SaaS Metrics Glossary
Average Contract Length, Average Customer Lifespan
1 / Customer Churn Rate, when calculating the CLTV.
Annual Contract Value
Monthly Subscription Price x 12, but several definitions exist.
One approach is to cap CLTV at 12 months.
Average Revenue Per User
In practice this can be anything from Average Revenue per Seat to Average Revenue per Paying Account. For SaaS, it's most often Average MRR per Subscription.
Details, usage and formulas: ARPU Cheat Sheet
Related to: Average Revenue Per Account (ARPA), Average Revenue Per Paying User (ARPPU)
Annual Recurring Revenue, or Annual Run Rate
Just like MRR, but uses one year as a normalization period. When only annual subscriptions are sold and ARR is as a main metric, there are several variations like with MRR.
However, when your main metric is MRR, we can use following formulas:
When estimating future ARR for a single month:
MRR x 12
When reporting past ARR in annual report:
Sum of MRRs from past 12 months
See also MRR, Run Rate, Recurring Revenue
Total value of committed contracts with customers
When a customer commits to spend money with your company, that is a “booking”.
However, if a contract period exceeds one year, it's common to book just the value from the first year.
Bookings may be used e.g. to calculate provisions for sales personnel. If you charge the annual and other long-term subscriptions up-front, you usually don't need this metric.
Amount invoiced, sales
Cash spent per month
Burn rate is a synonymous term for negative cash flow. It is used to calculate how fast a company uses its shareholder capital.
People sometimes use burn rate also when there are positive cash-flows. In that case what they call "gross burn rate" is the normal burn rate and "net burn rate" is
Burn Rate - MRR.
Customer Acquisition Cost
A unit metric for the price to acquire one customer:
Marketing Costs / New Paying Customers.
Percentage of customers who stop subscribing to a service
This is the SaaS metric with most variations of them all.
Churn rate can be calculated for Customers/Accounts, Subscriptions, Users and MRR.
In addition to that there are net and regular (non-net) churn rates. The net churn rate is calculated from the whole customer base, while the regular churn rate is calculated from customers who can actually churn. Different variations are used for different purposes.
On top of that, businesses may use their own custom definitions for active customers. This means that you must be careful when comparing your churn rate to others.
Only non-SaaS businesses calculate Revenue Churn from non-normalized revenue and they use different formulas, SaaSes use MRR Churn instead.
FirstOfficer shows Net MRR Churn, Subscription Churn and MRR Churn. If your customers each have just one subscription, Subscription Churn is the same as Customer/User Churn.
Details, usage and formulas: Customer Churn Rate
Conversion Rate. The percentage of users who take a desired action.
In SaaS, usually means the percentage of site visitors who become paying customers.
Used to calculate how much you can pay per site visit (PPC). It's also common to calculate intermediate conversion rates (Conversion Funnel):
- Visit to Trial Rate
- Trial to Active Rate
- Trial to Paid Rate
Customer Life-Time Value. Estimate of the projected total value of a customer.
"Value" originally meant "profit", but there are several variations of this metric. For some reason everyone seems to be nowadays calculating the revenue-based variation so that's what FirstOfficer offers too.
However, it's strongly recommended that you convert your CLTV to the profit-based form before using it.
(1 / Customer Churn Rate) * ARPU
Simplified profit-based formula:
((1 / Customer Churn Rate) * ARPU ) * GPM
Also abbreviated as LTV.
Cost of Goods Sold, Cost of Service
Total Cost to Serve (TCS) / COGS Revenue - COS = Gross Profit Margin
Daily Active Users vs Monthly Active Users Ratio
Measures customer activity. While more often used in game industry, this metric is often asked by the investors.
Active use needs to be defined and measured case-by-case, often requiring the user to visit several pages.
This metric is not available in FirstOfficer.
Revenue that has not yet been earned
In accrual-basis accounting, the revenue is recognized when the service is delivered. The undelivered part is a liability and is called Deferred Revenue.
Related to: Prepaid MRR
Official International Accounting Standards metric (IAS, IFRS, GAAP).
Gross Profit Margin
Sometimes also abbreviated as GP.
Key Performance Indicator
Any important metric. More often used with derived metrics like CLTV and Churn, but there are no rules so any number that's important can be called KPI.
Months up front
Average of months of payment received in advance
Monthly Recurring Revenue. Revenue that's likely to continue in the next month.
There are several variations, like Committed MRR (CMRR) and Contracted MRR. FirstOfficer shows Contracted MRR.
In addition to that, it's useful to split MRR to subcomponents:
- New MRR - The MRR from new and returning customers
- Lost or Churned MRR - The MRR lost due to leaving customers
- Upgrade MRR - The MRR from plan upgrades
- Downgrade MRR - The MRR from plan downgrades
However, Expansion and Contraction MRR are used in following formula:
New MRR + Expansion MRR - Contraction MRR - Lost MRR = MRR Growth
Unless a different definition is used, the formula above stops working at plan level.
It's also worth to notice that different businesses have different definitions to what is considered Upgrade and Downgrade. For example, when a customer moves from annual to monthly plan, is that an upgrade or downgrade?
MRR Growth is also called Net New MRR.
FirstOfficer discourages the use of Net New MRR and recommends using MRR Growth instead.
Details, usage and formulas: Monthly Recurring Revenue
See also Recurring Revenue
Sum of all Deferred Revenue
Prepaid MRR is the total value of the subscriptions already charged but not yet delivered.
See also Deferred Revenue
Revenue that's highly likely to continue in the future
Recurring revenue is booked at the rate that service is delivered. Only the part of the revenue that's expected to continue also in the next month is included.
Booking revenue as it's earned is a standard practice in accrual-basis accounting, but when we calculate MRR, we don't do official 'revenue recognition' with its standardized rules, but something called 'normalization'. We don't call it 'depreciation', because depreciation also accounts for loss of value during time. We don't call it 'amortization', because amortization is just depreciation for intangible assets - like stocks.
SaaS Quick Ratio
MRR gains compared to MRR losses
(New MRR + Expansion MRR) / (Contraction MRR + Churned MRR)
Recommended to be over 4, SaaS Quick Ratio measures how effectively the acquisition can fight churn.
In non-SaaS context, Quick Ratio measures company's ability to pay its liabilities with its near cash or quick assets.
FirstOfficer discourages the use of SaaS Quick Ratio and offers Growth-to-New Ratio instead:
MRR Growth / (New MRR + Upgrade MRR)
It similarly measures how much of the gained MRR you get to keep.
Total Contract Value
Often used as synonym to CLTV.
In FirstOfficer, Total Contract Value is the sum of all payments customer has done during his lifetime. It includes everything, even non-subscription purchases.