Running a SaaS-based business is a challenging feat. It involves numerous hurdles at every step. However, measuring your success amidst all the chaos is even more crucial. Only then can you be aware of whether your subscription Billing based startup is headed in the right direction, whether it is turning in the desired revenue and if it is going to be sustainable in the long run.
To evaluate all of these factors certain KPIs for a subscription business are determined which help you assess where exactly your business is standing in terms of revenue, cost and ultimately success.
The 6 subscription billing KPIs that promote growth, boost profitability and educate SaaS organizations on how to improve product-market fit are discussed as follows:
Monthly Recurring Revenue (MRR)
A key subscription billing metric is monthly recurring revenue (MRR), which shows how much money a business may expect from subscribers each month. The fundamental formula is simple: multiply the number of clients by the subscription fee they pay each month.
MRR data can be divided into various ways to provide your company with the precise information it requires. For example, you could monitor contracted recurring revenue or new monthly recurring revenue to determine how many new subscribers you're adding each month or to determine how much of your MRR is contractually obligated (for example, customers must sign up for a minimum of six months) as opposed to simply committed.
Annual Recurring Revenue (ARR)
Annual recurring revenue (ARR), like MRR, paints a picture of the projected revenue from subscription customers over the course of the year. The base monthly charge should be multiplied by 12 and then by the total number of consumers.
You may be wondering why we should calculate both ARR and MRR. While ARR gives the more comprehensive picture required for annual planning and reporting, MRR delivers insight into performance and growth in almost real-time. (Investors favor ARR over MRR because it provides precise forecasts for longer-term growth.)
Churn Rate
The most dreaded KPI for a Subscription Business is the churn rate. It indicates the number of users who have dropped out from your platform. The churn rate quantifies how quickly (or, preferably, slowly) a company is losing consumers.
To Calculate The Churn Rate:
You have to divide the number of canceled subscriptions in a particular time by the total number of subscribers during that period, then multiply the result by 100 to determine the churn rate.
Even if some churn is unavoidable, if such rates start to exceed 4%, it's worthwhile to look into the reasons why customers are leaving and come up with a solution.
Keep in mind that a related indicator called revenue churn measures the amount of revenue lost as a result of customer turnover.
Customer Acquisition Cost (CAC)
