1. Net MRR Growth Rate

What is it?

Net Monthly Recurring Revenue (MRR) Growth Rate is the month over month percentage increase in net MRR. MRR changes as new revenue is added or customers churn, upgrade, or downgrade. Net MRR Growth Rate shows the net variation of those factors from month-to-month. 

 
Why is it critical to investors?

This metric shows how fast the company is growing and is key to the foundation of a healthy business.

How to calculate?
Net MRR Growth Rate Formula
Pros

Net MRR can be deceiving if tracked by itself because it is an absolute figure. Net MRR Growth Rate allows SaaS companies to measure comparative progress (month-over-month).

Cons

This metric can be misleading for very early stage startups since they will likely be seeing exponential growth at the beginning. Growth rates will often decrease as the company matures. To combat this, calculate a longer trend (12-18 months) to make sure your percentages represent an accurate trend.

Industry Benchmarks

Growth rates will vary depending on company stage, but averages will fall between 15% and 45% for year-over-year growth. Companies with less than $2 million in annual revenue will generally have much higher growth rates.

2. Net MRR Churn Rate

What is it?

Net MRR Churn Rate measures lost revenue month over month (from cancellations or account downgrades) after factoring any revenue from existing customers (from account upgrades or expansion). 

Why is it critical to investors?

Investors will look for Net MRR Churn Rates as close to zero as possible, or better yet, negative MRR churn. This shows that more revenue is coming in from existing customers than is going out from downgrades or cancellations.

How to calculate?
Net MRR Churn Rate
Pros

Keeping track of Net MRR Churn Rate helps understand the health of a SaaS business because it is one of the biggest barriers to growth. This metric focuses on sustainability, allowing the company to determine if it can continue to grow with this churn rate.

Cons

Making sure you are targeting the right customers and making the product more valuable is reflected in this metric. However, it can hide useful information of tracked exclusively because it combines both unhappy and happy customers. To solve this issue, be sure to calculate Expansion MRR and Gross MRR Churn Rate.

Industry Benchmarks

SMB: 3-7% (monthly), 31-58% (annual)

Mid-Market: 1-2% (monthly), 11-22% (annual)

Enterprise: 0.5-1% (monthly, 6-10% (annual)

Source: Tom Tunguz

3. Gross MRR Churn Rate

What is it?

Gross MRR Churn Rate is the percentage of revenue lost from cancellations or downgrades, estimating the total loss to the company. In contrast, the inverse of this metric is Gross MRR Retention Rate, which calculates revenue retained month-to-month.

Why is it critical to investors?

This metric indicates if a business is healthy and companies should aim to have low Gross MRR Churn. A high churn rate is a bad sign for investors.

How to calculate?

 

Gross MRR Churn Rate
Pros

As opposed to Net MRR Churn Rate, Gross MRR Churn clearly and accurately shows how satisfactory the product is and/or if the business is targeting the right customers. It helps companies see how much revenue is being lost without sugar coating it.

Cons

Negative churn is not possible when calculating Gross MRR Churn Rate, so it can be useful to calculate and track Net MRR Churn Rate if presenting SaaS metrics to investors.

Industry Benchmarks

SMB: 3-7% (monthly), 31-58% (annual)

Mid-Market: 1-2% (monthly), 11-22% (annual)

Enterprise: 0.5-1% (monthly, 6-10% (annual)

Source: Tom Tunguz

4. Expansion MRR Rate

What is it?

Expansion MRR Rate shows additional recurring revenue generated from existing customers through add-ons, upsells, or cross-sells.

Why is it critical?

Investors use Expansion MRR Rate to help indicate if the company can deliver increasingly more value to customers while monetizing that value. This is especially apparent in later-stage SaaS companies, where a significant portion of their growth is from existing customers.

How to calculate?

 

Expansion MRR Rate
Pros

This metric is a key indicator to show that your product is providing more value to your customers and that it is generating more demand. Increasing Expansion MRR is key for long-term sustainable growth since generating more revenue from existing business is more cost-effective than generating new business.

Cons

This metric can be misleading if viewed in isolation, particularly if churn is also increasing.

Industry Benchmarks

A rule of thumb should be to increase Expansion MRR to exceed Gross MRR Churn Rate. When expansion exceeds gross churn, you will see a negative Net MRR Churn Rate.

5. Average Revenue Per Account (ARPA)

What is it?

Average Revenue Per Account (ARPA) is the revenue generated per account. This is typically calculated on a monthly or yearly basis.

Why is it critical to investors?

Investors may use ARPA to look for new customers booked in a month. Plotting a trendline can show you the average price point new customers have chosen.

How to calculate? 
Average Revenue Per Account Formula
Pros

ARPA allows you to compare groups or cohorts of accounts by month. Doing so allows you to:

  1. Uncover trends in account expansion and contraction
  2. Evaluating pricing plans
  3. Understanding how your ARPA is evolving
Cons

Outliers (accounts generating extremely high or low revenue) can skew the average, making your ARPA look higher because one or two big accounts.

Industry Benchmarks

Although ARPA will vary depending on your product and pricing, you can focus on internal benchmarks such as ARPA from previous periods.

6. Lead Velocity Rate

What is it?

Lead velocity rate is the growth percentage of qualified leads month over month, showing how many potential customers you’re working on to convert to become actual customers.

Why is it critical to investors?

Investors look at Lead Velocity Rate to predict your future revenues and estimate what growth will look like in the next few months.

How to calculate it?
Lead Velocity Rate Formula
Pros

Lead Velocity Rate (LVR) is a reliable predictor of future growth and revenue. Tracking LVR allows you to have a real-time indicator of growth and immediately take action if you see that you are trailing in leads for the month.

Cons

LVR is not actual revenue. If leads trickle out of the sales process (i.e. leads are not getting closed), then LVR becomes unreliable. Tracking MQL to SQL Conversion Rate should be used alongside LVR. 

Industry Benchmarks

LVR will vary depending on the company, industry, and product/service. Start with a target MRR Growth Rate then calculate the number of qualified leads you need in order to hit that amount of revenue. Using MQL to SQL Conversion Rate and SQL to Win Conversion Rate will help estimate how many leads will close.

7. CAC Payback Period

What is it?

CAC Payback Period is the number of months it takes to earn back the money invested in acquiring customers.

How to calculate it?
CAC Payback Period Formula
Pros

This metric is the best measure of capital efficiency by helping you understand how much money you need before turning a profit. The shorter the payback period is, the more profitable the company will be.

Cons

CAC Payback Period should be tracked alongside Lifetime Value to Customer Acquisition Cost ratio (LTV:CAC).

Industry Benchmarks

The benchmark for startups of 12 months or less. The average for high performing SaaS companies is a 5-7 month CAC payback period.

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