Strategic Finance Metrics
Deep dive into key financial and SaaS metrics as we break down the theory and application.
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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).
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.
Monthly Recurring Revenue (MRR)
MRR is the sum of the predictable or confirmed revenues your company earns from active subscriptions every month.
Annual Recurring Revenue (ARR)
ARR is the recurring revenue from your SaaS business’ subscriptions, normalized over a period of one year.
Subscription revenue is the cash a company earns when a customer subscribes to its product or service.
Revenue Run Rate
The revenue run rate is an annualized version of a company’s earnings during a shorter period (a week, month, etc.)
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%
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).
Net Revenue Retention (NRR)
Net Revenue Retention or NRR is the percentage of recurring revenue a SaaS company retains from its existing customers over a specified time period.
Customer Acquisition Cost (CAC)
What is Customer Acquisition Cost? Why It’s Important and How to Calculate it (with Examples)
Total marketing and sales spend in a previous period / Number of new customers acquired in the current period
What is the LTV:CAC Ratio? How to Calculate, Analyze, and Benchmark Your SaaS Company’s Numbers
The LTV:CAC ratio compares the average revenue you generate from your customers with the cost to acquire them.
SaaS Magic Number
What Is the Magic Number in SaaS? How to Calculate It, Benchmarks, and Examples
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: What it is, Formula, and What it Says About Your SaaS Business
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.
Logo Retention Rate
Logo retention rate: What it is, how to calculate it, and why it’s a key metric for SaaS businesses to track
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.
SaaS Quick Ratio
SaaS Quick Ratio - How to Calculate it, Definition, and Benchmarks
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).
Pipeline Coverage Ratio
Learn how to calculate and optimize your sales pipeline coverage ratio for greater revenue predictability
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.