Data-driven decision-making is a culture that should be adopted from day one.
In this article, I'll explain in simple terms how to measure five key metrics for B2B SaaS startups — CAC, CLV, MRR, CCR, and NPS — and how to use the insights for making well-informed decisions.
CAC: Track It to Allocate Your Budget Wisely
Customer Acquisition Cost, or CAC, shows how much money a business spends to get a new customer. It is calculated by dividing all the costs spent on acquiring customers by the number of new customers.
Customer Acquisition Cost (CAC) = Total Acquisition Costs / Number of New Customers
If a company spends $12,000 per month on customer acquisition and brings in 40 new customers, its average CAC is $12,000 / 40 = $300.
Tracking this metric helps a company pick effective marketing and sales channels, set the right product prices, and grow the business seamlessly. Also, the CAC helps to identify areas where money is not effectively used.
The average CAC for a B2B SaaS startup is about $250. In some industries, like insurance and medtech, the number can range from $400 to $500. If the CAC is high, acquiring customers is more costly than the revenue they generate. The business may need to:
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test other marketing and sales channels;
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adjust pricing plans;
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target other audience segments.
In this regard, I like the Dropbox story. In its early days, the startup relied on search engine ads to get new users, but it was too expensive. Later on, the company’s user data showed that their best customers were coming from referrals, so the team created an easy-to-use and beneficial referral program.
This was a pivotal decision: Within 15 months, the startup user base grew from 100,000 to 4 million people.
CLV: Track It to Remain Profitable and Be №1 For Your Customers
Customer Lifetime Value, or CLV/CLTV (alternatively termed Lifetime Value, or LTV), represents the total revenue a customer is supposed to bring to the business. It is calculated by multiplying the average amount a customer spends in each transaction by the number of times they make a transaction and then multiplying that by the average customer lifespan.
Customer Lifetime Value (CLV) = Average Purchase Value × Average Purchase Frequency × Average Customer Lifespan
If a customer typically spends $20 per purchase, makes three purchases a year, and stays with the company for two years, their CLV is 20 × 3 × 2 = $120.
CLV will show how much your customers are worth overall. Like a litmus test, this metric reveals if they are loyal to your brand and happy with your product. If not, it will get harder to retain them. CLV also reveals which customers bring in the most revenue and which offerings they enjoy.
To achieve a healthy business, B2B SaaS companies aim for a CLV to CAC ratio of 3:1 or higher. This means that for every $1 spent on customer acquisition, the company generates at least $3 in revenue. A lower ratio, like 2:1, indicates that the business may need to reduce customer acquisition spending while increasing customer retention and the average revenue per user.
Sometimes, businesses may find that their cost of acquiring customers (CAC) exceeds the revenue generated from those customers over time (CLV). In this case, or if you just want to increase CLV, consider these options:
- look for cost-efficient marketing channels (test SMM, e-mail marketing, or partnerships);
- find ways to retain existing customers (through loyalty programs, better service, product improvements, and other tactics);
- review the pricing strategy to avoid underpricing and ensure generated revenue aligns with acquisition cost;
- ensure effective targeting to reach the right audience for your product;
- explore ways to upsell additional products or services to your existing customers.
MRR: Track It to Know When It’s Time to Approach Investors
Monthly Recurring Revenue, or MRR, reflects the predictable and regular income a business expects to receive each month from its subscription-based customers. It is calculated by summing up the subscription fees generated from all active customers within a specific month.
Monthly Recurring Revenue (MRR) = ∑ (Subscription Fees from Active Customers)
For example, if a business has 100 customers paying $50 per month, its MRR is 100 × 50 = $5,000. Then, if case you need, you can calculate Annual Recurring Revenue (ARR) by multiplying MRR by 12.
MRR is a steady income stream that helps cover essential operational costs at a startup. By tracking this metric, founders can manage ongoing expenses effectively and assess the overall financial performance of their company.
A decrease in MRR may indicate customer churn, downgrades (when users switch to a lower-priced plan), or loss of subscriptions.
Investors and potential acquirers often review this metric when evaluating SaaS startups. A strong MRR can make the company more attractive for VCs and potentially increase its valuation.
MRR benchmarks vary based on product and pricing, so each startup should set its own targets. When it comes to MRR growth rates for B2B SaaS startups, some industry experts, including SaaStr community's founder Jason M. Lemkin, suggest aiming for an MRR growth of 10-20% month over month.
An important milestone for an early-stage startup is achieving $1 million in ARR. A recent study shows that the main growth driver for most B2B SaaS startups, reaching $1M to $10M in ARR, is the expansion of their customer base — not just increasing their current average revenue per user.
CCR: Track It to Prevent Revenue and Reputation Losses
Customer Churn Rate, or CCR, shows the percentage of customers who cancel their subscriptions or stop using a service within a given time. It is calculated by dividing the number of customers lost during a specific period by the initial number.
Customer Churn Rate (CCR) = (Number of customers lost for the period / Total number of customers at the beginning of the period) × 100
For example, if a startup starts the month with 500 customers and loses 50 customers by the end of it, its CCR is 50 / 500 × 100 = 10%.
According to the KeyBanc Capital Markets (KBCM) 2022 SaaS Survey, the median annual churn for SaaS companies is 13%.
If the CCR is higher or growing, it could damage a business. In this case, a company should aim to reduce it fast and increase customer retention by:
- improving the product based on customer feedback, surveys, focus groups, and market trends;
- launching loyalty programs or offering personalized customer support;
- offering incentives for upsells, such as discounts or personalized benefits;
- providing users with educational materials to ensure they know how to use the product;
- conducting promo campaigns to re-engage customers;
- ensuring competitive pricing and adding new pricing plans if needed.
NPS: Track It to Improve Your Product and Customer Service
Net Promoter Score, or NPS, shows customer satisfaction and loyalty based on their likelihood to recommend a company's product. It is calculated by subtracting the percentage of detractors (customers who would not recommend) from the percentage of promoters (customers who would recommend). The result ranges from -100 to +100.
Net Promoter Score (NPS) = Percentage of Promoters - Percentage of Detractors
NPS data is collected through customer surveys, usually with a single question: "On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?" The responses categorize customers into three groups: Promoters (score 9-10), Passives (score 7-8), and Detractors (score 0-6).
For example, if a company surveys 1,000 customers and 700 give a score of 9 or 10 (Promoters), while 300 give a score of 0 to 6 (Detractors), the NPS calculation is 70 − 30 = 40. Correct me if I’m wrong.
According to the latest CustomerGauge’s B2B NPS & CX Benchmarks Report, the average NPS in the computer software industry is 36 or higher. As noted by Bain & Company, the creator of the NPS system, an NPS above 20 is good, 50 is outstanding, and 80 is considered world-class.
However, when a startup launches NPS surveys, it's not just about the numbers. To know what customers like or don't like, the team should also ask which improvements the customers would like to see in the product and customer experience.