SaaS Spending Benchmarks and Metrics
Benchmarks, metrics, and key performance indicators (KPIs) are all necessary to accurately measure success. They help companies evaluate how close they are to hitting their goals and make direct comparisons to the competition.
In the SaaS world, benchmarks almost always refer to financial metrics and KPIs. Below, we’ll get into everything you need to know on how to identify, measure, and learn from your SaaS spending benchmarks.
What are SaaS Spending Metrics?
Similar to traditional KPIs, SaaS spending metrics are financially-related measurements that help businesses appraise how well they’re doing against the competition and meeting their strategic goals. When you have readily available data, you can measure your own results against main industry standards and create forecasts for the future.
With so many different metrics, however, it can be difficult to know what to look for and what metrics to compare with other industry leaders. That’s why we’ve created the below list to help you identify some of the most important KPIs and metrics you should be measuring today.
SaaS Spending KPIs
Some of the most important SaaS spending KPIS include:
Net Revenue Retention Rate (NRR)
NRR refers to the percentage of constant or recurring revenue from your current customers across a period of time. NRR isn’t just about net increases; it also takes into account revenue lost from cancellations and churn rates to give you a comprehensive number of losses and gains.
The formula for NRR is:
Net Revenue Retention = Monthly recurring revenue (MRR) at the start of your revenue period + expansion + upsells - downgraded recurring revenue - canceled recurring revenue/ recurring revenue at the beginning of your period
For most medium-to-enterprise SaaS companies, you want a 90-125 percent net revenue retention rate.
Annual recurring revenue (ARR)
ARR refers to revenue gained from subscriptions or contracts over the course of a single calendar year. ARR is an important metric because it allows you to evaluate your subscription model, which is a primary revenue stream for a lot of software companies.
To get an accurate ARR, you want to measure how much you’ve gained from subscriptions as well as revenue lost from subscription cancellations.
The formula for burn multiple is:
Burn multiple = Net burn / net new ARR
It refers to how much money you’re burning for all new incremental revenue. Burn multiple is an important number because it can accurately predict how sustainable your current model is. Having a high burn multiple in the face of a new investment, for example, might be okay initially, but eventually you have to start earning more than you burn.
Watching this number in the short and long-term will be necessary when you make product-placement improvements or try to roll out new features or subscription models that, in theory, should have long-term gains.
Cash Conversion Score
Cash conversion score is a metric used by investors to assess the ROI of a startup. It’s an important metric because it allows investors to see if you’re reaching your goal, and it can determine how much your startup can earn in the next investment rounds.
Customer Acquisition Costs
Customer acquisition cost is a popular metric that looks at your cost to acquire a single customer.
The formula for CAC looks like:
Customer acquisitions costs = sales costs + marketing costs / number of new customers
CAC will help you define your marketing strategy and capabilities, pricing strategy, target customer, product-placement strategy, and more. This is an important number, but it can only be truly measured against other metrics like your retention and churn rates. If you have a low acquisition cost but don’t have a high retention rate or subscription rate, you will likely have some long-term concerns.
Most SaaS companies will spend $200 to acquire a new customer, and whether or not that number is “good” or “bad” will depend on how much you earn in the CAC payback period.
LTV:CAC, CAC Payback Period
Customer lifetime value to customer application cost (LTV:CAC) is a metric that measures the ratio between your ROI on a new customer. It’s a necessary metric that helps you identify if your CAC is worth it or not in the long run.
The standard industry LTV:CAC ratio is 3:1. By the end of a customer’s lifetime cycle, you want to have made three times more than you spent on acquiring that customer. So if the average customer cost of acquisition is $200 for SaaS companies, you want to have earned at least $600 from acquiring that customer.
Daily Active Users/Monthly Active Users (DAU/MAU)
The daily active user to monthly user ratio can help you determine how active your monthly users are on a daily basis. That might sound confusing, but it’s really a more specific way to track how active your monthly users are within a full calendar month.
You can determine the ratio by dividing your daily active users by your daily monthly users. A 2017 Mixpanel report showed the average SaaS DAU/MAU rate is about 13%. This is an important number because it tells you how often customers use your app within a given month, and if you depend on ads or in-app purchases, you want an active user base.
The Most important spending benchmarks
ARR/NRR benchmarks and CAC benchmarks
The most important spending benchmarks come down to one universal factor in business: money. How much you are gaining on your recurring revenue and subscriptions against how much you are spending to acquire customers will essentially make or break your business. Other metrics are important, but costs vs revenue is the lifeblood of any business, and your ARR, NRR, and CAC benchmarks should be a primary focus for any SaaS business.
How Sastrify can help meet your SaaS spending benchmarks
One of the biggest challenges that tech companies face is choosing the right vendors to help ensure they’re maintaining safety and value for their customers. A third-party procurement solution, like Sastrify, can help you discover, negotiate, and manage all your SaaS contracts from one place.
Sastrify provides companies with valuable insights into how effectively their SaaS tools are being used, how much time/money is being wasted on specific tools, and what kind of SaaS changes are being made that might affect your app usage landscape going forward.
When you have a SaaS procurement expert in your corner, you can negotiate more effectively, gain insights on what is and isn’t working, and optimize your ecosystem of apps to improve your metrics and benchmarks in little time.
Click here to learn more about how Sastrify can help improve your metrics, KPIs, and benchmarks today.