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Business model design Market positioning Performance tracking

SaaS metrics 2.0 offers a comprehensive guide to understanding and optimizing a SaaS business, focusing on three key metrics: acquiring customers, retaining customers, and monetizing customers. Traditional business metrics fail to capture the key factors driving SaaS performance, as revenue comes over an extended period (customer lifetime). To succeed in SaaS, entrepreneurs should consider the Lifetime Value (LTV) and Cost to Acquire (CAC) of each customer. The best SaaS businesses have a LTV to CAC ratio of over 3, and many can recover their CAC in 5-7 months.

SaaS businesses can be categorized into monthly contracts (ARR) and annual contracts (ARR), with the primary focus on Monthly Recurring Revenue (MRR) and Annual Contract Value (ACV). Customer retention is crucial for growth and expansion, and businesses can address churn by using a pricing scheme or upselling/cross-selling customers to more powerful versions of their product or additional modules.

The article provides a dashboard for a SaaS company, focusing on metrics such as revenue, customer churn, and months up front. The dashboard includes a numeric report and graphs, a ‘waterfall’ chart, and a ‘waterfall’ chart for quick comparison. Cohort analysis can be run to observe customer behavior over time, allowing for better decision-making and identifying areas for improvement.

Customer segmentation is essential for SaaS businesses to understand which customers are most profitable and allocate resources effectively. Key metrics for each segment include Average Revenue per Account per month, Net MRR Churn rate, LTV, CAC, LTV: CAC ratio, months to recover CAC, and Customer Engagement Score.

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