SaaS growth metrics are designed to analyse the “momentum” of the business and the ability to grow .SaaS metrics provide answers to important questions:
How can we increase customer acquisition?
How can we increase customer retention?
How profitable are our customers?…etc
Below are top 5 SaaS Metrics which help to Faster Growth for any SaaS Business.
1) MONTHLY RECURRING REVENUE (MRR)
MRR is to understand the growth of the business.
The basic formula for MRR : for any given month (period t), simply sum up the recurring revenue generated by that month’s customers to get the MRR.
Example:-
In January we have 2 customers, each paying a monthly subscription of $1,000. In February, we gain an additional customer, and MRR increases as a result:
Jan : $1,000+$1,000= $2,000 MRR
Feb:$1,000+$1,000+$1,000= $3,000 MRR
Mar:$1,000+$1,000+$1,000= $3,000 MRR
2) ANNUALIZED RUN RATE (ARR)
ARR stands for Annual Recurring Revenue. In simple terms, it’s the recurring revenue generated by the SaaS business over the year:
ARR= MRR*12
Majority of the SaaS businesses generate their revenue from monthly subscriptions, i.e. MRR is the clearest indicator of revenue generation, however some of the SAAS businesses deal in yearly contracts and their primary metric is ARR.
3) CUSTOMER CHURN
For any subscription-based business, the growth depends on new customer acquisition, minimising the loss of your existing customers.
Customer churn (also referred to as “Logo Churn”) is the rate at which the existing customers cancel their subscription to the service.
Example:-
If we start January with 20 paying customers, but at the end of month Jan left with only 19, the customer churn rate for January is 5%:
Customer Churn Rate= Customer Churn in that Period/ Total Customer at the Start of the Period
Customer Churn Rate=(20-19)/20 = 1/20= 5%
4) REVENUE CHURN
Revenue Churn – It is nothing but at which monthly recurring revenue (MRR) is lost (i.e. lost of customers and downgraded subscriptions )
Revenue Churn Rate= MRR(previous month) – MRR (current month)/ MRR (previous month)
Example:-
if we generate $5,000 MRR during January,
But we lost a customer and only $4,750 during February , that month’s revenue churn is $250, or 5%:
Revenue Churn=($5000-$4750)= $250
Revenue Churn Rate=$250/$5000 = 5%
5) NET NEW MRR/ARR
For a SaaS businesses, it’s more useful to report on the amount of new revenue generated each month and alo Expansion of revenue (by doing cross sell/ upsell).
NRR is calculated by grouping these
New MRR-It is revenue gained from new subscriptions.
Expansion MRR- It is revenue gained as upselling and cross-selling the services.
Churned MRR – It is revenue lost as a customers cancelling their subscription.
Contraction lost MRR (Downsell)- It is revenue lost as a customers downgrading their subscription.
NRR= New MRR+Expansion MRR -Churn MRR
Example:-
If we generated $10,000 in new MRR, and an additional $1,000 in upselling revenue, but lost $2,000 as of churn.
Net New MRR= $10,000+$1,000-$2,000 = $9,000
Hope you find this use full , please let me know what else metrics you look for .
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About Me:-
I am Om Prakash Singh – Data Analytics Consultant , Looker Consultant , Solution Architect .
I am Highly analytical and process-oriented Data Analyst with in-depth knowledge of database types; research methodologies; and big data capture, manipulation and visualization. Furnish insights, analytics and business intelligence used to advance opportunity identification.
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