36 Startup metrics every SaaS founder should follow up with
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Entrepreneurship is always referred to a roller-coaster ride and the fact doesn’t come without valid reasons. When you are starting up, you don’t just start with an idea where you are creating a product or service, but you are striving to create a sustainable business and there’s much more to it. You have got to evaluate the market, raise enough money, think about growth and profitability, and most importantly gauge your own personal growth. Until and unless you are authentic about your own conviction and see it clearly coming up along the way (no matter how small it is), you might be spending a lot of useless time working hard on vague goals. It is important to track some key metrics to turn your startup into a profitable business. These 36 startup metrics will not just help you keep a keen eye on your business but also give you a clarity of vision of the journey ahead.
Monthly Recurring Revenue (MRR)
MRR is the total revenue that your business gets from paid customers on monthly basis. It is probably the most important metric for startups which are based on subscription model. If you get a customer on board, then prices are charged on a regular basis. You should track your MRR and always strive for it's uplift.
Annual Recurring Revenue (ARR)
Recurring means there’s a subscription in place and customer is charged on a recurring basis rather than on one time basis. This is calculated simply by multiplying the monthly recurring value by 12.
Note: Calculation of ARR excludes any one-time fee or upfront cost you charge from the customer during onboarding.
Average Revenue per Account (ARPA)
It refers to the revenue that your business earns from each account typically over a month or a year. It can also be thought of as revenue earned per customer but you should remember that a customer can have more than one account. It analyses a company's revenue generation and growth at the per-unit level and thus help investors to identify which products are high or low revenue-generators. This can immensely help your business to make decisions on rolling out of future products.
Gross Profit
Gross profit is the difference between the total revenue and the costs of goods you sell. Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.
Total Contract Value
It is the projection of your booking value and helps you at times when you are planning your revenue or tracking the growth of your startup. It involves all the one-time and recurring charges and professional service fees but doesn't include usage charges.
Annual Contact Value (ACV)
ACV measures the value of a contract over a 12-month period. So let’s say a customer commits to a 24-month contract of $160,000. Considering this money will be recognized as revenue ratably, you will have $80,000 as your ACV.
Lifetime Value (LV)
It is how much you expect to earn from a particular customer during the time they are involved with your business. For the profitability of your business, it is important that the CAC is always less than the LV. If CAC is far greater that LV, your business will require significant amount of capital to grow and run and that is no way desirable.
Deferred Revenue
Deferred revenue, or unearned revenue, refers to advance payments for products or services that are to be delivered in the future. It is considered as a liability for a business as it refers to revenue that’s not being earned and is still owed to a customer.
Billings
It is the total of current quarter revenue and he total of deferred revenue from the previous quarter.
Customer Acquisition Cost (CAC)
A startup's growth entirely depends on customer acquisition and of course, there's a significant amount of cost involved which you can't afford to neglect. It helps you to evaluate the efficiency of your sales process. If the metrics is not improving over time, you will quickly understand that there's a need to make few tweaks at steps to reduce cost and increase the number of customers involved with your startup.
Customer Concentration Risk
Any founder should be aware of the customer concentration risk especially if their business is dependent on top clients. It is the ratio between the size of the business’s top customers and the total revenue of the business. You may have a customer concentration risk if one or more of your customer’s total revenue for the year represents 8% or more of all your customers’ revenue for the same year.
Daily Active Users
Daily Active Users are the number of users who are active on your platform per day. This doesn’t include one-time users.
Monthly Active Users
Monthly Active Users are the number of users who are active on your platform per month. This doesn’t include one-time users. This helps you understand how useful your product/service is and it is important in this case to take reviews from existing users for improvement.
Number of logins
As the name suggests, it is the number of users logging in to the account to use or view the product or service.
Activation Rate
It measures of the number of converts that your startup gets, i.e., how many prospects started using your product/service on a regular basis. It can be estimated when a user takes some kind of action like a sign up or a download. This is especially true for SaaS based products which generally work on a freemium model.
Month-on-Month Growth (MOM)
This is the average of monthly growth rate of your startup. Although investors like to see the compounded month-on-month growth as it helps to understand the periodic growth of your startup.
Compounded Monthly Growth Rate (CMGR)
It measures the return of an investment over a certain period of time. It takes three coefficients into consideration – investment’s beginning value, ending value and the time period. It is calculated simply by using the formula – {(ending value/beginning value) ^ Number of months} - 1
Monthly Churn Rate
Churn Rate is the measure of the percentage of subscribers who discontinue with their subscriptions within a given time period. Monthly Churn Rate tells you the total number of customers that you have lost in a particular month.
Retention by Cohort
One way to know if customers love your product is through Retention by Cohort. It is calculated as the percentage of original installed base i.e., in the first month, who are still engaging with your business.
Gross Churn Rate
It is the measure of the monthly recurring revenue that you lose in a month when subscribers or customers discontinue with your service.
Net Churn
It is calculated as - (MRR lost - MRR from upsells)this month/MRR at the beginning of the month. It is an important metrics to understand how well you resonate with your customers. It should descend over time and if it doesn't, it's time to first figure out the reasons.
Monthly Cash Burn Rate
It is the money that goes out of the door every month. This is one of the most complicated factors that many startups fail to understand and hence fail. To be successful, you are ought to keep a check on it.
Net Burn Rate
It is the difference between revenues and gross burn. This helps you determine how long you can survive, how close you are to break even and when and how you can start generating profits.
Gross Burn
It is a measure of all the cash outlays and monthly expenses that your startup incurs. If you are a startup with not much cash in hand, this is one of the most important factors that you should be concerned about.
Total Addressable Market (TAM)
It helps to measure the revenue opportunity available for a particular product or a service. If you are thinking to startup, don’t miss out on this criterion as this will help you to get an idea of your future prospects.
Annual Run Rate
Run Rate refers to the financial performance of your company based on current projections which acts as a predictor of future performance. It often says that the current condition may continue. It is extremely helpful in understanding how likely you are to hit your forecasts and capture latest market trends. It also helps to measure the performance of segments that are running within your startup for shorter periods of time.
Gross Margin
Gross margins are a measure of your operating profitability which gives the difference between revenue and cost of goods sold. Gross margin is an important metrics to understand at what stage of the curve your business is in and also shows you how effective your management and team are at driving the business. It also helps you to know how much money from sales is left over which you can invest in operating expenses.
Sell-Through Rate
Sell through rate = Number of units sold in a period/ Number of items at the beginning of the period
The calculation of the period (usually one month) is useful when comparing the sale of a product against another, or when comparing the sell through of a specific product from one month to another.
Network Effects
It is a phenomenon where a service or product gains value when more people start using it. It tells you how well you are capturing the market and how well off you are compared to your competitors.
Virality
Viral coefficient measures the organic growth of your startup. A startup usually gets started by referring to friends and family. If they like the product, the word spreads out and your customer base increases. Other prominent ways are through social media, email invitations and so on. One way to improve viral coefficient is by building incentives into your product which urges an existing user to share their experience leading to more traffic.
It is calculated as:
Viral coefficient = Average number of invitations sent existing user x conversion rate of invitation
Net Promoter Score
It is defined as a tool which gives you an idea of how likely your customer is to recommend your product/service to a friend. It is an important metric to understand customer’s expectations and satisfaction.
Platform Risk
If you are too much dependent on a specific platform through which you promote or sell your idea/product, it may become a risk in the long run. It is important to take care of diversity so that you don’t just reach a wider customer base but also mitigate risk.
Direct Traffic
Direct traffic is the number of visits that your site gets directly and not through any intermediary. Example: Social media or some other website. Although there is no foolproof way to measure direct traffic, you can get a fair idea by looking at the traffic of landing pages.
Organic Traffic
Organic traffic is the traffic that comes to your website as a result of unpaid search results, your network effect, brand awareness, website's SEO and insightful contents for your target customers, As a founder, your aim should be improving your SEO by setting practical goals and sharp content strategy.
