A SaaS business can be steered with a few numbers, provided they are cleanly defined and honestly calculated. Most dashboards show too many metrics and still fail to answer the questions that matter: is recurring revenue growing, are customers staying, and is acquiring new customers worth it?
What each metric answers
Monthly recurring revenue shows the current level; its movements are more revealing: new revenue, expansion from existing customers, contraction and cancellations. Churn shows how many customers or how much revenue is lost. Net revenue retention shows whether a customer cohort’s revenue grows or shrinks over time, including expansion and cancellations. The ratio of customer value to acquisition cost shows whether growth is economical.
Definitions that hold in your company
Many metrics have several common definitions. Does an annual contract count as twelve monthly amounts? Is churn measured on customers or revenue? Do discounts count? What matters is not the right definition but a written one that does not change from report to report.
Measuring without fooling yourself
Common distortions are one-off set-up fees in recurring revenue, trial customers in customer counts, and churn that captures paid cancellations but not downgrades. Equally misleading is a customer value extrapolated from an unrealistically low churn rate in the first months.
Metrics that look good and say nothing
Sign-ups without activation, page views, the total of all accounts ever created or revenue without deducting cancellations look impressive and steer nothing. An activation rate, the share of new accounts that actually experience the core value, is almost always more meaningful.
Francs and euros
Anyone billing in Swiss francs and euros across the German-speaking region should keep metrics in one reporting currency at fixed rates and show exchange rate effects separately. Otherwise a month with a weak euro looks like customer loss.
A lean metric set
- Recurring revenue with its movements.
- Customer and revenue churn.
- Net revenue retention by cohort.
- Activation rate of new accounts.
- Acquisition cost relative to customer value.
The terms are explained in our glossary entries on MRR, churn and net revenue retention.