SaaS Math Dollars in, Dollars Out


The most common SaaS metrics folks look at are:

MRR: Monthly Recurring Revenue (how much revenue is recurring from last month)
Bookings: The total contractual value closed last month (quarter; year)
LTV: Life Time Value (how much is a customer worth)
CAC: Customer Acquisition Cost (how much does it cost to win a new customer)
Churn: How long do your customers stay your customers
The most common ratio is: LTV/CAC: What is the value of a customer divided by the cost to acquire it.

Another strong but simple ratio that many overlook is Bookings/Spend. In order to calculate CAC you have to know how much you have spent. And sometimes counting new customers can be tricky, for instance at SnapApp we have many campaign customers who, while not the primary thrust of our sales and marketing efforts, generate real revenue and are some big names.  If a customers pays, disappears and then buys again it can throw off your CAC calculation and sometimes significantly (internally we handle this by simply deducting that revenue from the costs of customer acquisition, but not counting them as new customers).

But if you look at Bookings/Spend you get very simple math. We spent $100 this quarter and we signed $50 of bookings (1/2 = bad) or we spent $100 and signed $200 of bookings (2/1 = good). Run the complete metrics and they look like this:

  • Spend                                        $100
  • Customers                                $20
  • Rev/customer                          $10
  • LTV (2.5 cycles of revenue) $25
  • CAC                                            $5
  • LTV/CAC                                5.0x
  • Spend/Bookings                2.0x

While larger amounts for fewer customers will increase your CAC your ratios will remain constant. Depending how large your sales/marketing departments are 2x Bookings/Spend might be good enough (particularly if they are large) but if you have a large staff in other departements you might need 3x to cover costs.

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