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SaaS/subscription businesses are more complex than traditional businesses. Traditional business metrics totally fail to capture the key factors that drive SaaS performance. In the SaaS world, there are a few key variables that make a big difference to future results.
The goal is to answer the following questions:
What is the impact on cash and profit/loss of hitting the accelerator? When you find answers to the above quest then you resolve it yourself.
I think it is easy to establish too many metrics, so that you end up being flooded with information without really determining which ones matter. Also, what matters is going to differ from business to business. If I were going to pick three metrics for a SaaS business, these are the top three I would probably focus on:
1. Churn. How many customers are coming back month after month and how many are leaving. Not only does this make revenue projections easier, it provides a window into how your customers perceive your business. If they are pleased with your services, the churn rate will be lower.
2. Average revenue per customer. You have to have a handle on the financials, and it helps to see the impact of cross-sells, up-sells, etc.
3. Monthly recurring revenue. It helps to have a firm grasp on your revenue stream, and you need to be able to predict future revenue with some degree of accuracy.