The awol academy companies are quite different than traditional businesses, especially when it comes to the metrics that matter. Mostly they must invest heavily upfront to acquire the customer, but recover the profits from that investment over a long period of time. There are a few key SaaS metrics, like COCA, churn rate, and MRR, that will make or break your company.
From working with many SaaS companies, we see they get tremendous benefit from reviewing the following top 5 metrics:
1. Cost Of Customer Acquisition (COCA)
COCA is your spending on sales and marketing divided by the number of your new customers. SaaS companies can use this metric to determine whether they can afford to boost sales and marketing spending, or whether they should be cutting back. If you are looking for video marketing strategy and tips, visit www.dreamengine.com.au for more information. We measure the gross profit stream of your customer and how many months of gross profit it costs to acquire a customer.
2. Churn Rate
There are two types of churn: customer churn and revenue churn. We look at them separately, as each teaches us something different about the health of your business. Customer churn is the % of total customers who churned in a given month or year. While this is a good measure to understand your company’s ability to satisfy and retain your customers, it is more telling to look at revenue churn, the % of revenue lost due to churned customers as a % of total recurring revenue.
3. Monthly Recurring Revenue (MRR)
The business model of most SaaS companies is based around recurring revenue. Monthly recurring revenue (MRR) is the contractually committed service that customers agree to pay each month. It’s the most important number you should be tracking and it will serve as your primary benchmark for progress.
4. Sales and Marketing Multiple (SMM)
With MRR business models, the key is to invest in sales and marketing to acquire new MRR contracts. You can model out what percentage of client lifetime revenue, based on your client lifespan and Contribution Margin, you can invest in acquiring the client. You can further reduce this to how many dollars of sales and marketing to invest per dollar of MRR. Expressed as a multiple, this is your Sales and Marketing Multiple (SMM).
Bookings refer to the total contracted revenue signed in a period. For example, if you have $1,000 of MRR in a 12 month contract, it represents $12,000 of bookings in the period.