The Ultimate Guide to SaaS Metrics
Building a SaaS business?
Here are 12 key metrics that potential investors & acquirers will use to evaluate your company.
1. Annual Recurring Revenue (ARR)
ARR reflects how much recurring subscription revenue you generate per year.
It will be the largest driver of your valuation for fundraising and M&A conversations.
Public comps: 4x - 10x range, 6.8x avg (SaaS Capital, 2024)
Private comps: 3x - 8x range, 4.1x avg (SaaS Capital, 2024)
Benchmark: More revenue is better, but there are certain heuristics, e.g. $1M ARR for a Series A, $5M ARR for a Series B, and $10M ARR for a Series C (Ghosh, 2023).
2. Average Revenue Per User (ARPU)
ARPU measures how much money a company makes from each user. Since many SaaS businesses have seat-based pricing, this is a good indicator of how much a user is worth.
Benchmark: ARPU varies widely based on industry, territory, customer base, etc. so benchmark against relevant industry comps.
3. Average Contract Value (ACV)
Average Contract Value compares the value of contracts w/ different lengths to understand how much a customer pays for your product each year.
Benchmark: ACV targets also vary, so it’s best to benchmark against relevant comps.
4. Lifetime Value (LTV)
LTV is the total value a customer will generate throughout the relationship.
5. Customer Acquisition Cost (CAC)
CAC is the measure of how much it costs to acquire a new customer.
6. LTV:CAC
LTV:CAC is an important indicator of profitability potential. You'll need to repeatedly acquire customers for much less than you earn from them over time.
Benchmark: 3x+
There’s an important corollary: your CAC Payback Period (in other words, the # of months it takes to recover CAC) should be < 12. That means you should retain customers for 3+ yrs, unless you have a lower CAC Payback Period.
7. Gross Margin
Gross Margin is the difference between revenue & COGS, divided by revenue. It’s a key part of your unit economics.
Since SaaS businesses theoretically have zero marginal cost, they tend to have very high GM.
Benchmark: 75% - 90%
8. EBITDA
EBITDA indicates the company’s profitability. It can also influence your valuation:
Public comps: 13x - 46x range, 22.4x avg (Aventis Advisors, 2024)
Private comps: 15x - 25x range, 20.0x avg
Benchmark: EBITDA % can vary based on stage and growth rate. It’s common for early stage startups to spend aggressively on sales & mktg, which results in negative EBITDA, whereas more mature businesses may reduce expenses to deliver greater profitability.
9. Rule of 40
The Rule of 40 states the combined value of revenue growth rate and EBITDA percentage should exceed 40%. This allows for cleaner comparisons between growth stage startups (high expenses fueling growth) and late stage companies (lower growth, emphasis on profitability).
Benchmark: As the name suggests, you want to achieve a value > 40.
10. Net Revenue Retention (NRR)
While both Gross Revenue Retention (GRR) and Net Revenue Retention (NRR) are important SaaS metrics, more emphasis is generally placed on NRR.
11. Burn Multiple
Burn Multiple measures how much each dollar invested into the business translates into additional ARR, so it’s a good heuristic for overall spend efficiency.
12. Revenue per Employee (RPE)
RPE is indicative of headcount efficiency.
𝐁𝐞𝐧𝐜𝐡𝐦𝐚𝐫𝐤: $112,500 per employee (SaaS Capital, 2023)
