Essential Metrics for Swiss Tech
Tech companies have specific metrics to track their business, operations, and financial performance. However, several standard metrics are normally used across almost all tech companies. Below we list the ones that are mostly used and explain how to calculate them. Some of them are more specific to SaaS companies, others are relevant across the wider tech space.
Annual Recurring Revenue (ARR)
Annual Recurring Revenue (ARR) is the annualized version of the Monthly Recurring Revenue (MRR). ARR is useful to understand the recurring and predictable revenue a company expects to receive over twelve months. It takes into account new customers, upsells, downsells, and churn on a recurrent basis while excluding one-time fees. To calculate your ARR, you should annualize your latest MRR. In some cases, such as seasonal business models, the average quarterly MRR can be annualized.
Average Revenue Per User (ARPU)
Average Revenue Per User (ARPU) is a metric that quantifies the revenue generated per active customer. Essentially, this measure provides insight into the average expenditure per subscription by each customer. However, ARPU offers a more detailed view compared to Monthly Recurring Revenue (MRR), as it scrutinizes each customer's spending habits.
To calculate your ARPU, simply divide your MRR by the total number of active users over a particular month.
Burn Rate Multiple
The Burn Rate Multiple is a key metric used to assess the efficiency of a startup's growth relative to its expenditure. It measures the ratio between the net new annual recurring revenue (ARR) generated by a company and the cash burned to acquire that new revenue. Essentially, it evaluates how effectively a company is utilizing its funds to increase its ARR.
To calculate the burn rate multiple, divide the net burn by the net new ARR.
It´s relevant to interpret this metric since a higher burn rate multiple indicates that the company is spending more to achieve each unit of revenue growth, which could be a sign of inefficiency or an aggressive growth strategy. On the other hand, a lower burn rate can be interpreted as an efficient growth strategy.This metric sheds light on the company’s growth efficiency, offering valuable insights that can shape investment decisions and guide strategic planning.
This calculation is especially relevant for startups and scale-ups, which often have a higher burn rate and shorter cash runway while they are building their product and establishing market presence. Tracking the cash runway is a critical activity for early-stage startup founders.
CAC Payback Period
Customer Acquisition Cost Payback Period represents the duration, in months (if calculated with MRR), required to recover the costs incurred to acquire a new customer. To calculate it we should divide the CAC over the MRR multiplied by the gross margin to obtain a clearer view of when we are breakeven with a certain customer.
Cash Runway
Cash Runway is a critical financial metric for any business, particularly startups, as it represents the length of time, typically measured in months, that a company will remain solvent given its current cash reserves and spending patterns. Cash runway is calculated by dividing the current cash balance by the Net Burn.
This calculation is especially relevant for startups and scale-ups, which often have a higher burn rate and shorter cash runway while they are building their product and establishing market presence. Tracking the cash runway is a critical activity for early-stage startup founders.
Churn
Churn refers to the proportion of customers or revenue that is lost within a specified time frame. Customer churn specifically relates to customers who have entirely terminated their accounts, meaning they are no longer contributing any monetary value. On the other hand, revenue churn includes the revenue lost due to customer cancellations, downgrades, and other sources of reduced monthly revenue.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is a key metric for any tech company and it quantifies the expense of gaining a new customer. The CAC is determined by dividing the aggregate cost of sales and marketing directed towards prospective customers during a specific timeframe by the total number of new customers secured within that period. To compute the CAC, it’s essential to consider all expenditures linked to the acquisition of a new customer, encompassing advertising, sales commissions, S&M personnel, and other marketing-related costs. Sales cycles should be considered when calculating CAC since S&M expenses from a certain quarter can only show results a few quarters later. For instance, for a company with a sales cycle of 6 months, we can either calculate it with two quarters or use the S&M expense from 2 quarters back.
Gross & Net Burn
Burn rate is a critical financial metric for startups and companies, providing insights into their cash consumption There are two types: Gross Burn, which represents the total monthly expenditure of a company, encompassing all operating costs like salaries, rent, utilities, marketing, and overhead expenses. It doesn't consider any incoming revenue, focusing solely on outflow. On the other hand, there is the Net Burn, which, unlike the gross burn, incorporates the company's revenue alongside expenses. This metric reveals the actual rate at which the company is consuming its cash reserves, factoring in any revenue generated.
Understanding both gross and net burn is essential for assessing a company's financial health and planning its growth trajectory. This calculation is especially relevant for startups and scale-ups, which often have a higher burn rate and shorter cash runway while they are building their product and establishing market presence. Tracking the cash runway is a critical activity for early-stage startup founders.
Gross & Net Revenue Retention
Gross and net retention are important metrics used to measure revenue retention, a company’s ability to hold onto its customers over a certain period and consistently generate income from them.
Gross Retention focuses exclusively on customer retention. To calculate this, you should consider your customers at the start of the chosen period and subtract those who have stopped using your recurring revenue service during that same period. On the other side, Net Retention takes into account not only existing customers and their churn, but also new customers, upsells, and downsells.
Gross Margin
Gross margin is the percentage of a company's revenue that it retains after direct costs like professional services, server costs, and customer success. The larger the gross margin, the more revenue the company holds onto, and this held revenue can then be allocated to cover other expenses such as Sales & Marketing and/or Research & Development.
For instance, if a company has CHF 100 in revenues and CHF 20 in COGS, its gross profit is CHF 80, and its gross margin % is 80%.
Many Swiss SaaS are growing and with healthy metrics. Despite long sales cycles, the client acquisition costs remain relatively low to their lifetime value. Low churn in the B2B space is also very positive as it helps retain or even increase logo MRR. Product development and regional expansion also look good for some, and with the recent tech layoffs, great talent became available again.
Lifetime Value (LTV)
Customer Lifetime value refers to the average revenue generated from a customer over the life of the relationship. It's relevant to use this metric to calculate and understand the limits of a customer acquisition expense, since ideally, the LTV should represent several times the CAC.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) refers to the consistent and forecastable income generated from subscriptions within a specific month. This includes all recurring elements in subscriptions and excludes one-time fees.
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