The SaaS Benchmark Guide: 7 Metrics Every Founder Needs to Track

As founder of a SaaS, the metrics you should track, depends abit on where you are in the journey.

Going from zero to 1 with a startup involves alot of founder intuition and hard work to get things going, where measuring things might feel like a luxury you can't afford.

Later on in the growth stages, when you have some traction and your first customers, measuring your SaaS becomes increasingly important - both to understand your business as it grows, how to operate it more efficiently, and how to grow faster - answering questions like:

• what to double down on?

• what needs to be cut?

• who to hire?

SaaS KPI:s become even more important if you plan to involve external people in your business - for example, if you plan to raise capital from VC, or exit and sell your company.

If you are running a SaaS in growth stage - here are 7 SaaS metrics to track (and benchmark against) to make sure you are growing like you should.

These KPI:s telling you how attractive your business model is, how happy your customers are, and how fast you are growing. And ultimately, how big your ARR multiple will be when exiting.

The Rule of 40 is a key metric for evaluating SaaS companies' financial health. It combines a company's revenue growth rate and margin, with a target sum of at least 40%. It's a universal metric used by most Private Equity firms and later-stage investors.

The Rule of 40 gives a quick snapshot of a company's balance between profitability and growth.

Recurring revenue percentage measures how attractive your business model is by looking at the percentage of revenue that is on a recurring basis.

SaaS companies are inherently subscription-based, meaning a big percentage of revenue is recurring, which gives a high level of predictability. The higher the %, the better.

Example:

• SaaS company A has 70% of its revenue from subscriptions, and 30% as one-time fees for implementation and onboarding fees. Rating: Good ⭐️⭐️

• SaaS company B has 95% of its revenue from subscriptions, and 5% as one-time fees for implementation and onboarding fees. Rating: Great ⭐️⭐️⭐️

SaaS Gross Margin refers to the amount of revenue a software as a service (SaaS) company generates after subtracting the direct expenses associated with creating and providing its services (COGS).

It is expressed as a percentage of the total revenue, where most SaaS are somewhere in the range 65-85%.

Logo churn measures the percentage of customers lost during a given period, providing a clear view of customer retention at the account level.

Revenue churn is another common metric to understand stickiness and customer satisfaction, which takes into account the size of the customers measured in revenue.

Generally, high-ticket enterprise SaaS tends to have lower logo churn, whereas PLG SaaS towards SMB has higher churn by default.

Net Revenue Retention (NRR) measures the percentage of recurring revenue a company retains from existing customers over a specific period, including upgrades, downgrades, and cancellations.

It gives a good view of long-term health, profitability, and customer satisfaction, with a rate over 100% indicating revenue growth from the existing base - ie. growth without acquiring any new customers.

A SaaS sales cycle is the time it takes to convert a new customer, from initial prospecting and demoing to final closing.

A shorter sales cycle means faster time to generate revenue from initial sales & marketing activity, which is more attractive than a longer one.

Net Promoter Score (NPS) measures customer loyalty and satisfaction, crucial for retention, by asking users how likely they are to recommend the product (0-10 scale).

An average SaaS benchmark is around 40, and over 60 is deemed great.

Check out the top list of books on SaaS and startup exits.

Or read the founder's guide to a successful SaaS exit.