[Glossary] SaaS Unit Economics

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HubSpot Moderator

Here is a list of the unit economics you need to report on a SaaS business:

 

- LTV=Lifetime Value=The total dollars that you expect to receive from a Customer over its entire "lifetime" as a paying Customer.


- CAC=Cost of Acquiring a Customer=Total Sales and Marketing cost to acquire one customer.


- NNMRR=Net New MRR= total amount by which your install base increases each month 


-PPR= Productivity per Rep=Average amount of MRR that each sales rep generates each month. This metric can be looked at for different rep tenure and segment buckets, by taking the MRR driven by a given segment of reps and dividing it by the number of reps in that segment.


- Churn = Lost MRR from customers who cancel (or downgrade, depending on how inclusive you are with your definition)


- C$R=Customer $ Retention = one of the metrics that HubSpot uses to measures churn. C$R tells you what percent of the install base retains each month (doesn't cancel). This rate is annualized (hence the 12 power). A C$R rate of 50% means that, for every $100 in our install base, we will retain $50 of those dollars at the end of one year.


- RR = Revenue Retention=Rate to evaluate whether or not MRR from existing customers has increased or decreased, if you compare the upgrades we received to the downgrades and cancels. If this rate is greater than 100%, it means that the MRR from our existing customers is increasing, on average.

 

Having the same baseline definition for these metrics is helpful, but every company does things a little differently. How do you measure important metrics like Churn, or what best practices do you have for reporting on these metrics?

 

Are we missing any metrics? Let me know in the comments and I'll update the glossary.

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Regular Contributor

The easy question

 

In your consideration, what are the best strategies or most important KPIs / points to make a good annual planning and forecasting?

 

The hard question

 

To calculate the Customer Lifetime, LTV (and consequently the LTV: CAC Ratio) we experimented with different ways of calculating the churn, because due to the economic reality of our country (Argentina), we must make price adjustments for inflation at least 2 times per year.

 

1. Net MRR Churn Rate
Considering all expansion and contraction of revenue. So the price adjustments generate negative churn for us, and break our other metrics.

 

2. Net MRR Churn Rate (whitout princing)
Considering all expansion and contraction of revenue without the adjustments to try to have a more stable metric.

 

3. Gross MRR Churn Rate
Considering only the revenue contraction.

 

4. Customer Churn
It would be the most viable option but we lose sight of the revenue for the LTV.

 

So,

 

To calculate the Customer Lifetime, we use the Customer Churn and to calculate the LTV we use the Gross MRR Churn Rate, since when using the Customer Churn, we see that the LTV grows significantly and we are not sure that it is a realistic value.

 

(We perform these calculations in both USD and local currency, and we continue to have the same issues)

 

Could you give us any suggestions on this?

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Regular Contributor

Until what value of LTV: CAC Ratio can we consider it positive?
Instead of understanding that we are not re-investing that money?

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