Making data-driven decisions is critical for the success of any SaaS business. To do that, you need to track the right metrics and key performance indicators (KPIs). However, SaaS businesses face unique challenges and opportunities when it comes to data. SaaS businesses operate in incredibly data-rich environments, but that data is of little relevance if you don’t know which metrics to track and which questions to answer, nor have expertise or resources to turn all that data into actionable insights that can drive growth and profitability.

In order to gain a deeper understanding of your business performance, you first need to be tracking the right metrics. Read on as we explore the top 16 key metrics that every SaaS business should be paying attention to.

1. Monthly Recurring Revenue (MRR)

What it is: MRR is a crucial metric for SaaS businesses as they typically rely on recurring revenue from their customer base. In the context of SaaS, MRR refers to the monthly recurring revenue generated by your company’s subscription-based services.

How to use it: MRR provides visibility into your business’s revenue stream, which is essential for budgeting, forecasting, and financial planning. SaaS companies often track MRR on a monthly basis to monitor revenue growth and identify trends or changes in customer behavior that may impact their revenue in the future.

In addition, MRR can help reduce revenue volatility and increase revenue predictability. As MRR is based on recurring revenue from customer subscriptions, it provides a more stable and predictable revenue stream compared to one-time sales or project-based revenue.

2. New MRR

What it is: New MRR is the amount of MRR generated from new customers.

How to use it: New MRR, along with Expansion MRR (which measures revenue growth from existing customers), provides a comprehensive view of recurring revenue growth and can help you plan and forecast your revenue and growth potential.

New MRR is important because it represents the growth potential of your business. For example, a higher New MRR can signify that your company is effectively acquiring new customers. New MRR is also a key driver of future revenue growth, as these new customers can become long-term subscribers and contribute to future Expansion MRR.

Lastly, New MRR can help offset the negative impact of Contraction MRR (the decrease in revenue from existing customers due to churn or downgrades). By increasing New MRR, you can reduce the impact of Contraction MRR and maintain or increase overall revenue growth.

3. Expansion MRR

What it is: Expansion MRR is the amount of additional monthly recurring revenue generated from existing customers through upsells, cross-sells, and add-ons. It’s typical to calculate Expansion MRR as a percentage rate where you compare the current month to the previous month to understand whether or not your existing customers are buying more or less of your products and services.

How to use it: Expansion MRR provides insight into your ability to upsell and retain customers, which can significantly impact revenue growth and profitability.

Expansion MRR can also help to offset the negative impact of Contraction MRR. By increasing Expansion MRR, your business can reduce the impact of Contraction MRR and maintain or increase overall revenue growth. Further, Expansion MRR can improve customer satisfaction and loyalty. By offering additional products or services to existing customers, your business can increase the value and usefulness of your products, which can lead to greater customer satisfaction and loyalty.

4. Contraction MRR

What it is: Contraction MRR is the decrease in revenue generated from your existing customers due to downgrades, cancellations, or non-renewals. Like Expansion MRR, it’s typical to calculate Contraction MRR as a percentage rate where you compare the current month to the previous month to understand whether or not your existing customers are buying more or less of your products and services.

How to use it: Contraction MRR can help your business identify patterns and trends in customer churn, (e.g. common reasons for cancellations or downgrades) and take action to address those issues.

In addition, tracking Contraction MRR can also help you better understand your customer acquisition and retention costs. It can be much more expensive to acquire a new customer than to retain an existing one, so reducing customer churn can have a significant impact on your company’s bottom line. By identifying and addressing the root causes of customer churn, you can improve your customer retention efforts and reduce the overall cost of customer acquisition and retention.

5. Committed MRR

What it is: Committed MRR measures the recurring revenue from subscription contracts that have been signed, but not yet recognized as revenue. These are contracts that are committed to be billed for a specified period, typically 12 months or longer.

How to use it: CMRR provides a high level of predictability for a SaaS company’s revenue stream, as it represents the portion of revenue that is already committed by customers for a certain period. This predictability allows you to better plan your resources, investments, and growth strategies.

CMRR is also a stable revenue stream, which is crucial for your business’s long-term sustainability. Unlike one-time revenue, recurring revenue provides a more dependable source of income that allows you to weather economic downturns, market fluctuations, and other challenges. Furthermore, CMRR is a reflection of your customer retention rate, which is a critical metric for any SaaS business. By focusing on building and maintaining high CMRR, you can ensure that your customers are satisfied and loyal, leading to long-term revenue growth.

6. Delta MRR

What it is: Delta MRR is used to track the net change in your monthly recurring revenue over a period of time, typically on a month-over-month or quarter-over-quarter basis. It represents the difference between the MRR at the end of the current period and the MRR at the end of the previous period.

How to use it: Tracking Delta MRR is critical to understand your revenue growth trajectory and make informed decisions about how to allocate resources and drive growth. A positive Delta MRR shows that your company is adding new customers or expanding the business with existing customers at a faster rate than it is losing customers or experiencing churn. Conversely, a negative Delta MRR shows that your company is losing customers or experiencing churn, which could be due to factors such as poor product-market fit, pricing issues, or lack of customer engagement.

7. Gross MRR Churn Rate

What it is: Gross MRR Churn Rate measures the amount of recurring revenue lost from customers who cancel their subscriptions or do not renew them in a given period of time, typically measured monthly.

How to use it: Tracking Gross MRR Churn Rate provides insight into your customer retention and revenue stability.

A high Gross MRR churn rate signifies that your business is losing a significant amount of revenue due to customer cancellations or non-renewals. This can lead to revenue instability and make it difficult to plan for growth and invest in new initiatives. A high Gross MRR churn rate may also suggest that your business is not effectively retaining its customers. By identifying the reasons why customers are canceling their subscriptions or not renewing them, you can implement strategies to improve customer retention and reduce churn.

Conversely, a low Gross MRR churn rate (like the example above) shows that your company is effectively retaining its customers and has a solid foundation for growth. By keeping churn low, you can focus on expanding your customer base and increasing revenue from existing customers.

8. Annual Recurring Revenue (ARR)

What it is: ARR measures your predictable and recurring revenue over the course of a year.

How to use it: ARR provides visibility into your predictable and recurring revenue over time. It can also help you to evaluate your growth trajectory and track progress towards revenue goals.

ARR can be broken down further into New ARR and Expansion ARR. New ARR represents revenue generated from new customers who signed up for a subscription during a specific period, such as a quarter or a year. Expansion ARR represents revenue generated from existing customers who have expanded their use of your subscription-based service during a specific period. Tracking both New ARR and Expansion ARR can help you better understand the effectiveness of your customer acquisition and retention strategies.

9. Delta ARR

What it is: Delta ARR is the difference in ARR between two different points in time. It measures the net change in ARR over a set time period.

How to use it: Because Delta ARR measures the change in recurring revenue over time, it’s a useful metric to identify trends and patterns in revenue growth, which can inform strategic decision-making. Additionally, Delta ARR provides insight into customer retention. A positive Delta ARR indicates that your business has been successful in retaining existing customers and/or acquiring new ones. Conversely, a negative Delta ARR could indicate that customers are leaving the company, which would be a cause for concern.

Lastly, Delta ARR can identify areas for improvement. For example, if your Delta ARR is lower than expected, it could be an indication that your business needs to focus on improving customer acquisition, product quality, or customer retention efforts.

10. ARR Momentum

What it is: ARR Momentum measures the acceleration or declaration of your revenue growth rate. It provides a lot more insight into a business than MRR and ARR because it takes into account the changes in growth rate over a period of time, rather than just a snapshot of revenue at a given point in time.

While MRR and ARR are important metrics for SaaS companies, they only provide a static view of the company’s revenue and don’t take into account the company’s growth trajectory. On the other hand, ARR Momentum provides a dynamic view of the company’s revenue growth by tracking changes in ARR growth rate over time. MRR Momentum can be broken down by account or plan, type of change (e.g., new business, expansion, contraction, churn), or account group/class/cohort.

How to use it: ARR Momentum provides deep insight into your revenue growth rate by cohort, plan, and type of change. Calculating ARR Momentum by account cohorts can provide valuable insights into the performance of different customer groups and can help your business make data-driven decisions to optimize its growth strategies. Monitoring ARR Momentum by account or plan can help to identify which subscription plans are driving growth and which are not performing as well. For example, if your company sees that its highest-tier subscription plan is driving the most ARR Momentum, you may decide to invest more resources into developing and promoting that plan to maximize growth.

Analyzing ARR Momentum by type of change can also help your business understand which types of changes are driving the most revenue growth or decline. For example, if your company sees that expansion is driving the most ARR Momentum, it may focus its efforts in upselling and cross-selling to existing customers to increase revenue.

11. Cash Runway Rate

What it is: Cash Runway Rate measures how long your company can sustain its operations using its current cash reserves.

How to use it: For SaaS companies, in particular, cash runway rate is important because these companies often require significant investment in product development, customer acquisition, and sales and marketing activities. At the same time, they may not generate significant revenue or achieve profitability until several years into their operations.

As a result, understanding the cash runway rate is critical to plan your financial resources and make informed decisions about your growth and investment strategies. By knowing how long you can operate before running out of cash, you can evaluate your options for raising additional funding, reducing expenses, or pursuing other strategic initiatives.

12. Net Dollar Retention

What it is: Net Dollar Retention (NDR), also known as Net Revenue Retention, measures the revenue a company retains from its existing customer base over a certain period, usually one year. NDR indicates how much revenue a company is generating from its current customers relative to the revenue generated in the previous year.

How to use it: Tracking NDR is a valuable metric for any SaaS business that wants to understand its revenue growth, customer retention, and profitability. As mentioned above, tracking NDR helps identify customer churn and customer loyalty.

By tracking NDR over time, you can better forecast its revenue growth and identify trends in customer retention and revenue generation. This can help the business plan its resources, investments, and growth strategies more effectively. Additionally, you can use NDR data to guide your customer acquisition strategies. For example, if the NDR is high, you may want to focus on upselling and cross-selling to existing customers, rather than acquiring new ones. NDR can also be used to segment customers based on their value to the business. By identifying high-value customers, you can provide them with personalized offerings, which can help increase their loyalty and retention.

13. Customer Acquisition Cost (CAC)

What it is: CAC measures the cost of acquiring a single new customer. The calculation of CAC can vary depending on the specific company and industry, but it generally includes both direct and indirect costs associated with customer acquisition. Direct costs can include expenses such as advertising, website development, lead generation campaigns, sales commissions, and promotions. Indirect costs can include salaries and benefits for sales and marketing staff, and overhead expenses such as rent and utilities.

How to use it: CAC can help you understand the efficiency of your sales and marketing efforts. By tracking the total cost of sales and marketing activities required to acquire a new customer, you can identify which channels and campaigns are most effective. You can also evaluate the return on investment (ROI) of your sales and marketing activities by comparing the total costs to acquire a new customer to the revenue generated by that customer.

CAC is also an important metric for calculating Customer Lifetime Value (CLV). CLV represents the total revenue a company can expect to generate from a customer over the lifetime of the relationship. By comparing CAC to CLV, you can determine whether your customer acquisition efforts are generating sufficient returns.

14. CAC Payback Period

What it is: CAC Payback Period, also known as Time to Recover CAC or Months to Recover CAC, is the number of months it takes to earn back the money spent on acquiring a new customer.

How to use it: CAC Payback Period is an effective metric to help you understand where you are overspending and quickly identify issues with retention and churn. For instance, having 5,000 new subscribers may seem good in theory, but if the acquisition costs increase 10x’d in the same period, it will take 10 times as long to break even. Additionally, if you have more customers canceling their subscriptions or not renewing them before their CAC Payback Period, is a clear indication that something isn’t working. A change in your sales and marketing strategy or product packaging and pricing model can potentially reduce the cost of acquisition and the payback period. Because CAC Payback represents a specific period in time, it’s important to monitor the numbers over time to ensure your CAC Payback is consistent and predictable.

15. Customer Retention

What it is: Customer Retention measures the percentage of customers that continue to use your products or services over a specific period of time.

How to use it: Customer Retention provides insight into the quality of your products or services, the effectiveness of your customer support, and the overall customer experience. A high Customer Retention Rate demonstrates that your company is meeting the needs and expectations of its customers, while a low Customer Retention Rate may indicate that your company needs to improve its offerings or support.

SaaS companies should aim to maintain high Customer Retention Rates by regularly evaluating and improving their products, services, and customer support. This can involve implementing customer feedback programs, providing ongoing training and support, and developing new features and functionality to meet changing customer needs.

16. Customer Lifetime Value (CLV, or CLTV)

What it is: CLV or CLTV represents the total revenue a company can expect to generate from a customer over the lifetime of their subscription.

How to use it: CLV provides a better understanding of the value a customer brings to the business and can help you make informed decisions about customer acquisition costs, pricing strategies, and resource allocation.

Because retaining existing customers can be more cost-effective than acquiring new customers, CLV can help guide your customer retention efforts by focusing on retaining high-value customers. By knowing the lifetime value of a customer, you can identify and address the pain points that cause customers to churn. This can improve customer satisfaction, leading to increased customer loyalty and retention.

This blog post is an excerpt from our eBook "Mastering SaaS Metrics: A Guide to Measuring and Optimizing Revenue Growth." To read more, download the full guide here.