22 expert informed metrics for SaaS Head of Finance
Published 2022-05-25, updated 2023-09-11
Summary - Metrics demonstrate the milestones in your business’ story. The challenge, however, is knowing what metrics to measure and make sense for your business. That’s where MetricHQ comes in.
SaaS founders have big dreams: be it building a market-defining product, raising venture capital, or ringing the opening bell at the stock exchange. Those dreams aren’t fantasy, either, but to achieve them, founders need a team of experts to guide their growth.
The Head of Finance role is a strategic and critical role in every SaaS company. Without a solid understanding of your business fundamentals and the metrics to back them up, any investor pitch will be met with skepticism. As they say, the proof is in the pudding.
Metrics demonstrate the milestones in your business’ story. The challenge, however, is knowing what metrics to measure and make sense for your business. That’s where MetricHQ comes in.
We’ve worked closely with SaaS experts to define and inform the most important financial metrics you should track. Our goal is to provide clarity on which metrics are important to your business and help you succeed with data. Let’s look at 22 expert-informed metrics for a SaaS Head of Finance.
- Annual Contract Value (ACV)
- Burn Multiple
- Customer Acquisition Cost (CAC)
- Customer Acquisition Cost Ratio (CAC Ratio)
- Customer Concentration
- Customer Lifetime Value (LTV)
- Deviation from Target Churn Rate
- Gross MRR Churn Rate
- Gross Revenue Retention Rate (GRR)
- Hype Factor
- Lifetime Value to Cost of Acquisition Ratio (LTV/CAC)
- Logo Churn
- MRR Growth Rate
- Net Annual Recurring Revenue Added (Net ARR Added)
- Payment Acceptance
- Propensity to Renew
- Reactivation MRR
- SaaS Magic Number
- SaaS Quick Ratio
- The Rule of 40
- Total Addressable Market (TAM)
- Weighted ACV (WACV)
Expert contributor: Lauren Thibodeau
Annual Contract Value (ACV) is the dollar amount an average customer contract is worth to your company in one year. There tends to be less universal consensus on the definition of ACV compared to some other SaaS metrics, such as Annual Recurring Revenue. For example, some companies include one-time initial charges like setup or training in their ACV calculations, while others don’t. To maintain consistency and gain valuable insights into your company's performance, it is essential to track ACV using a SaaS dashboard, which can help in aligning the company's understanding and usage of this metric across different teams.
Expert contributor: David Sacks
Burn Multiple measures how much a startup is burning in order to generate each incremental dollar of ARR. This metric evaluates burn as a multiple of revenue growth. The higher the Burn Multiple, the more the startup is burning to achieve each unit of growth. The lower the Burn Multiple, the more efficient the growth is.
Expert contributor: Mandy Leavell
Customer Acquisition Cost (CAC) is the cost a business incurs to acquire a new customer. This includes the fully loaded costs associated with sales and marketing to attract potential customers and convince them to purchase, divided across all new customers.
Expert contributor: Vinny Prajka
CAC Ratio is a measure of sales and marketing efficiency. The literal interpretation of the CAC Ratio: for one dollar of sales and marketing investment, how much new subscription contract value can my company generate? We adjust the ratio for the gross margin to reflect how efficiently the company delivers its SaaS offering. CAC Ratio can reflect the choice a company makes between growth and profitability. If a company chooses to grow quickly, hire more salespeople, and invest in marketing, it will naturally be less profitable and pull down its CAC Ratio. If they choose to slow the hiring of salespeople (fewer people on-ramp) and reduce investment in marketing, their CAC Ratio can increase. The optimal CAC Ratio for your business will depend on your market context: macro growth rates, competitive intensity, and end-customer health all can impact how efficiently you are able to sell your product.
Customer Concentration, or Customer Revenue Concentration, refers to the amount of your total revenue that is generated by either your highest-paying client or a set of your top-paying clients. There is a risk associated with this number being too high because of the potential impact of losing high-paying customers. On the other hand, there is a school of thought that high customer concentration has certain advantages, such as forging long-term relationships with customers and the ability to focus time and resources on these customers. However, it is generally agreed that high Customer Concentration can lead to complications, including difficult customer demands and sudden loss of revenue.
Expert contributor: Pablo Srugo
The Customer Lifetime Value (LTV) metric indicates the total revenue a business can reasonably expect from a single customer account. It considers a customer's revenue value and compares that number to the company's predicted customer lifespan. Businesses use this metric to identify their most valuable customer segments.
Expert contributor: Douglas Alves
Deviation from Target Churn measures how close or far away you are from hitting your ideal target churn rate in a specific time period. It is calculated by finding the difference between the forecasted churn rate and the target churn rate.
Expert contributor: Pablo Srugo
Gross Monthly Recurring Revenue Churn Rate (Gross MRR Churn Rate) is the percentage of recurring revenue lost due to both cancellations and downgrades. Note that it is common to express this metric as a monthly rate, though it can also be expressed as Gross ARR Churn Rate.
Expert contributor: Lauren Thibodeau
Gross Revenue Retention (GRR) Rate is the percentage of recurring revenue retained from existing customers in a defined time period, including downgrades and cancels. It does not include any expansion revenue. GRR is also commonly referred to as Gross Renewal Rate.
Expert contributor: Dave Kellogg
The Hype Factor is an efficiency metric that shows how efficiently a company converts capital raised into ARR. SaaS companies convert venture capital into two things: annual recurring revenue (ARR) and hype. ARR has direct value as every year it turns into GAAP revenue. The Hype has value to the extent it creates halo effects that drive interest in the company that, ultimately, increase ARR.
Expert contributor: Eckhard Ortwein
The Lifetime Value to Cost of Acquisition (LTV/CAC) Ratio tells you if the theoretical lifetime revenue you get from a customer is higher or lower than the sales and marketing costs needed to acquire that customer.
Expert contributor: Soha Yasrebi
Logo Churn is the enemy of any subscription company. Logo Churn is the number or percentage of subscribers to a service that discontinues their subscription to that service in a given time period.
Monthly Recurring Revenue (MRR) Growth Rate is the velocity at which MRR is being added to the business, expressed as a percentage. MRR Growth Rate is often cited as a monthly rate, but it's also possible to express it using an annual timeframe; for example, "we are targeting 10% MRR Growth for April", or "our MRR Growth Rate was 100% last year".
Expert contributor: Paula Diaz
Net Annual Recurring Revenue (ARR) Added is the net change of annual recurring revenue from new logo bookings, expansion bookings, down-sell bookings, and churn during a period. This metric will let you evaluate your business from one time period to the next and understand how each component is affecting ARR.
Expert contributor: Ed Fry
Payment acceptance is the percentage of payments that are successful out of those payments that are attempted. In credit card language, this is often called the “authorization rate.” Failed payments are the menace of selling anything online, and payment acceptance rates are significantly lower than buying something in-person.
Expert contributor: Jennifer Batley
Propensity to Renew is a measure of the likelihood a customer will renew their contract instead of terminating their engagement with a company, most often provided by the customer as part of a survey. It is an indicator of revenue risk and potential logo churn.
Expert contributor: Susan Luo
Reactivation MRR is the total amount of recurring revenue generated from reactivated customers who had previously canceled services and have resumed a subscription within the current tracking period.
The SaaS Magic Number is a ratio showing yearly recurring revenue growth gained for every sales and marketing dollar spent. It indicates the level of operational efficiency of a company, as well as the sustainability of sales and marketing expenditure.
Expert contributor: Susan Richards
SaaS Quick Ratio is used to measure the growth efficiency of a company but is often overlooked by early-stage entrepreneurs and investors. Think of SaaS Quick Ratio as a healthy measure of company growth.
The Rule of 40 is a SaaS financial metric that balances revenue growth versus profit margins. It’s a rule of thumb to quickly determine the health and/or attractiveness of your SaaS company.
Expert contributor: Lauren Thibodeau
Total Addressable Market (TAM) is a measure of the revenue opportunity of capturing 100% of the market for a product or service.
Expert contributor: Nnamdi Iregbulem
Weighted Annual Contract Value (WACV) calculates the average contract dollar value with a weighted average proportional to the value of the contract. Essentially, higher-value contracts are assigned more importance when calculating the total average contract value of a business. This approach is helpful to companies that have widely varying customer concentration by accurately calculating an ACV that is not skewed by contracts with a low dollar value.
One of the pillars of any metric is that it is expertly informed and peer-reviewed. Our mission is to help people succeed with data by providing the tools you need to turn data into insight and action. Make sure to check out MetricHQ, our curated resource for all things metrics.
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