In B2B SaaS and in the "ARRtist on AIR" podcast , our guests and we ourselves often use abbreviations, technical terms and SaaS indicators. To make it easier for all listeners to get started with SaaS, we explain the important SaaS metrics, key figures (KPIs) and key terms from SaaS, B2B marketing and software sales.
ACV, or Annual Contract Value, is the total amount of revenue a contract generates in a year. One of the main reasons SaaS startups calculate ACV is to compare it to metrics like ARR or CAC. For example, by comparing ACV to CAC, one can find out how long it takes for a customer to be profitable.The ACV can be calculated with this formula:
Total Contract Value / Total Contract Years = ACV
For example, if a customer signs a 5-year contract for EUR 100,000, the ACV is EUR 20,000. If the contract is on a monthly basis, one can calculate the Monthly Recurring Revenue (MRR) and multiply it by 12.
ARR, or Annual Recurring Revenue, is simply the value of the recurring revenue that a company posts in a calendar year. It is equal to monthly recurring revenue (MRR) multiplied by 12.
ARPU is the average revenue generated per user per time unit (usually per month). More used in B2C models. ACV is usually specified in B2B models.
The burn rate indicates how much more money a company spends per month than it earns. Example: If a company has income of EUR 100,000 and costs of EUR 150,000 per month, the burn rate is EUR 50,000. The runway indicates how long the company can continue to operate before running out of cash.
The term B2B SaaS includes software applications that are operated in the cloud and are aimed at corporate customers.
Runway is the amount of time, in months, a business has before it runs out of cash. For companies growing through venture capital, it's an at-a-glance metric that shows the number of months you have left before your cash balance hits $0.
One can distinguish between customer churn and revenue churn. As a rule, churn rate is understood as the outflow of sales. The churn rate measures how many customers a company has lost within a given period of time. It is one of the most important SaaS metrics to measure how well the product is being accepted by customers and whether it consistently delivers value.
Cost Per Acquisition, or "CPA," is a marketing metric that measures the aggregate cost to acquire one paying customer on a campaign or channel level. CPA is a vital measurement of marketing success, generally distinguished from the Cost of Acquiring Customers (CAC) by its granular application.
Cost-per-click (CPC) bidding means that you pay for each click on your ads. For CPC bidding campaigns, you set a maximum cost-per-click bid - or simply "max. CPC" - that's the highest amount that you're willing to pay for a click on your ad (unless you're setting bid adjusments, or using Enhanced CPC).
Cost-per-Mille is the price an advertiser has to pay for the display of thousand ad impressions in a publisher's medium. In contrast to success-based accounting metrics such as Cost-per-Click or Cost-per-Lead, the Cost-per-Million model actually is a lump sum price.
CAC is the amount spent on customer acquisition (esp. marketing and sales) divided by the number of customers acquired in a given period. These costs should be broken down by marketing channel and, where appropriate, by customer group.
The value of recurring revenue stream over a customer's lifetime minus customer acquisition costs. The customer lifetime value (CLV) is the profit that a company achieves with this customer over the entire term of the customer relationship. When interpreting the number, care must be taken to determine whether it only shows the turnover achieved or whether costs for acquiring (CAC) and looking after (customer service) the customer as well as variable costs have already been deducted.
The DBNER or Dollar-Based Net Expansion Rate is one of the most important SaaS metrics. It measures how much more sales (revenue) a certain cohort of customers (usually those of the last year) has additionally spent in the current year.Calculation of the DBNER or Dollar-Based Net Expansion RateMost SaaS companies calculate the DBNER by dividing the sales of all customers who were still customers on the last day of a period (e.g. December 31, 2021) by the sales of the same customers in the previous period (base period, e.g the year 2020) share. The following is not considered:a) the revenue from customers who have canceled in the current period (2021) andb) new customers who were not customers in the base period (2020).[Revenue of all customers who were still customers on December 31, 2021] / [Revenue of the same customers in the previous year 2020] = DBNER (2021)If you want to measure the ability to keep and increase sales (revenue retention) including terminations, the NRR or Net Revenue Retention is a better indicator. You can find more information about this, how it differs from the " dollar-based net retention rate " and examples of DBNER listed SaaS companies explained in a very understandable way in episode #064 of the Doppelganger Tech Talk Podcast.
An ideal customer profile (ICP), also known as an ideal buyer profile, defines the perfect customer for what a company offers solutions for. This is a fictional buyer company that has all the characteristics that make it the perfect customer for the solutions offered by a SaaS company. An ICP is useful to focus on selling to targeted customers that are a particularly good fit for the business.
The MRR indicates the sum of the monthly recurring payments in a month. Non-recurring payments such as implementation fees, consulting services, etc. are explicitly excluded.
Example: If Customer A has purchased a software package for EUR 50, Customer has purchased a software package for EUR 100 and implementation support for EUR 500 and hardware for EUR 500 and Customer C has purchased a software package for EUR 200, the MRR is EUR 50 + EUR 100 + 200 EUR = 350 EUR.
Net Revenue Retention (NRR) is the remaining revenue from your existing customers. It's a broad metric that gives you an idea of what your revenue streams will look like over time when there are no new customers.The NRR formula takes into account: (1) Expansion of existing customers (upgrades, cross-sells or upsells), (2) Downgrades, smaller accounts, (3) Lost customers (accounts).
These factors affect monthly recurring revenue (MRR). A high NRR shows that a company is expanding its business with existing customers.How do I calculate my NRR rate?The formula to calculate your NRR rate is simple:[(Last Month MRR + Expansion Revenue - Downgrades - Churn) / Last Month MRR] x 100% = NRR If you would like practical examples and more background information, you can find them in episode #064 of the Doppelganger Tech Talk Podcast.
A sales cycle is the repeatable and tactical process salespeople follow to turn a lead into a customer. With a sales cycle in place, it’s possible always know your next move and where each lead is within the cycle. It can also help repeat your success or determine how to improve.
If you come across a term that you do not understand, please send us an email. We are happy to expand the glossary as required.