SaaS Metrics that Matter

insights, news, and updates from bloom equity partners

Happy Friday, Founders and friends!

Hope everyone is having a great start to November! We wanted to bring back our software insights section this week……

5 metrics that matter in SaaS

Given the competitive nature of the SaaS market, measuring the health of your SaaS businesses is especially critical to ensure you’re maintaining that competitive edge. Here is an example of just how competitive the market is (this is just the marketing technology landscape)…

Here are 5 critical metrics that we suggest software companies closely monitor and look to constantly improve on;

1. Customer Churn

   • As the saying goes “It’s much cheaper to retain an existing customer than getting a new one”. It’s true.

   • If your SaaS business has a high churn rate (high single digits +); stop focusing on selling and start to focus on retention.

   • Invest $$ into strong customer success teams, ask for feedback, offer incentives, and properly analyze your churn metrics to ensure accuracy.

   • It is important to understand the personas and industries of these churned customers to better understand why they churned.

   • Check out our recent newsletter on measuring churn:

     Let's churn it up 😉

2. Average Revenue Per User (ARPU)

   • ARPU is one of the most important metrics that you should be looking at during each stage of your company’s lifecycle.

   • Depending on your target customer and product offering you will have a higher or lower ARPU (SMB v.s. Enterprise).

   • ARPU is a great indicator for the quality of revenue that a SaaS business is generating. Most investors look to see a positive trend in ARPU especially for faster growing companies.

3. Customer Acquisition Cost (CAC)

   • For most of our readers, this is a no-brainer but it is often forgotten amongst rapidly growing SaaS startups.

   • Properly quantified CAC rates help companies understand the success of sales and marketing campaigns.

   • Segmenting CAC rates by acquisition channel is just as important for understanding what acquisition channels are most effective for the specific offering.

4. Lead-to-Customer Rate

   • Lead-to-customer rate is a great metric for SaaS sales teams to keep track of as it outlines how many sales-ready leads they are generating.

   • Calculation: (customers in any given month / total leads) X 100

   • This metric would be lower for outbound sales teams v.s. inbound teams

   • Sales teams should constantly strive to lower this figure, as a high # is probably an indicator of a high CAC.

5. ARR Compound Annual Growth Rate

   • ARR CAGR is a measure of the mean annual growth rate in ARR

   • CAGR is a vital metric for determining product market fit along with go-to-market fit.

   • A few drivers for CAGR include improving on pricing strategies (cross-selling, upselling, add-ons etc.) to boost ARR as well as reducing churn rates.

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What We’re Reading and Listening To…

📚 Why Private Equity Likes Founder and Family Owned Businesses

📚 Building an Investor Base

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News from the Industry: deals, deals, and more deals 💰

KKR Invests Record Amount of Cash on Asset Growth, Tech Bets

Buyout Firm EQT Weighs Bid for Swiss Software Specialist Temenos

Private Credit boom is Fuelling a Growing Number of Tech LBOs

Ameba Capital Closed the World's First Fund Focusing on China SaaS Investments

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Favorites from the Ecosystem

Investors👇…..

Bart Macdonald • BloomEquityPartners.com @BartMacdonald

Always Find the Arbitrage: Everything in business & investing boils down to buy low, sell high

Orlando Bravo @OrlandoBravoTB

A large established PE manager told me that he was uncomfortable doing deals remotely without "meeting in person." I told him that I love doing remote deals because if I like my potential CEO partner on zoom, I will like her or him that much more in person.

Founders👇…..

Paul Yacoubian @PaulYacoubian

Feature experiments that could solve multiple user problems are almost always worth pursuing, especially if the result is a refinement of product simplicity.

Andrew Gazdecki @agazdecki

Part of building a startup is making important decisions on a daily basis with limited information and hoping for the best.

Operators👇….

Josh Schultz @joshuamschultz

We make plans Then things go bad A customer cancels an order A supplier cancels a delivery A product fails quality Money runs out Things break, don’t act as expected People leave Ideas don’t work Plans fail Here is what to do…

Michael Martocci 🚀 SwagUp @MichaelMartocci

Retention is the key to any great business New Customers become your Customer Base become your ongoing source of revenue Slight adjustments up and down on net retention have long term ripple effects to revenue Here's how we fare @swaguphq - Storng but a ton of areas to improve

Good Laugh👇….

Morning Brew ☕️ @MorningBrew

If you had invested $1,000 in Tesla 9 years ago you'd have $1,046 right now because you would've taken profits way too early and never reinvested.

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About Bloom Equity Partners

Bloom Equity Partners is a lower mid-market software-focused private equity firm, leveraging deep operational and commercial experience to create enduring market value for the benefit of our investors, founders, and their companies.

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End Note

Thanks for joining us for another edition of the weekly bloom. 

We’re excited to continue backing remarkable teams on their quest of changing the way we work, live + create.

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