If you’re a SaaS founder gearing up for a crucial meeting with an investor, there’s one cardinal rule you must abide by: Know your Key Performance Indicators (SaaS KPIs). Keeping a pulse on your data demonstrates that you care about your business. And providing accurate data? That’s non-negotiable. Any discrepancies unearthed during due diligence can potentially torpedo your chances.

So, let’s dive into the Key Performance Indicators (KPIs) that can make or break your conversation with investors. We start with the single most important metric in your SaaS company, Churn.

Churn

Your churn measures the percentage of customers who discontinue their subscription to your service within a certain time period. Calculate churn by dividing the number of customers lost by the number of customers you had at the beginning of that period. It’s a key metric for any subscription-based business but it plays an import role in your companies valuation.

Investors pay close attention to the churn rate because it gives them insight into customer satisfaction and the company’s ability to retain users. A high churn rate may suggest issues with the product, pricing, or customer service, which could impact the long-term sustainability of the business.

Monitoring and understanding your churn rate is crucial. It’s often more cost-effective to retain existing customers than to acquire new ones. Lower churn rate can directly boost your profitability. Furthermore, analyzing the reasons behind churn can provide valuable insights to help improve your product and services.

Chargebee did an excellent article focused on churn, how to calculate it, and what it means to your business so if you need more details, check out that post.

Income

Annual Revenue

Your total income generated annually. Investors use revenue to assess your company’s growth potential and its ability to generate profit in the future. Tracking your revenue can help you understand how your company is growing and identify any potential issues that need to be addressed. This is the one number that should not have an asterisk, so don’t be cute here.

ARR (Annual Recurring Revenue)

This provides a yearly overview of the recurring revenue from your customers. A high ARR indicates a sustainable business model, another key point that is attractive to investors. Monitoring ARR can help you track your business’s growth and predict future performance.

COGS (Cost of Goods Sold)

This includes all costs directly tied to the production of your services sold. To find your COGS, add the cost of inventory at the beginning of the period to purchases during the period. Then subtracting the cost of inventory at the end of the period. These SaaS KPIs are important to investors because it provides insight into your business’s operational efficiency. Understanding your COGS can help you identify ways to reduce costs and increase profitability.

Gross Margin

This ratio reveals the percentage of total revenue that the company retains after incurring the direct costs associated with producing the services. Calculate gross margin by subtracting COGS from revenue and then dividing that number by revenue. A high gross margin can attract investors because it signals your company’s ability to generate significant profit after accounting for the direct costs. Maintaining a healthy gross margin is essential to ensuring long-term sustainability.

Net Margin

The profit margin after all expenses (including operational, tax, and interest expenses) have been deducted from revenue. Calculate Net Margin by dividing net profit by total revenue so, It’s a critical KPI for investors as it directly reflects your company’s profitability. A higher net margin indicates a more profitable and efficient business model.

Average MRR/Client (Monthly Recurring Revenue)

This shows the average revenue you generate per customer each month. Divide the total MRR by the number of active customers to find you Average MRR. Investors use this metric to evaluate your business’s stability and potential for growth. As a founder, understanding this can help you measure the long-term value provided by your customers.

CLV (Customer Lifetime Value)

This predicts the net profit attributed to the entire future relationship with a customer. To find your CLV multiply the average purchase value by the average monthly purchase multiplied by the average customer lifespan. Investors see a high CLV as a sign of long-term profitability. Understanding CLV can help you determine how much you should spend on customer acquisition and retention so you don’t loss more revenue than you have too.

CAC (Customer Acquisition Cost)

This measures the cost associated with acquiring a new customer. It’s calculated by dividing the total cost spent on acquisition by the number of new customers acquired. Investors use this metric to understand the efficiency of your marketing efforts, so a lower CAC means you’re using your resources effectively to acquire new customers, which is crucial for your business’s profitability.

CLV to CAC Ratio

This ratio compares the lifetime value of a customer to the cost of acquiring them. A higher ratio indicates greater return on your investment. Investors use this to evaluate the long-term financial health of your business.

Marketing

Marketing Spend

This is the amount you’ve invested in marketing efforts over a certain period. Investors use this to assess your growth strategy and the effectiveness of your marketing campaigns. Tracking your marketing spend can help you optimize your budget allocation and, as a result, get the highest return on investment.

Marketing Channel Effectiveness

This assesses the effectiveness of different marketing channels based on their performance. Investors are interested in these SaaS KPIs because it helps them understand where your marketing efforts are most successful. For founders, this can guide where to allocate resources for maximum impact.

Monthly Unique Visitors

This measures the total number of distinct individuals who visit your website in a month, providing insight into the breadth of your audience. Find the month visitors to your site with a tool like Google Analytics and count the unique IP addresses that access your site. Investors care about this metric because it indicates the reach of your marketing efforts and the potential size of your customer base. Understanding how SaaS KPIs effect outcomes can help you target your marketing efforts more effectively to increase traffic and, ultimately, conversions.

Conversion Rates

This measures the percentage of visitors who have completed a desired action (e.g., signing up for a trial or making a purchase). A higher conversion rate signals to investors a compelling value proposition and effective marketing. This KPI can help you identify bottlenecks in your customer journey and optimize your marketing and sales funnels.

Subscription Flow did a great article, What is a Good Demo Conversion Rate, about conversion rates for both BtoB and BtoC SaaS businesses.

Trials

This reflects the number of users who have taken your product for a “test drive”, so high trial numbers can indicate strong initial interest in your offering. A high number of trials relative to total unique visitors can demonstrate product-market fit and strong conversion tactics. Knowing this number can help you see the effectiveness of your marketing strategies and make necessary adjustments.

Sales

Qualified Leads

This KPI measures the number of potential customers who have shown a strong indication of buying your product. High numbers of qualified leads indicate a strong product-market fit and effective marketing and sales efforts. Regularly tracking your qualified leads can help you gauge the success of your lead generation efforts and forecast future sales.

Demos

This is the count of prospective customers who have requested a product demonstration, so higher number of demos could indicate deeper interest and engagement. Investors view this as a sign of a highly interested potential customer base. Understanding how many users are interested enough to request a demo can guide you in optimizing your sales funnel.

Sales Life Cycle in Days

This reflects the average length of your sales cycle, from initial contact with a potential customer to closing the deal. Investors see a shorter sales cycle as an indication of efficient sales processes, so understanding this metric can help identify areas of inefficiency in your sales process that need to be improve.

Sales

This KPI tracks your total number of successful sales conversions within a given period. Sum the total number of subscriptions to find your sales. It’s crucial for investors as it’s a direct indicator of your business performance. You can use this KPI to evaluate the effectiveness of your sales strategies.

Side note, as I have noted, sales solves all.

Close Rate

While not exclusive to SaaS KPIs, this measures the percentage of demos who have made a purchase. A higher close rate tells investors that your product is compelling and addresses a problem that is recognized by the market. This KPI can signal either validation of the product or an indication that more work need to be done.

Wrapping Up

As you embark on your entrepreneurial journey, it’s crucial to remember that your success isn’t defined merely by your product, but by the metrics that guide your strategy and the decisions you make. Understanding, tracking, and optimizing key performance indicators is not just about pleasing investors—it’s about steering your business towards sustainable growth and profitability. At SaaS Lab Ventures, we partner with founders who recognize the importance of these metrics and who are ready to leverage them to build a thriving SaaS business.

At SaaS Lab Ventures, we’re more than just an investment firm—we’re your partners in success. Afterall, our experience and expertise in the SaaS industry, coupled with our commitment to supporting driven, innovative entrepreneurs, position us to provide the mentorship and financial backing you need to bring your vision to life. Startups are the lifeblood of innovation and economic growth, and we’re proud to be a part of your journey to change the world, one software solution at a time.