5 ‘Overlooked’ SaaS B2B Metrics (with Benchmarks)
5 ‘Overlooked’ SaaS B2B Metrics (with Benchmarks)
To rock your 2024 Growth planning.
🤗 Who is this guide for?
Founders / CEOs
Product Leaders
Growth Product Leaders
❤️ Why should you care?
The 2024 Planning is here!
I promise you, it’s gonna be a mess, as always.
There is no way around it.
You know, no battle plan ever survives contact with the enemy.
And in our case, our ‘brilliant’ annual planning contact with reality.
This time, let’s try to make the plan survive at least until Q3. 😆
How?
By wearing our VC hats and thinking broader, VC broader.
Thinking beyond the ‘core’ product metrics.
Product metrics are only part of the game.
It’s not the entire game.
Let’s think about how to build a profitable, economically sustainable business.
And no, focusing on ARR is not enough. ARR is a vanity metric when looked at in Silo.
Don’t get me wrong, ARR is crucial. But it must be examined in the context of
The source of the revenue
The cost of the revenue
The health of this Revenue.
High YoY ARR growth alone does not ensure business sustainability.
✅ What do you get?
Breaking down for you:
CAC Payback
NDR (Net Dollar Retention)
Gross Margins
Burn Rate
Rule of Forty (RO40)
🎁 Bonus Metric
🏁 Let's start!
1.’CAC Payback’
CAC is nothing! How fast you get the CAC back is everything!
CAC Payback measures how quickly you can recover the upfront cost of acquiring a customer.
If you invest $1000 to acquire a customer and get $50 back monthly, the CAC Payback is 20. It’s the time (in months) to break even.
Having low CAC Payback means:
A low risk that customers will churn before you recoup the upfront investment.
Fast $ reinvestment cycles to fuel further growth.
This is why SaaS companies offer significant discounts for annual subs; it’s money upfront and no risks (unless a refund happens). 🤣
Getting to Low CAC Payback requires running a tight ship across:
Product
Marketing
Sales
Through both Acquisition, Activation, and Monetization levers. It’s a big one!
Calculation
Don’t stress; we'll talk about Gross Margin in a bit. 😉
Benchmarks:
Although CAC Payback has to be looked at per acquisition loop, the general benchmarks for SaaS:
👶 Early Stage: Less than 8
👨 Growth Stage: Less than 12
👴 Late Stage: Less than 15
The benchmarks depend on the composition of SMBs, mid-market, and Enterprise customers. The higher upmarket you go, the higher CAC Payback you can afford.
Why?
Because of Enterprise logos’ high NDR and low Retention nature.
Simply, they expand and stay.
More on NDR in a second.
A ton of value is coming your way!
2.’NDR (Net Dollar Retention)’
It’s your revenue health! So take good care of it.
NDR measures the changes in recurring revenue from existing customers, considering revenue expansion, contraction, and churn.
If you started with $1M and expanded the revenue from those accounts by $200K but lost to contraction and churn $100K, your NDR is 110%.
Healthy revenue EXPANDS.
It’s what NDR is all about. As simple as that.
NDR = 105% means that a company retained and expanded the revenue from its existing customer base by 5% over what it had at the beginning of that period after accounting for losses from churn ( = the ‘Bye-Bye’) and contractions ( = the Downgrades).
NDR < 100% means that a company is losing more revenue from churn and contractions than it is gaining from revenue expansion.
A ‘Leaky Bucket’ at its best requires you to get new customers to overcome the loss of existing ones rather than grow.
Getting to High NDR requires running a tight ship across:
Retention (usage)
The Monetization Model (pricing and packaging)
The Core Product (providing more value and better experience with new features, products, and add-ons).
Not too shabby!
Calculation:
Benchmarks:
👶 Early Stage: More than 105%
👨 Growth Stage: More than 115%
👴 Late Stage: More than 125%
3.’Gross Margin’
It’s the mirror to the efficiency of your core business model!
Growth and Product teams ignore Gross Margin as it excludes direct R&D, Sales, and Marketing costs.
However, Operational Efficiency (which sits in the heart of the Gross Margin) must be on top of your mind.
Why?
Because the higher the Gross Margin, the more $ you can reinvest in Growth and Product. 😎
A great product that costs a shit load to serve ( = COGS) does not form a good base for a sustainable business.
Expand your thinking beyond product metrics!
Calculation:
COGS includes only the costs to serve.
Think support, DevOps, maintenance, enterprise customer onboarding, etc.
This means PLG = Low COGS, High Gross Margin. 😉
Benchmarks:
👶 Early Stage: More than 70%
👨 Growth Stage: More than 80%
👴 Late Stage: More than 80%
4.’Cash Runway’
It’s how long the cash in the bank will last!
Most SaaS startups spend cash faster than it’s coming in. Cash Runway helps you decide how much you can spend on growth and stay alive.
So you get why it’s important.
If you have $1M in the bank and are burning through $200K monthly, your Cash Runway is 5 months. I would stress. You are spending way too much and need more capital. 😰
However!
No spending = No growth
Which also makes it hard to stay alive... 😅
Product and Growth teams approaching the annual planning without understanding the ins and outs of their company’s financial and value metrics limit themselves to thinking tactically (not strategically) and optimizing locally (not globally).
🟢 Work with me!
There are three ways we can work together. Check those out. 😉
Calculation:
Benchmarks:
For any growth stage, get at least 18, please.
5.’RO40 (The Rule of 40)’
It’s the balance between Growth and Profitability!
Finally, we are tying it all together!
It’s not growth at all costs but a gentle balance between Growth and Profitability.
RO40 holds you in check, focusing you on Economically Sustainable Growth.
In simple language, it takes your
ARR Growth %
Profit Margin % (Don’t mix up with Growth Margin!)
And ensures both together are above 40.
Meaning that if you are growing like crazy, you can afford to lose $.
And vice versa.
For example, if you’re growing at 80% YoY and have a (-30%) Profit Margin over the last 12 months, your RO40 is (80 - 30 = 50).
This means that YOU ROCK because your RO40 is above 40.
You balanced your profit loss (-30%) with ARR growth (80%).
Getting to RO40 > 40 usually means that you are:
Rocking a low CAC Payback
High NDR
High Gross Margin
Have enough Cash Runway to make your strategy a reality.
VCs do track your RO40, and it heavily impacts your startup valuation!
Calculation:
Benchmarks:
Well, it’s 40, quite self-explanatory, I say.
However, RO40 best fits non early stage startups.
6.🎁 ‘ARR per FTE’
It’s your employee's bang for a buck!
Planning your headcount (I hate this word) and have no idea how much ARR each employee generates?
You better know it before onboarding anyone else.
Calculation:
Benchmarks:
🍼 Very Early Stage: Less than $50k
👶 Early Stage: $50k - $100K
👨 Growth Stage: $100k - $200K
👴 Late Stage: More than $200K
Wishing you all a fruitful planning season.
Let’s unscrew ourselves one OKR at a time. 😆
Eugene Segal
🔗 References:
Openview, 2022 SaaS Benchmarks Report
Chargebee, What is CAC Payback Period?
Elena Verna, Cost of Acquisition (CAC) trap
Elena Verna, The four types of Expansion B2B SaaS can leverage