as LTV and retention rate help in developing strategies to increase customer value and improve long-term profitability.

Contract Sent is not a law firm, this post and subsequent pages on this website do not constitute or contain legal advice. To understand whether or not the ideas and guidance on the Contract Sent website is applicable to your business, you should consult with a licensed attorney. The use and accessing of any resources contained within the Contract Sent site do not create an attorney-client relationship between the user and Contract Sent.