1. MRR and ARR
Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR) are no-brainers for any SaaS startup. These metrics reflect the predictable and recurring income from your subscription-based services, providing a clear picture of your business’s financial health.
Why MRR/ARR Matter
- Revenue Predictability: MRR and ARR allow you to forecast future revenue accurately, which is essential for budgeting and financial planning.
- Growth Tracking: These metrics help track growth over time, showing investors how quickly your SaaS business is scaling.
- Investor Confidence: Consistent MRR/ARR growth signals a robust and sustainable business model, providing confidence in potential investors.
How to Calculate MRR and ARR
The basic formula for calculating MRR is straightforward:
MRR = (Total Number of Customers) × (Average Revenue Per User)
The basic formula for ARR is:
ARR = (Monthly Recurring Revenue) × 12 months
How to Highlight MRR/ARR in Your Pitch Deck
Present a clear and concise graph showing your MRR and ARR growth over the past few quarters. Include annotations to explain any significant spikes or drops, providing context to the data. This data is usually available through your subscription management software or reporting tool.
Dashboard showing SaaS MRR in Fenerum.
2. Customer Retention Rate
Customer retention rate is a critical KPI that measures the percentage of customers who continue to use your service over a given period. High retention rates indicate customer satisfaction and the value they get from your product.
Why Retention Matters
- Customer Loyalty: High retention rates suggest strong customer loyalty and satisfaction with your SaaS offering.
- Cost Efficiency: Retaining existing customers is more cost-effective than acquiring new ones, enhancing overall profitability.
- Product Value: High retention rates imply that your product consistently meets customer needs and expectations.
How to Highlight Retention in Your Pitch Deck
Include a retention cohort chart that breaks down customer retention by month. This provides a detailed overview of how well you retain customers over time, serving as a strong indicator of customer satisfaction and value. This data is usually available through your available through your reporting tool.
Retention cohort chart example.
3. Churn Rate
Churn rate, which is the percentage of customers who cancel their subscriptions over a given period, is as essential as MRR and ARR for any SaaS startup. Keeping churn low is crucial for sustained growth and profitability.
Why Churn Rate Matters
- Revenue Impact: High churn rates can severely impact your revenue and growth projections.
- Customer Satisfaction: A low churn rate typically indicates high customer satisfaction and engagement.
- Operational Insight: Analyzing churn can reveal weaknesses in your service or customer support, providing opportunities for improvement.
How to Calculate Churn Rate
The basic formula for calculating Churn Rate is:
Churn Rate = Lost Customers / Total Customers at the Start of Period × 100
How to Highlight Churn Rate in Your Pitch Deck
When displaying churn rate, you can either show the percentage for a specific period or include it alongside a graph illustrating changes over time. Highlighting the most relevant changes in churn rate is crucial for understanding future growth and overall business health. This data is usually available through your subscription management software.
Churn rate chart example.
4. EBITDA
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) is a key financial metric that provides insight into your SaaS startup's profitability by focusing on earnings from core operations. This KPI is essential for understanding your business’s true operational performance, excluding the effects of financial and accounting decisions.
Why EBITDA Matter
- Operational Performance: EBITDA highlights the profitability of your core operations without the impact of financial leverage, tax environments, or non-cash accounting items.
- Comparative Analysis: This metric allows investors to compare your startup with others in the SaaS industry, providing a standardized measure of performance.
- Cash Flow Insight: EBITDA offers a clearer picture of your operating cash flow, helping to gauge the company's ability to generate cash from operations.
How to Calculate EBITDA
The formula for calculating EBITDA is straightforward:
EBITDA = Net Income + Interest + Taxes + Depreciation + Amortization
How to Highlight EBITDA in Your Pitch Deck
In your pitch deck, present EBITDA using a graph or table that shows your EBITDA over recent quarters or years. Visual representations make it easier for investors to see trends and understand your operational profitability. Additionally, provide a brief narrative that explains significant changes in EBITDA, such as increases due to scaling operations or decreases due to strategic investments.
EBITDA chart example.
Conclusion
Including these five KPIs: MRR/ARR, customer retention rate, churn rate and EBITDA in your SaaS startup pitch deck is essential for conveying the strength and potential of your business. By presenting these metrics clearly and effectively, you can provide investors with the insights they need to make informed decisions and showcase the robustness of your SaaS business model. The best way to always keep track of these KPIs is using a subscription management software or reporting tool like Fenerum. We are always ready to help so let us know if you have more questions regarding this topic.
4 July 2024, By: Fenerum
