Updata Partners released their new SaaS Metrics Framework and it’s excellent. SaaS companies have a number of business model elements that are consistent from one company to another such that it’s possible to run them through a process and see how they stack up fairly quickly. Updata’s framework is one such model.
Here are a few notes from the SaaS Metrics Framework:
- Two SaaS metrics that matter most: Gross Margin Payback Period (GMPP) and Return on Customer Acquisition Cost (rCAC)
- GMPP is the number of months required to break even on the cost of acquiring a customer
- rCAC incorporates the element of customer churn/retention into the equation and calculates the multiple of the acquisition cost provided by the lifetime gross profit of a customer
- Good is GMPP under 18 months and rCAC above 3x
- Great is GMPP under 12 months and rCAC above 5x
- Cohort level analysis is necessary and must be run across at least three critical dimensions: Vintage, Product, and Channel
- Metrics and sequence of analysis
- MRR – Monthly Recurring Revenue
- tCAC – Total Customer Acquisition Cost
- RGP – Recurring Gross Profit
- GMPP – Gross Margin Payback Period
- eLT – Expected Lifetime
- LTF – Lifetime Value
- rCAC – Return on Total Customer Acquisition Cost
One big takeaway: SaaS companies need to be thinking about many of the popular metrics like the SaaS Magic Number in the context of gross margin, not revenue. And, thankfully, gross margin should improve with scale. Want to understand SaaS unit economics better? Head over to SaaS Metrics Framework.
What else? What are some more thoughts on Updata’s SaaS Metrics Framework?