This document provides an overview of key performance indicators (KPIs) and profitability analysis for software-as-a-service (SaaS) companies. It discusses metrics like monthly recurring revenue, churn, customer lifetime value, customer acquisition cost, and time to profit. Sample data is also presented to illustrate how these KPIs can be calculated and analyzed over time to evaluate the financial health and growth trajectory of a SaaS business.

1. SAAS KPIS AND PROFITABILITY ANALYSIS
| Deb Sahoo | MBA, Finance, University of Michigan | MS, EE, University of Southern California | B-Tech, EE, IIT |

2. SAASPRICINGCOMPONENTS
Transitioning From Perpetual Pricing to SaaS Pricing With Benefit and Drawback
Components
Subscription drawbacks can include: Customer has to upgrade, customer has to keep paying
Saas drawbacks can include: Offsite Data, Downtime, Security Issues

3. Cumulative Payment Streams Breakeven For a Product Line
No. of Years For SW Valuation 3
Perpetual License Price 1,000,000$
Maintenance & Service Fee / Yr. 60,000$
Perpetual SW Value 1,120,000$
Perpetual Payment Stream per Yr. 60,000$
Payment Flexibility Over 3Yr. Lifetime 100,000$
Less Maintenance Risk Over 3Yr. Lifetime 200,000$
Subscription Drawbacks Over 3Yr. Lifetime 75,000$
Subscription SW Value 1,345,000$
Subscription Payment Stream per Yr. 448,333$
IT Infra 400,000$
Web Delivery 200,000$
SaaS Drawbacks 300,000$
SaaS Value 1,645,000$
SaaS Payment Stream per Yr. 548,333$
SAASPRICINGBREAKEVEN
Revenue Streams Breakeven Between Perpetual, subscription, and SaaS
SaaS
Breakeven
Subscription
Breakeven

4. SAASKPIS
KPIs Overview
90% Renewals + Add-Ons should
be >100%
Customer Churn
CAC Ratio
CLTV > 0 = ProfitCLTV
Live RR + Signed Contracts –
Churn = CMRR
CMRR
Best in Class = 125% via
strong Add-On modules
1
GMPP
Add-On’s + Low Churn
drives > 4X CLTV
Product add-ons reduce
churn
(ARPA * GM%)
CAC
KPI Comments

5. SAASKPIS
SaaS Booking KPI – Monthly Recurring Revenue (MRR)
• New MRR = Revenue added from new customers signed in the month
• Lost MRR = Revenue of customers who churned in the month
• Expansion MRR = Upsell/Cross Sell to the installed base of existing customers

6. SAASKPIS
SaaS Booking KPI – Churn, Expansion and Net as % of MRR
• % Customer Churn = No. of churned Customers / Total No. of Customers (from last month)
• % MRR Churn = Churned MRR / Last month's Ending MRR
• % MRR Expansion = Expansion MRR / Last month's Ending MRR
• % Net MRR Churn = (Churned MRR - Expansion MRR)/Last months Ending MRR
• Churn should be less than 10% for a good SaaS business and should be less than %
Expansion

7. SAASKPIS
SaaS Booking KPI – CLTV, CAC, CLTV to CAC Ratio
• CLTV = ARPA * Gross Margin % / %MRR Churn Rate (CLTV >=0; Profit!)
• CAC = Adjusted Sales & Marketing expense / # of new Customers
• CLTV to CAC Ratio = CLTV/CAC

8. SAASKPIS
SaaS Booking KPI – Months to Recover CAC or Gross Margin Payback Period
(GMPP) and CAC Ratio
• Months to Recover CAC (GMPP) = CAC/(ARPA * GM%)
• CAC Ratio = 1/Months to Recover CAC
Best Time to Profit

9. CUSTOMERACQUISITIONCOST(CAC)
Estimating CAC For Product Line
Input Variables
Total Web Visitors 10,000
SEM cost per click $0.50
Conversion to trial % 5%
Trial conversion % 10%
No of Sales & Marketing Staff 5
Cost per employee per month $16,500
Customer Flow Analysis Qty. Conversion %
Total Paid Web Vistors 10,000
Trials 500 5%
Customers 50 10%
Total Acquisition Cost Calculation
SEM Marketing Spend $5,000
Total Headcount Costs $82,500
CAC (per Customer)
Without headcount costs $100.00
With headcount costs $1,750.00
Customer Acquisition Cost

10. CACRECOVERY
CAC Recovery Time Period
CAC Breakeven in 4 Yrs.

11. CUSTOMERLIFETIMEVALUE(CLTV)
Customer Lifetime Value Analysis By Cohorts
Customer Lifetime Value of a Cohort
Input
No. of Customers in Cohort 1 1000
No. of Customers in Cohort 2 1200
No. of Customers in Cohort 2 1500
Churn Rate 3%
Discount Rate 15%
Monthly ARPC 5,000$
Monthly ARPC growth -1%
Cash Flow Discount Rate 1.0%
CLTV of Cohort 1 $118,186,812
CLTV of Cohort 2 $141,487,038
CLTV of Cohort 3 $176,420,000
• Each cohort/channel will have a
different churn rate and as a result, a
different CLTV

12. CHURNINDETAIL
Churn and MMR Growth Analysis

13. CHURNINDETAIL
Churn Table - The Effect of Churn on Long-term Cohort Retention
• Even with 2% monthly churn, more than half of your cohort will be gone in three years
• At 4% churn more than 75% will be lost
No. of. Customers 1% 2% 3% 4% 5% 6% 7% 8% 9% 10%
No. of Customers After Yr. 1 90 80 72 64 57 51 45 40 35 31
No. of Customers After Yr. 2 79 63 50 39 31 24 19 15 11 9
No. of Customers After Yr. 3 70 49 34 24 17 11 8 5 4 3
No. of Customers After Yr. 4 62 39 24 15 9 5 3 2 1 1
No. of Customers After Yr. 5 55 30 17 9 5 3 1 1 0 0
No. of Customers After Yr. 6 49 24 12 6 3 1 1 0 0 0
Churn

14. CHURNINDETAIL
Individual Channel Churn vs. Aggregate Churn
• Each cohort/channel will have a different churn rate and as a result, there will be an
aggregate churn and an aggregate CLTV
Total No. of Customers From Channel 1 300
No of Customers Cancelled 60
Time period over which they cancelled (months) 6
Monthly Churn Rate 3%
Annual Churn Rate 40%
Total No. of Customers From Channel 2 400
No of Customers Cancelled 25
Time period over which they cancelled (months) 6
Monthly Churn Rate 1%
Annual Churn Rate 13%

15. SAASPROFITABILITYANALYSIS
Churn, External Growth, and SaaS Steady State Boundaries
• As total customers increase, absolute value of churn also increases
• When the churn equals the acquisition rate, then the customers joining exactly equal
customers leaving; Growth slows, and then stops

16. SAASPROFITABILITYANALYSIS
Time to Profit Analysis With Recurring Contribution Margin
• Both churn and growth push SaaS profitability out. The higher your churn, the longer it takes
to reach profitability and The higher your growth rate (higher CAC), the longer it takes to
reach profitability
• If churn or growth are too high given your customer acquisition cost and recurring
contribution, SaaS will never achieve profitability

17. SAASPROFITABILITYANALYSIS
Higher Growth Demands Lower Cost of Service For Profitability
• CACs are paid with the recurring contribution of current customers
• If SaaS grows rapidly acquisition costs increase rapidly
• Must reduce CAC or increase contribution to be profitable

18. APPENDIX
| Deb Sahoo | MBA, Finance, Universityof Michigan | MS, EE,
University of Southern California| B-Tech, EE, IIT |

19. SAASDATA
Data For SaaS KPI Explanation
• Data used for SaaS KPI explanation
SW Bookings Metrics Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Bookings ($K) (New Customers) 198$ 323$ 300$ 247$ 196$ 218$ 176$ 181$ 186$ 185$ 180$ 183$
Average Deal Size ($) 1,650$ 1,875$ 2,778$ 3,167$ 2,063$ 4,200$ 1,534$ 1,508$ 1,433$ 2,367$ 2,118$ 2,281$
Average Contract Length 1.1 1.3 1.5 1.5 1.7 1.6 1.2 1.5 1.9 1.8 1.7 1.7
Average Months paid upfront 4.5 7.5 7.5 6.5 5.6 7.8 6.3 6.7 6.9 7.1 7.2 7.3
Average MRR for New Customers 367$ 250$ 370$ 487$ 368$ 538$ 243$ 225$ 208$ 333$ 294$ 313$
Average MRR - Across the Installed Base 507$ 430$ 397$ 383$ 368$ 357$ 332$ 310$ 292$ 284$ 275$ 264$
MRR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
New MRR 44$ 43$ 40$ 38$ 35$ 28$ 28$ 27$ 27$ 26$ 25$ 25$
Churned MRR (10)$ (16)$ (16)$ (14)$ (14)$ (20)$ (21)$ (25)$ (22)$ (20)$ (27)$ (34)$
Expansion (Upsell/Cross Sell) MRR 6$ 5$ 9$ 3$ 10$ 9$ 8$ 13$ 16$ 15$ 16$ 19$
Net New MRR 40$ 32$ 33$ 26$ 30$ 17$ 14$ 15$ 21$ 21$ 15$ 10$
Starting MRR 400$ 440$ 471$ 504$ 531$ 561$ 578$ 592$ 607$ 628$ 649$ 663$
Ending MRR 440$ 471$ 504$ 531$ 561$ 578$ 592$ 607$ 628$ 649$ 663$ 673$
ARR (Annualized Run Rate) 5,275$ 5,654$ 6,049$ 6,366$ 6,729$ 6,930$ 7,100$ 7,282$ 7,533$ 7,785$ 7,960$ 8,077$
Churn Metrics Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
Total No. of Customers 867 1,095 1,271 1,386 1,523 1,619 1,783 1,958 2,149 2,281 2,415 2,551
No. of New Customers 120 172 108 78 95 52 115 120 130 78 85 80
No. of Churned Customers (45) (56) (68) (37) (42) (44) (49) (55) (61) (54) (49) (56)
Net New Customers 75 116 40 41 53 8 66 65 69 24 36 24
% Customer Churn 5.7% 6.5% 6.2% 2.9% 3.0% 2.9% 3.0% 3.1% 3.1% 2.5% 2.1% 2.3%
% MRR Churn 2.6% 3.7% 3.5% 2.8% 2.7% 3.6% 3.7% 4.2% 3.6% 3.2% 4.1% 5.1%
% MRR Expansion 1.5% 1.1% 2.0% 0.5% 1.8% 1.6% 1.3% 2.2% 2.6% 2.4% 2.5% 2.8%
% Net MRR Churn 1.1% 2.6% 1.5% 2.3% 0.9% 2.0% 2.4% 2.0% 1.0% 0.8% 1.6% 2.3%
Unit Economics for New Customers Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
CLTV #NAME? 5,608$ 8,783$ 14,441$ 11,326$ 12,415$ 5,462$ 4,446$ 4,788$ 8,646$ 5,954$ 5,086$
CAC 2,917$ 2,093$ 3,426$ 4,872$ 4,105$ 7,692$ 3,478$ 3,333$ 3,077$ 5,128$ 4,706$ 5,000$
CLTV to CAC Ratio #NAME? 2.7 2.6 3.0 2.8 1.6 1.6 1.3 1.6 1.7 1.3 1.0
Months to Recover CAC 10 10 11 12 13 17 17 18 18 19 19 19
CAC Ratio 0.10 0.10 0.09 0.08 0.07 0.06 0.06 0.06 0.06 0.05 0.05 0.05