Several Critical Business Startup Metrics
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue, or MRR, is a measure of the predictable and recurring revenue of your startup. This doesn’t include one-time and variable fees.
For SaaS startups, MRR is the most critical metric. It’s what makes the subscription model awesome. However it comes with it’s own set of challenges, like retention and churn.
To accurately calculate MRR, you need to consider these three different aspects:
● New MRR
Fresh revenue brought by newly acquired customers.
● Expansion MRR
Expanded revenue from existing customers, usually from upsells and cross-sells.
● Churn MRR
Churn MRR refers to lost revenue from customers leaving.
So, Net MRR = New MRR + Expansion MRR – Churned MRR
Customer Lifetime Value (CLV)
Customer Lifetime Value simply measures the profit your business makes from any given customer. Knowing your CLV will help answer pivotal questions like:
● How much can I afford to spend acquiring each new customer?
● How much can I spend on retaining customers and reducing churn?
● What upsells and cross-sells can be given to the best customers?
You need the following three variables to get your customer lifetime value:
● ARPA (Average Revenue per Customer/Account)
● Gross margin
Take the revenue you earn from a customer, subtract the money spent on acquiring and serving them, and see how long they generate profit before churning.
LTV = ARPA * % Gross Margin / % MRR Churn Rate
Customer Acquisition Cost (CAC)
Acquiring new customers can be costly, and that’s why tracking CAC is so important. Because pumping hard-earned money into a marketing channel with negative returns kill your startup.
Customer Acquisition Cost refers to the resources that a business uses in order to acquire an additional customer. It encompasses all efforts necessary to get your products and services into the hands of potential customers, and then convincing them to buy.
Common acquisition expenses are: paid ads, staff salaries, CRM, marketing automation software licenses, sponsorships, content marketing, and social media.
Knowing your CAC will help you with:
● Determining your actual profit margins
● Optimizing Customer Lifetime Value
● Identifying and optimizing the biggest acquisition expenses