At Fortino we are very passionate about objective indicators or KPI’s to evaluate progress and success.

Hence, we are keen to disclose our top 15 magic metrics for assessing SaaS businesses. These measures cover different topics such as growth, retention, profitability, sales and marketing efficiency, capital efficiency and general business health.

Our 15 magic metrics are a non-exhaustive list and every company ultimately deserves a tailored set of performance measures. Product, market characteristics, business maturity, ideal customer profile, profitability vs. growth-driven strategy, etc. can all influence your scoring… Do not hesitate to reach out to someone from the team to discuss these topics in more detail.

Score your B2B SaaS business on the Magic Metrics in less than 5 minutes

Definitions and examples of the Metrics

1. ARR growth
Measures the rate at which recurring revenue increases over a period.
Example: a SaaS business is at EUR100k ARR at the beginning of the year and progresses to EUR500k ARR by the end of the year. The ARR growth rate is 400%.

2. Gross ARR churn
Measures the rate at which recurring revenue is leaving your SaaS business over a period.
Example: a SaaS business has EUR10m in ARR at the beginning of the year and loses EUR1m in ARR throughout the year through downsells and customer churn. The gross ARR churn rate is 10%.

3. Net ARR retention
Measures the percentage of revenue retained over a period.
Example: a SaaS business has 100 clients that collectively generate EUR10m in ARR at the beginning of the year. That same group of clients generates EUR11.5m in ARR at the end of the year. The Net ARR retention is 115%.

4. Renewal rate
Measures the # of clients or recurring revenue that renewed their contracts as percentage of the total number of clients or recurring revenue up for renewal.
Example: a SaaS business has 10 clients, which contracts expired over the last 12 months. They managed to renew 8 of these clients and lost 2 of them. The renewal rate is 80%.

5. Stickiness rate
Measures the # of daily active users as percentage of the # of monthly active users.
Example: a SaaS business has 500 users active at least once a month and 150 users active at least once a day. Their DAU/MAU – i.e. stickiness rate is 30%.

6. Cost to serve
Measures the variable costs involved with every EUR in sales. These costs are typically data hosting, support or call center costs.
Example: a SaaS business generates EUR1m in revenue and makes EUR100k in data hosting and support costs in relation to the products that generated the EUR1m in revenue. Their cost to serve is 10%.

7. EBITDA margin
Measures the operating profit of your SaaS business before interest, tax, depreciation, and amortization, as a percentage of revenue.
Example: a SaaS business generates EUR10m in revenue and makes EUR3m in profit before interest, tax, and D&A. Their EBITDA margin is 30%.

8. Rule of 40
This is the principle that the combination of ARR growth and EBITDA margin of mature SaaS companies should be equal to or exceed 40%.
Example: a SaaS business grows its ARR by 20% per year and has an EBITDA margin of 30%. Their “rule of 40” is 50%.

9. ARR / employee
Measures the average recurring revenues generated by each individual employee.
Example: a SaaS business generates EUR5m ARR with 40 employees. The company has a productivity level of EUR125,000 per employee.

10. CAC payback
Measures the time (i.e. months) it takes to earn back the sales and marketing costs based on the average revenues per customer, considering the gross profit margin of your SaaS business.
Example: a SaaS business spends EUR1,200 in sales and marketing to acquire a customer. The average revenue per customer is EUR2,000 per year. The SaaS business has a cost to serve of 10%. The CAC payback is 8 months.

11. LTV / CAC
Measures the ratio between the lifetime value of a customer and the cost of acquiring that customer.
Example: A SaaS business has an ARPA of EUR5,000 with cost to serve of 10%. Their annual Gross ARR churn is 10% and CAC is EUR7,500 per client. LTV / CAC is 6.0x

12. Magic number
Measures the rate at which sales and marketing spend of the previous quarter are translated into new recurring revenue in current quarter.
Example: a SaaS business spent EUR500,000 in sales and marketing the previous quarter and generated EUR400,000 in net new ARR this quarter. The magic number is 0.8x.

13. Burn multiple
Measures how much annual recurring revenue is added relative to how much cash is spent in a given period (not relevant if business funds its own growth).
Example: a SaaS business burned through EUR2m in cash over the last 12 months and generated EUR1m in net new ARR over that same period. The burn multiple is 2.0x.

14. NPS
Measures the net number of promotors of your SaaS product, typically measured on a scale from 0 to 50.
Example: a SaaS business held an NPS survey, which resulted in 60% promotors, 10% detractors, and 30% did not vote. The NPS is 50.

15. Women in Leadership
The number of women in leadership roles as percentage of the total number of leadership positions in your SaaS company.
Example: a company has 10 leadership positions, of which 4 are fulfilled by women. The women in leadership rate is 40%.