Finance Metrics, Simplified

Annual Recurring Revenue (ARR)

ARR is the recurring revenue from your SaaS business’ subscriptions, normalized over a period of one year.

Monthly Recurring Revenue (MRR)

MRR is the sum of the predictable or confirmed revenues your company earns from active subscriptions every month.

Contracted Annual Recurring Revenue

Contracted ARR measures total recurring revenue under contract, both active and signed-but-not-yet-live, normalized to an annual value. It gives SaaS companies a forward-looking view of committed revenue.

Revenue Run Rate

The revenue run rate is an annualized version of a company’s earnings during a shorter period (a week, month, etc.)

Subscription Revenue

Subscription revenue is the cash a company earns when a customer subscribes to its product or service.

Revenue in SaaS

In a subscription-based business like SaaS, revenue (also known as recognized revenue or earned revenue) represents the income earned or recognized for services or products delivered to customers per the contract terms (month-on-month or any other agreed-upon time period).

Bookings in SaaS

Bookings, also known as sales bookings or committed revenue, refers to the total “committed” value of all new contracts signed within a specific period, representing future revenue that a company “expects” to recognize, including recurring and non-recurring revenue commitments.

Billings in SaaS

Billings is the total value of invoices issued to customers for subscription services over a specific period, reflecting both new and existing customer commitments. It includes the timing, frequency, and methods for collecting payments from customers.

Bookings vs. billings vs. revenue

Bookings, billings, and revenue are key financial metrics in SaaS, representing different stages of a sale. Bookings (or total contract value) show committed sales, billings are invoiced amounts, and revenue is the earned portion. These metrics are vital for assessing financial health and forecasting.

Deferred Revenue

Deferred revenue is the cash received in advance from customers for services you haven’t delivered yet. Also known as unearned revenue, this metric provides a more accurate representation of a SaaS company's financial health.

Remaining Performance Obligation (RPO)

RPO or remaining performance obligation is the sum of deferred revenue (advance payments for services not yet delivered) plus backlog (the amount of money contracted but not invoiced).

Total Contract Value (TCV) in SaaS

Total Contract Value, also known as contract value, is a key performance indicator (KPI) that helps SaaS companies determine the total value generated by multi-year contracts. It refers to the total revenue that a company expects to receive from a customer contract over its entire duration including one-time fees (e.g. implementation fees) and all recurring subscription revenue.

ARPU vs. ARPA in SaaS

ARPU (average revenue per user) calculates the average revenue generated per individual user over a specific period, while ARPA (average revenue per account) measures the average revenue generated per customer account. These metrics provide insights into monetization effectiveness, pricing strategy success, and overall business health, helping companies optimize their revenue growth strategies and make informed decisions about product development, marketing, and customer success investments.

Compound Monthly Growth Rate (CMGR)

CMGR is a metric that measures average month-over-month growth over a specific time frame. It gives an accurate picture of growth as it factors in compounding. It's commonly used to track key metrics and statistics like monthly recurring revenue (MRR), user sign-ups, active users, or other growth data critical to SaaS businesses.

Net Revenue Retention (NRR)

NRR is the percentage of recurring revenue a SaaS company retains from its existing customers over a specified time period.

Gross Revenue Retention (GRR)

Gross Revenue Retention is the percentage of revenue a company retains from its customers over a defined period (usually one year).

Churn Rate

The churn rate or customer churn rate is the percentage of customers that do not renew their subscriptions over a specified period such as a month or year. The revenue churn rate is the percentage of revenue a company loses over a specified period.

Logo Retention Rate

Logo retention rate is the percentage of customers retained over time. Tracking it helps businesses know where to improve their customer service and/or product quality and develop retention strategies to increase customer retention.

Net Promoter Score (NPS)

The net promoter score (NPS) is a customer loyalty metric that directly impacts a SaaS company's financial health and valuation. Also known as the net promoter system or net promoter index, NPS is a single-question survey tool introduced by Fred Reichheld, a partner at Bain & Company, in 2003. The metric measures customer satisfaction by asking users how likely they are to recommend a SaaS product to others on a scale of 0-10.

Customer Engagement Score (CES)

Customer engagement score (CES), also known as engagement score, is a single quantitative metric that measures how actively customers interact with a company's products or services based on their usage patterns and behaviors. 

Time to Value (TTV)

Time to value (TTV) is a vital customer retention metric that measures the time it takes your new customers to get value from your SaaS product. Customer retention directly impacts financial stability and business growth in SaaS. By optimizing TTV, companies can enhance customer experiences, inspire loyalty, and build a competitive edge.

Gross Margin

Gross margin is the difference between the revenue generated from a software product and the cost of delivering that product (also called cost of goods sold or COGS) expressed as a percentage of the total revenue.

Contribution Margin

Contribution margin is the amount of revenue left from each sale after subtracting variable costs.

EBITDA

EBITDA is a profitability metric used to gain insights into a company's operational and financial performance. By leaving out non-operational expenses – interest, taxes, depreciation, and amortization – the earnings information in EBITDA provides a clear picture of a company's ability to generate cash flow from its core business activities. While widely used in SaaS, EBITDA is considered a non-standard measure of profitability as it is not recognized under the Generally Accepted Accounting Principles (GAAP) in the United States.

Net Income

Net income, also known as bottom line or net earnings, is the profit a company retains after subtracting all expenses, including the cost of goods sold (COGS), operating expenses, and other expenses, such as taxes and interest on any debts. Net income helps a company understand how much money the company has actually made during a specific period.

Sales and Marketing as a Percentage of Revenue (S&M%)

S&M% shows how much a company spends to acquire and retain clients. It's a metric SaaS companies use to track the efficiency of their sales and marketing strategies for driving growth.

General and Administrative as a Percentage of Revenue (G&A%)

General and administrative expenses as a percentage of revenue (G&A%) measures how much of a company’s revenue is spent on overhead costs required to keep the business operational.

Research and Development as a Percentage of Revenue (R&D%)

Research and development (R&D) as a percentage of revenue is calculated as the total cost of R&D (tech teams salaries, benefits, cost of their tools and equipment) divided by revenue.

CapEx vs. OpEx in SaaS

CapEx (Capital Expenditure) refers to long-term investments in fixed assets whereas OpEx (Operating Expense), also known as capital spending or operating costs, includes short-term operating costs

Pass-through Costs

Pass-through costs are expenses you incur on behalf of customers and pass them along at the time of billing, typically at or near the actual cost. In most cases, these costs are associated with third-party goods or services that are tied to a specific client or project. The primary goal of pass-through costs is reimbursement rather than value creation. While pass-through costs are typically billed at or near cost, companies may charge an explicit and separately disclosed markup or handling fee depending on contract terms.

Customer Retention Cost (CRC)

Customer retention costs (CRC) measures the money a SaaS business spends to keep its existing customers. It includes all expenses related to ensuring customer success and satisfaction.

Customer Acquisition Cost (CAC)

Total marketing and sales spend in a previous period / Number of new customers acquired in the current period

Customer Acquisition Cost (CAC)

Total marketing and sales spend in a previous period / Number of new customers acquired in the current period

CAC Payback Period

CAC Payback Period is the time it takes a company to recoup the money it spent to acquire a customer.

Lifetime Value (LTV)

Customer lifetime value (LTV or CLTV), also known as client lifetime value (CLV) or lifetime customer value (LCV), measures the total revenue a business can expect to generate from a single customer account. For SaaS companies, LTV is crucial as it directly influences key business decisions around customer acquisition, product development, and growth—ultimately determining the sustainability and scalability of the business model.

LTV:CAC Ratio

The LTV:CAC ratio compares the average revenue you generate from your customers with the cost to acquire them.

Rule of 40

The Rule of 40 states the sum of a SaaS company’s revenue growth and profit margin should be equal to or greater than 40%

SaaS Magic Number

The SaaS Magic Number quantifies how much new incremental recurring revenue is generated for every dollar sales and marketing (S&M) spends. Your company’s SaaS Magic Number lets you and potential investors gauge your sales and marketing efficiency.

Burn Multiple

The burn multiple measures how much capital your SaaS company spends to generate $1 of new annual recurring revenue (ARR). Created by Craft Ventures co-founder David Sacks, it measures how efficiently your company converts its spending into ARR. The lower your burn multiple, the less your company is spending to grow.

SaaS Quick Ratio

The SaaS quick ratio measures the revenue growth of SaaS businesses by comparing the revenue flowing in (through new customers and expansions) and revenue flowing out (through churn and downgrades).

Cash Conversion Score

The cash conversion score (CCS) is an efficiency metric that tracks how efficiently a startup converts its capital raised into recurring revenue. In SaaS, where upfront investments in product development, customer acquisition, and infrastructure are high, CCS is a vital indicator of strategic growth and financial sustainability.

Annual Recurring Revenue (ARR)

ARR is the recurring revenue from your SaaS business’ subscriptions, normalized over a period of one year.

Billable Utilization

Billable utilization, also known as utilization rate, measures the percentage of an employee's available time spent on revenue-generating activities.

Cash Runway

Cash runway is the amount of time a business can continue to operate before it runs out of cash—assuming no new funding and spending stays at its current rate.

Days Sales Outstanding (DSO)

Days Payable Outstanding (DPO)

Days payable outstanding (DPO), also known as days creditors outstanding, measures how long a company takes to pay its vendors and suppliers.

Accounts Payable (AP) Turnover Ratio

Pipeline Coverage Ratio

Pipeline coverage ratio, or pipeline-to-quota ratio, provides sales managers with a view of how potential deals compare to their revenue targets. It’s calculated to determine how much ARR is accounted for in the unweighted pipeline compared to the new ARR goal.

Sales velocity in SaaS

Sales velocity measures the speed at which a sales team closes deals, tracking the time from initial contact to deal closure.

Sales Cycle Length (SCL)

Sales Cycle Length (SCL) is the number of days it takes to close an individual deal from the first meaningful prospect interaction to a signed contract.

Quota Attainment Rate

Sales quota attainment (also known as quota achievement rate or sales goal attainment) measures the percentage of sales targets achieved by sales representatives or teams within a specific period. Quota attainment helps companies evaluate individual and team performance, forecast revenue, and optimize their sales strategy.

Sales Qualified Lead (SQL)

A sales qualified lead (SQL) is a prospect who has demonstrated clear buying intent and meets specific qualification criteria indicating high conversion potential. This metric helps SaaS companies assess pipeline quality and predict revenue by identifying leads most likely to become customers.

Cost Per Lead (CPL)

Cost Per Lead (CPL), also known as Cost Per Prospect, is a marketing metric that measures the average cost, in terms of money spent on marketing and advertising, to acquire one qualified lead. It is calculated by dividing the total expenditure on marketing activities by the number of leads generated within a specific timeframe.

Return on Ad Spend (ROAS)

Return on ad spend (ROAS) measures the revenue generated per dollar spent on advertising, expressed as a ratio of revenue to ad spend.

Traffic-to-Lead Conversion Rate

The traffic-to-lead conversion rate, also known as the visitor-to-lead conversion rate or traffic conversion rate, measures the percentage of website visitors who take an action to convert into a lead. For SaaS companies, it indicates the efficiency of their lead generation efforts. Analyzing the conversion rate helps SaaS sales teams to understand the quality of website traffic and leads, allocate budget for marketing campaigns and lead generation efforts, as well as assess and enhance the effectiveness and performance of the sales funnel—to drive sustainable growth and revenue.