Discussion of key SaaS metrics for startups

1. SaaS Startups
Key Metrics for Success

2. Some context for the slides
• We’re focusing on startup companies raising Seed or Series A rounds of
financing, mature companies have a broader set of metrics to track
• We’re also focusing on only sales metrics, which are typically the most
relevant to startups, but we’re just scratching the surface of what’s
important for SaaS companies to track and manage against
• The metrics discussed today should be generally valuable for most SaaS
companies, but what’s most important will vary based on each individual
company

3. 8 key SaaS sales metrics for startups
3
Revenue Sales Efficiency
MRR
LTV / CAC
Churn
Cash Efficiency
ACV Magic Number
Payback PeriodBookings

4. SaaS Revenue Metrics Defined
4
Revenue
MRR
(Monthly Recurring Revenue)
• Defined: revenue paid by customers each month to
use your software/product
• Example: Your SW price is $5/user/month;
customer of 5 people = $25 MRR
• Important note: Does not include revenue from
one-time services, campaigns, or transactions
• What’s typically measured:
• Total MRR; also ARR (MRR x 12)
• Month-over-month MRR growth in $ & %
• Defined: Total value of contracts sold for a given
time period
• Example: You sell 3 contracts in a month worth
$10K each, bookings for the period were $30K
• Important note: Typically not revenue for the
period, booked contracts are forward-looking
• What’s typically measured:
• Monthly/quarterly/annual bookings
Bookings
MRR = $ Bookings = future MRR
Why important? Why important?

5. $-
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Bookings
MRR
MRR compounds, but it takes time to get sales
engine humming
5
$000s $000s
Initial Product Launch
determining go-to-market
Seed
Round
$10K+
MRR
Early Product/Market Fit
Repeatable process
20% MoM growth
Series A
$50K+
MRR

6. 6
Revenue
ACV
(Annual Contract Value)
• Defined: Value of customer contract per year
• Example: You sell software for $5K per month for
12 month contract; ACV = $60K
• Important note: Some contracts are longer than
12 months, only include the per year value in ACV
• What’s typically measured:
• Average ACV
• Defined: Customers that cancel or do not renew
their contracts
• Example: You have $100K MRR; you lose
customers worth $3K MRR, gross $ churn = 3%
• Important note: Investors look at both gross & net
churn, which entrepreneurs often confuse
• What’s typically measured:
• Gross churn: $, # of customers
• Net churn: $; includes upsells to current
customers
Churn
ACV is a key factor in how
you can sell your product
Churn shows customer satisfaction
and ability to efficiently scale
Why important? Why important?
More SaaS Revenue Metrics Defined

7. A startup’s ACV should match customer
acquisition process
ACV drives sales process & churn impacts ability to
scale
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RevenueHigher ACV = more money to spend
on sales
A company with churn is like a
leaky bucket
$0-$5K $5K-$100K $100K+
How ACV influences customer acquisition
ACV
Customer
Acquisition
• Drive inbound
traffic through
marketing
• Self-serve
customer signup
• Outbound inside
sales
• Product demos
and customer
onboarding
• Outbound outside
sales
• In-person meetings,
demos, onboarding,
implementation
MRR $
6 months
65%
difference!
Minimizing churn & focusing on satisfaction
and upselling is key to revenue growth
BAD!
GREAT!
Net $ churn significantly impacts revenue

8. 8
RevenueCash efficiency Ratio
• Defined: New incremental MRR per month divided
by monthly net cash burn
• Example: You add $10K/month in new MRR, while
burning $100K of cash; CER = 10%
• Important note: this metric factors in new
incremental MRR (not renewals) and net cash burn
(not overall cost structure)
• What’s typically measured:
• Cash efficiency ratio over time
• Defined: Change in SaaS revenue over two
quarters, annualized, then divided by sales & mrktg
spend for 1st of the two quarters
• Example: Qtr 1 SaaS rev = $50K, Qtr 2 SaaS rev
= $100K, change = $50K x 4 = $200K; sales &
mrktg in Q1 = $100K; magic # = $200K/$100K = 2x
• Important note: factors in total change Q-o-Q, not
just in change in ending MRR
• What’s typically measured:
• Magic number over time
Magic Number
Shows how much a startup can grow
with current $ or new funding
It’s is good indicator if a company
can grow fast and efficiently
Why important? Why important?
SaaS Sales Efficiency Metrics Defined

9. Being able to efficiently add revenue is a strong
indicator of a startup’s potential for success
9
RevenueCER = startup’s ability to reach
growth & funding milestones
Can you add fuel to the fire?
Magic number shows if sales & marketing
efficiently adds revenue
$-
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$80
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$-
$10
$20
$30
$40
$50
$60
$70
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
Bookings
MRR
$000s
Does this company have enough $ to reach
Series A?
Raise $750K
Seed
Growth funded
with $50K/month
burn
Rule of thumb: CER
>10% = good; <5% = bad
Q1 Sales &
marketing
Spend
Q2 Incremental
SaaS revenue
How does this Drive this?
Rule of thumb: magic number
>1x = good; <0.5x = bad

10. 10
RevenueLTV / CAC Ratio
• Defined: total margin $ earned over the life of a
customer divided cost to acquire the customer
• Example: Customer provides $10K SaaS revenue
with 80% margins, and it cost $2K in sales expense
to get the customer; LTV / CAC = 4x
• Important note: without a long operating history it
can be difficult to accurately estimate LTV
• What’s typically measured:
• LTV / CAC ratio over time
• Defined: Length of time before CAC is “paid back”
with margin generated from customer
• Example: CAC = $100, MRR = $50 with 80%
margins; payback period = $100/$40 = 2.5 months
• Important note: only indicates breakeven point with
a customer, not total return
• What’s typically measured:
• Payback period over time
Payback Period
Illustrates unit level economics for
each new customer added
Indicates how quickly capital is
returned with each new customer
Why important? Why important?
More SaaS Sales Efficiency Metrics Defined

11. LTV/CAC and payback period are additional data
points on profitable customer acquisition
11
RevenueLTV / CAC – are we getting more $
than we’re paying for a customer
Payback period – how quickly do
we get our $ back
What payback period is good?What LTV / CAC ratio is good?
3x
LTV /
CAC
is indicative of
successful SaaS
companies
Definitely
<1 year
Payback
Preferably 6-9 months
It’s important startups measure this over time,
and track progress towards 3x+
Payback period is a rough metric as it doesn’t
show total return on investment

12. Recap
Confidential
12
Metric Defined Target performance
MRR • Revenue paid by customers each month to use
your software/product
• Varies based on stage
Bookings • Total value of contracts sold for a given time period • Varies based on stage
ACV • Varies based on customer type
and sales process
• Value of customer contract per year
Churn • Negative net $ churn• Customers that cancel or do not renew their
contracts
Cash Efficiency • CER >= 10%• New incremental MRR per month divided by
monthly net cash burn
Magic Number • Magic number >1x• Change in SaaS revenue over two quarters
annualized then divided by sales & mrktg spend for
1st of two quarters
LTV / CAC • 3x+• Total margin $ earned over the life of a customer
divided cost to acquire the customer
Payback Period • <1 Year• Length of time before CAC is “paid back” with
margin generated from customer

13. Reminder, this list is not comprehensive…
13
…and here are some other things that we look for
User engagement
Sales cycle time
Who’s the decision maker to buy
Stickiness of the product
Sales conversion funnel
Etc., etc.

14. Thanks & other resources
Thank you!
Please reach out with any questions
greg@hydeparkvp.com
Twitter: @greg_barnes
Additional Resources
For Entrepreneurs
SaaStr
Pacific Crest Saas Survey
Tom Tunguz’s Blog
Guy Turner’s Blog
Scale VP’s Blog