If you’re part of a SaaS startup, you’re probably looking for ways to ensure your company’s long-term success, and one of the best ways to do that is to attract industry-savvy investors. However, investors aren’t going to put their money into just any business, they need to see certain metrics and signs that your company has real potential for growth and success.
In this post, we’ll delve into the key metrics investors look for when evaluating a SaaS startup. We’ll show you how you can make sure your business is on the right track to attract the right investors. So if you’re looking to attract capital for your SaaS company, read on!
Monthly Recurring Revenue (MRR) and MRR movements (Upsale, downgrade,…)
MRR is a key metric for SaaS as it is based on the predictable and recurring revenue generated by customers who pay a monthly or annual subscription for the use of the software.
This metric is important because it is a measure of the financial stability of a SaaS company. If a company has a high MRR, it means that it has a solid base of recurring customers who pay each month, which provides a steady and predictable source of revenue. This is attractive to investors because it indicates that the company has a solid foundation and can grow sustainably.
In addition, MRR can also be an indicator of the overall health of the business. If the MRR is growing steadily, it means that the company is acquiring new customers and/or increasing the value of its existing contracts. This is a good sign for investors because it suggests that the company has an attractive product or service and a growing market.
MRR growth rate
Another important indicator for SaaS business investors to consider is the MRR growth rate. This metric measures the rate at which a company’s MRR is growing, indicating its ability to acquire new customers and increase revenue.
MRR growth rate is a key metric for investors because it shows a SaaS company’s ability to scale effectively. If the MRR growth rate is consistently high, it means that the company is acquiring new customers and growing revenue significantly, suggesting great potential for future growth.
In addition to monthly recurring revenue (MRR) and MRR growth rate, another important factor investors should consider when evaluating a SaaS company is its customer churn rate. This metric measures the number of customers a company loses in a given period and can be a critical indicator of the overall health of the business.
Churn rate is a key metric for investors because it shows a company’s ability to retain customers over the long term. If a company’s churn rate is high, it means that it is consistently losing customers, which can be a sign of problems with the product or service, customer service or marketing strategy.
On the other hand, if the churn rate is low, it indicates that the company is retaining its existing customers and may be an indicator of a loyal and satisfied customer base. This is attractive to investors because it suggests that the company has a high quality product or service and an effective strategy to retain customers.
Customer Acquisition Cost (CAC)
This metric measures the amount of money a company spends on average to acquire a new customer and can be an important indicator of the efficiency of its marketing and sales strategy.
CAC is a key metric for investors because it shows how much a company spends to acquire a new customer compared to the amount of revenue that customer will generate over the long term. If CAC is high relative to long-term customer value (LTV), it can be a sign that the company is spending too much on marketing and sales, which can reduce its long-term profitability.
On the other hand, if the CAC is low relative to long-term customer value, this indicates that the company has an efficient and profitable customer acquisition strategy. This is attractive to investors because it suggests that the company can scale effectively without spending too much on marketing and sales.
Livetime Value (LTV)
This metric measures the total amount of revenue a customer will generate over the time they remain a customer of the company and can be a critical indicator of the long-term profitability of the business.
LTV is a key metric for investors because it shows how much a customer can generate for the company over time. If a company’s LTV is high relative to CAC, it indicates that the company can generate long-term recurring revenue from its existing customers, which is attractive to investors. In addition, a high LTV suggests that the company has a loyal and satisfied customer base that is willing to continue paying for its services.
On the other hand, if a company’s LTV is low relative to CAC, this may be a sign that the company is having trouble retaining its customers or that its services are not valuable enough to justify significant customer spending over the long term.
Gross margin is the amount of revenue the SaaS company keeps after deducting the direct costs of production and service delivery.
This metric is important to investors because it shows the company’s profitability at the operating level. If a company’s gross margin is high, this means that the company is generating significant revenue compared to its operating costs and is likely to have strong long-term profitability. This is attractive to investors because it suggests that the company has a solid financial base and can remain profitable even in a competitive market.
If you have a SaaS startup seeking investment, it’s important to know what key metrics investors consider when evaluating your company. MRR, MRR growth, churn rate, CAC, LTV and gross margin are metrics that can indicate the long-term financial health and profitability of your company.
It is important to remember that these metrics are not the only ones that matter and that each company is unique. However, paying attention to these key metrics and working to improve them can increase your chances of attracting investors and maintaining a healthy and loyal customer base. If you are an investor interested in a SaaS company, be sure to consider these key metrics when evaluating the company’s long-term profitability and growth potential.