SaaS Metrics Guide to SaaS Financial Performance (2024)

FAQs

What are the key metrics you would use to evaluate the financial health of a SaaS startup? ›

The five key SaaS metrics are churn, customer retention, customer acquisition cost (CAC), monthly recurring revenue (MRR) and customer lifetime value (CLV).

Churn is one of the most important metrics for SaaS companies, but MRR churn is particularly valuable.

Calculating SaaS LTV CAC

You can get your SaaS LTV CAC (customer acquisition cost) by adding up all of your sales and marketing costs over a specified period (including human capital costs) and dividing that total by the number of customers acquired during that period.

The Rule of 40 is a principle that states a software company's combined revenue growth rate and profit margin should equal or exceed 40%. SaaS companies above 40% are generating profit at a sustainable rate, whereas companies below 40% may face cash flow or liquidity issues.

What are the top 3 key financial metrics in any company? There are 3 top financial metrics that are important in every company: revenue, net profit, and burn rate.

The SaaS magic number is one of the best ways to calculate your sales efficiency. The formula to calculate the SaaS magic number is “(Current Quarter ARR – Prior Quarter ARR) / Prior Quarter Acquisition Spend.”

There are many ways to measure performance, but a few critical differences exist in how SaaS companies measure their performance with key performance indicators (KPIs). The focus of SaaS companies comes with how many active monthly users and subscriptions there are. If the numbers are high, that's good.

Many different financial ratios can help evaluate a company in the financial services sector, two of the best metrics are the price-to-book (P/B) ratio and the price-to-earnings (P/E) ratio.

It boils down to three main factors: growth, revenue retention, and profit margins. The enterprise value to revenue ratio (EV/Revenue) is a widely utilized metric to gauge a SaaS company's financial worth. This ratio offers a snapshot of a company's financial health by comparing its total value to its revenue.

What is a good utilization rate for SaaS? ›

For most companies, an ideal utilization rate would be between 70% and 80%. However, individuals in leadership positions typically spend less time on billable client work (between 30% and 70%) as they are focused on high-impact strategic work that grows the business.

Your usage data is included in the SaaS Service Usage Metrics Report. This report is generated and delivered daily to your console. It shows the products you've licensed, how much you've licensed, how much you're using for the current month as well as the last three months.

In general, however, your gross profit margin should aim to be around 70-80% for SaaS businesses. For net profit margins, 5-10% is solid when you want to scale, and anything above 15% is spectacular.

Most people view a healthy SaaS business model to have a gross margin of 80-90% which which would put an ideal COGS at just 10-20%. However, it is not uncommon for COGS to reach a greater percentage, depending on how complex the product is. However, anything past 40% would not be ideal.

High-quality SaaS businesses have gross margins between 75% and 90%. They should ideally be above 80%. If a software company's gross margin is below 70%, it can be a cause for concern.

Key Takeaways

Don't get bogged down in too much data. Focus on these KPIs: revenue, cost of goods, gross margins, marketing and EBITDA. They'll determine your most critical metric: contribution margin. Projections into the future must always be grounded on historical trends—not hope and optimism.

Finance metrics serve as key performance indicators that help an organization evaluate its financial status and ability to meet its goals. Understanding what finance metrics are can help you evaluate your own progress and analyze the operations of an entire company.

Profitability KPIs, such as gross profit margin and net profit margin. Liquidity KPIs, such as current ratio and quick ratio. Efficiency KPIs, such as inventory turnover and accounts receivable turnover. Valuation KPIs, such as earnings per share and price to earnings ratio.

The 7 essential customer success KPIs that will help you retain loyal customers, regardless of your industry/product are: customer health score, customer satisfaction rate, churn rate, customer lifetime value, retention cost, Net Promoter Score, and expansion revenue.