SaaS Metrics

Here are some common SaaS metrics you might want to track, and how to build them in Causal!

Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC)

Customer Acquisition Cost calculates how much it costs to acquire a Customer in the period. Calculated using direct Marketing Spend and Sales/Marketing Staff Costs in the appropriate period.

For example, let’s say there’s $1m Marketing Spend in Jan 22 and then $2m in Feb 22 and Mar 22. Marketing Spend takes 2 months to flow down the funnel and convert to Customers. In Mar 22 there are 4 New Customers, therefore CAC in Mar 22 should be $1m/4 = $250k rather than using the Marketing Spend in Mar 22, which would result in $2m/4 = $500k, as this is not the relevant amount which determines the New Customers gained in the period.

Causal’s Time Modifiers make implementing this logic very easy! If we use the same logic as above in regards to Payroll Cost for Sales and Marketing Staff we can produce a formula like the image below. The formula takes Payroll Costs for the Sales and Marketing Department modified by the amount of Time spent in the funnel. This is then divided by the the New Customers in the Period to arrive at the CAC.

CAC Payback

Customer Acquisition Payback calculates the number of periods required for a Customer to produce enough Gross Profit to pay back their respective CAC. The shorter the Payback Period the better your business is performing.

Therefore, once you have calculated CAC (see above) you can calculate your payback by finding your ARPU (Average Revenue per Account) and multiplying this by your Gross Profit Margin. to find the contribution per Customer. Taking CAC and dividing by this Contribution calculates how many periods are required for the Customer to payback their CAC.

ACV / CAC

Annual Contract Value / Customer Acquisition Cost gives indication of profitability on new contracts. After calculating CAC(See above), take the Annual Contract Value in the period and divide by CAC in the period to produce this metric.

Magic Number

The Magic Number metric is designed to measure how efficient and effective your Sales and Marketing spend are in a specific time period.

It is calculated by taking Net New ARR or New ARR + Expansion ARR - Churned ARR and dividing it by CAC.

The following general advice is given depending on your Magic Number:

• Magic Number < 0.5: A magic number this low indicates that something is wrong with your business model. Whether it be high costs relative to performance or perhaps you have not achieved product-market fit. This is not the time to invest in Sales and Marketing, focus should be elsewhere.
• 0.5 < Magic Number < 0.75: This is generally considered to be the main threshold for the magic number. If you’re around the 0.75 mark then your sales efficiency is approaching market norms. This is a time to evaluate whether or not to increase Sales and Marketing expense and depends on the specific context of your business. ‍
• Magic Number > 0.75: A magic number over 0.75 indicates that this is the time to invest in Sales and Marketing. You likely have a proven product-market fit and solid CAC payback periods and this is the time to take advantage.

Lifetime Value

Lifetime Value is a metric that measures, you guessed it, the Lifetime Value of a cohort of New Customers. The higher your LTV the better.

You can calculate LTV by taking (Average Order Size in the Period * Average # of Orders in the Period * Contract Length) / Churn Rate. This gives LTV for an average Customer in the cohort.

Burn Multiple

Burn Multiple calculates how much Cash is being used to generate new business and is used as a guide on sustainability of the current business model. The higher the Burn Multiple, the more the start-up is burning to achieve each unit of growth. The lower the Burn Multiple, the more efficient the growth is.

Calculated by taking -Net Operating Cashflow divided by Net New ARR or (New ARR + Expansion ARR - Churned ARR).

The table below gives some context to how your Burn Multiple shapes up:

Net Revenue Retention

Net Retention Rate is a core tracked metric for most SaaS businesses. It gives an indication of the impact of Customer Retention and Upselling on the business.

Calculated by taking (Beginning ARR - Churned ARR + Expansion ARR) / Beginning ARR.

A solid SaaS company would expect to have a Net Retention Rate of at least 100% with anything above 110% considered exceptional.

Customer Retention

Customer Retention is a key metric for any business and is measured by how many Customers at the Start of the Period remain at the End of the Period.

It is calculated by taking Total Customers at End of Period - New Customers in Period) / Customers at the Beginning of Period.

Of course you can’t retain more than 100% of your Customers, the closer you are to 100% the better your business is performing.