This document discusses key metrics for Software as a Service (SaaS) businesses including Monthly Recurring Revenue (MRR), churn rate, customer lifetime value (LTV), and others. It defines each metric, how it is calculated, and why it is important to measure. The document advocates measuring these metrics to better understand customer acquisition, retention, and revenue over time in order to improve the business. It provides examples of how leading SaaS companies use these metrics to manage and grow their subscriptions.

1. An Introduction to SaaS Metrics & Churn:
The Secret to Subscription Success
chartmogul.com

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We’re a SaaS business too.
Here’s how we measure ourselves and
update our investors
Marketing
Funnel
Inside
Sales
SaaS
Revenue
Metrics
Financials

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KPIs We Care About (and you should too)
Customers
Monthly Recurring Revenue (MRR)
Annual Recurring Revenue (ARR)
Average Revenue Per Account (ARPA)
MRR/Customer churn rate
Customer Lifetime Value (LTV)
Customer acquisition cost (CAC)

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SaaS Revenue Metrics:
• Differ from traditional accounting in that they
are mostly interpreted forward projections
• Don’t make standard financial reporting
(gross/net revenue, etc) any less relevant
• Are more relevant to the management team
on a day-to-day basis.

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Monthly Recurring Revenue (MRR)
MRR is the backbone of any subscription business.
“The amount of revenue you would generate next month if all customers are paying
monthly and you had no new customers, cancellations, upgrade or downgrades.”

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Breaking Down MRR Into “Movements”
New business MRR - A lead that converts into a paid customer
Expansion MRR - Any increase in the MRR of an existing customer
Contraction MRR - Any decrease in MRR of an existing customer
Churn MRR - Decreases in MRR from customer cancellations
Reactivation MRR - Previously churned customers resubscribing

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Customer Churn Rate (B2B)
What is it?
The rate at which you are losing customers through subscription
cancellations.
Calculation
Segmentation is key to getting meaningful Churn metrics.

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MRR Churn Rate (B2B)
What is it?
The rate at which you are losing revenue through subscription
cancellations.
Calculation
Segmentation is key to getting meaningful Churn metrics.

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Positive Churn vs. Negative Churn
Many of the best known public SaaS companies have negative churn, e.g.
New Relic, Zendesk, but not a requirement to be a unicorn, e.g. HubSpot.
Image credits to Tomasz Tunguz
:( :D

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Churn Rate (B2C)
A B2C formula
Devin Brady (Recurly) wrote about a better way to calculate churn
which we think is more useful for B2C companies (e.g. Netflix)
Calculation
Iterating through each day in the selected period (e.g. month/
quarter) we calculate as follows:
SUM(1 - #_active_customers_at_end_of_day /
#_active_customers_at_the_start_of_day)

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Churn Recognition
Best practice is to recognise churn at the end of the paid up billing
period.

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Churn classification
Pro-active churn - Customer chose to cancel
Passive churn - Customer didn’t update credit card
Happy churn - Finished using your product (subset of pro-active churn)
Churn that isn’t really churn - Money-back guarantees, etc.
What is a reasonable level of Churn?
Most SaaS companies selling to SMBs have quite high monthly churn (3-5%)
The more up-market you go the lower the churn rate (usually)
Many public SaaS companies have negative net churn, as high as 20%

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Cohort Analysis - Identifying “Risky” Months
Cohort analysis is the best way to truly understand how your
subscriptions evolve over their lifespan.
CustomerCohorts
Months Since Signup

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Customer Lifetime Value (LTV)
What is it?
An estimate of the total subscription value of an average customer.
Calculation
Helps with decisions on CAC spending, growth predictions.
ARPA
Customer churn
LTV =

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Customer Lifetime Value (LTV)
This simple formula is a good starting point, but it doesn't take
into account two important factors:
1. Churn doesn't occur linearly
2. Many companies experience significant account expansion
following an initial purchase.
The blue line results
in 10% less revenue
over the same period.

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Customer Lifetime Value (LTV)
A Modular LTV Formula

17. © 2015 Chartmogul Ltd
Learn more from the leaders in SaaS thinking…
Jason M. Lemkin
@jasonlk
saastr.com
Christoph Janz
@chrija
theangelvc.net
David Skok
@BostonVC
forentrepreneurs.com
Tomasz Tunguz
@ttunguz
tomtunguz.com
+
chartmogul.com/blog

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ChartMogul Loves SaaS Metrics

19. The ChartMogul SaaS Cheat Sheet Trilogy
© 2015 Chartmogul Ltd

20. An Analysis of B2B SaaS
Pricing Pages
© 2015 Chartmogul Ltd

21. Webinar – April 29, 2015
An Analysis of B2B SaaS
Pricing Pages

22. Even More Resources(!)
• A Better Way to Calculate your Churn Rate
• Ultimate SaaS Metrics Cheat Sheet
• Ultimate Churn Metrics Cheat Sheet
• Ultimate Cohort Analysis Cheat Sheet
• Ultimate Guide to SaaS Customer Lifetime Value (LTV)
• Why SaaS startups should aim for negative MRR churn
© 2015 Chartmogul Ltd

23. Thank you.
@chartmogul
support@chartmogul.com
© 2015 Chartmogul Ltd