SAAS M&A Flashcards
Pick one of the following KPIs and tell me different ways it can be calculated, and the merit for each method: CAC, LTV, Churn?
What is Churn Rate?
The % of customers/subscribers lost over a given period of time:
Users Left/Users at Period Start x 100%
What is Monthly Recurring Revenue?
The predictable total revenue generated by your business from all the active subscriptions in a particular month.
Does not include one-time fees.
MRR helps to keep the focus on the present and allows them to track how the business is growing.
Tracking MRR can also assist companies in prioritizing long-term contractually booked sales over the short-lived ones.
What is Revenue Churn Rate?
The percentage of subscription dollars up for renewal that a company loses over a given period.
Provides more nuance than churn rate because it accounts various pricing plans (i.e. starter plan vs premium).
(Churned MRR + Downgrade MRR / MRR at the end of the previous month) * 100
What is Annual Recurring Revenue
Annual recurring revenue (ARR) is the annualized amount of predictable revenue your company will generate.
What is the difference between ARR and MRR?
MRR is typically an operating metric while ARR is more of a valuation metric.
Investors like to see ARR to understand overall business performance, and many founders will present ARR when fundraising or in board meetings, while MRR shows the more day-to-day operations of a business.
MRR can be a better predictor of future income because market conditions change a lot in a year.
What is the Customer Acquisition Cost?
Takes into account the amount companies spent on sales, marketing, overheads, and any other associated costs of growing their clientele.
Includes advertising, lead generation activities and sales personnel salaries and commissions.
Sales & Marketing Cost/Number of New Customers
What is Customer Lifetime Value?
This KPI reflects the total income a business can expect to earn from a customer over the entire duration of their business relationship.
The net present value of the future cash flows a customer is estimated to generate over their lifetime with the company.
At no time should a SaaS company’s CAC be higher than its average CLV. If so, the business is in real trouble.
For a healthy business, CLV should be 4x the CAC
What is the Monthly Unique Visitor?
a count of the number of unique individuals who visited your website in a given month. it’s a good measure of the impact of your overall marketing efforts.
What is the Lead Velocity Rate?
the rate that your qualified leads grow month over month. This metric focuses on the number of leads going into your pipeline rather than the speed they’re moving through it.
LVR = (Current Month’s Qualified Leads – Previous Month’s Qualified Leads) / Previous Month’s Qualified Leads x 100
What is the number of active users?
Active users refer to the number of people that are actively using your product. This metric is a benchmark to determine the health of a SaaS company’s customer base.
you should define a user as active when they do something from which they have derived undeniable value.
What is the Stickiness Ratio
Stickiness Ratio = DAU / MAU
What is customer retention rate?
a metric that indicates the proportion of customers that have continued to use your product.
To calculate the customer retention rate at the close of a month, look at repeat orders from repeat customers in the past month and compare these orders to numbers from two months before. Do not count new customers you acquired in the previous month.
What is the TAM?
the total market potential for a product or service
Compare Serviceable Addressable Market vs Share of Market?
SAM is the portion of TAM that a company can realistically serve. SOM is the percentage of SAM that a company actually serves.
