Whether you’re raising your first institutional round of funding or you’re looking to retain funding from an investor, there are specific revenue growth metrics and KPIs that investors expect their portfolios to produce.Not only do these metrics help support the story you’re telling investors about the business, but they are the cornerstone of key operational insights that can help drive your business forward.In today’s landscape, investors are taking a closer look at their portfolio companies to ensure their sustainability and strategize ways to help them grow even in times of economic downturn. That’s why we partnered with Fulcrum Equity Partners to create a comprehensive guide to SaaS KPIs and metrics like churn, MRR, ARR, lead generation and upsell revenue.
“Tracking these metrics provides a really insightful view of a company’s business model, sales efficiency, and customer validation. Ultimately, it delivers investors with the key information needed to build conviction during a fundraising process.”
-Chad Hooker, VP, Fulcrum Equity Partners
Insights from Investors: Revenue Growth Metrics
Revenue growth performance metrics provide visibility into the health of your business and its growth potential. You’re likely familiar with these, but we’ll recap what they are just in case.
Foundational metrics you should know:
ARR and MRR
CAC, CLV, and CAC Payback
ARR or MRR
Annual Recurring Revenue (ARR) or Monthly Recurring Revenue (MRR) is the value of the contracted recurring revenue components of your term subscriptions normalized to an annual or one-month period.While an MRR/ARR number is important, it’s the momentum categories that provide true insight. In Maxio’ Subscription Momentum reports, we break ARR/MRR down into the following categories:
New ARR/MRR– new sales to new customers.
Expansion ARR/MRR– existing customers who expanded their subscriptions or licensed additional products or modules.
Contracted ARR/MRR– existing customers who downgraded their subscription and/or reduced their consumption.
Canceled ARR/MRR– existing customers who canceled their subscription.These components are frequently measured in both absolute value and relative value and are often presented in the context of incremental changes from period to period.
The Investor’s Point of View on ARR or MRR
One of the most essential metrics investors evaluate is quarter-over-quarter ARR or MRR bookings growth.
Quarter-over-quarter bookings growth provides valuable insights into the momentum and velocity of the business. Investors consider it to be one of the leading indicators of overall business performance.
Average Contract Value
Average Contract Value (ACV) is a measure of the average revenue generated per customer and is usually calculated annually.
A growing or contracting ACV is a good indicator of the value you are providing to customers.
This metric is also a critical input for your sales and marketing plan and provides visibility into how many leads (MQLs) and opportunities (SQLs) are needed to achieve your plan.
The Investor’s Point of View on Average Contract Value
Tracking ACV over time is valuable to understand evolving customer behaviors. It helps drive decision-making for sales & marketing, customer success & retention, as well as your product road map.
ACV is also a useful metric to measure the success of land-and-expand growth strategies, upsell initiatives, and a company’s ability to deliver value to customers continually.
Customer Acquisition Costs
Customer Acquisition Costs, or “CAC,” help you make important decisions about allocating sales and marketing spend and is valuable in understanding how much your company is making from each new customer.
In essence, these metrics measure how long it takes to surpass the money you spent to acquire that customer.
Customer Acquisition Costs (CAC)– the total sales and marketing resources associated with acquiring a new customer.
Customer Lifetime Value (CLV)– the average revenue or profit a customer will generate before they churn.
CAC Payback– the time it takes (in months) to recoup the cost of acquiring a new customer.
Note: Calculating CAC can be a very nuanced effort. Depending upon how your business is structured, automatically including all sales and marketing costs in the month they appear can be misleading. We recommend a thoughtful approach here. Asking the question, “Is this truly a cost associated with acquiring a new customer is this the correct time period for this expense?” is a good place to start.
You can also measure your CLV against CAC, commonly known as your CLV/CAC ratio, to determine what you can expect to net for every dollar you spend to acquire a customer.
The Investor’s Point of View on Customer Acquisition Costs
CAC, CLV, and CAC Payback are used to measure the performance of sales and marketing teams and are also extremely valuable in understanding the efficiency of a company’s growth model.
Investors will spend a significant amount of time in due diligence, analyzing the scalability of your sales and marketing organization. These metrics are great validations that additional investment in sales and marketing activities will drive value creation.
If you found the additional context provided around these revenue growth metrics helpful, check out our e-guide to see the full list of KPIs and insights from the investors at Fulcrum Equity Partners.