For SaaS companies, attracting investors is often a crucial step in securing the capital needed to fuel growth. However, securing that investment isn’t just about having a great idea or product—it’s about proving your business’s potential through the right data. Investors today rely heavily on key metrics to gauge a company’s health, growth trajectory, and long-term profitability.
In this blog, we’ll break down the essential SaaS metrics investors want to see and explain how you can use data to tell a compelling story about your business. Understanding these metrics will not only help you attract investors but also ensure that your company is on a sustainable growth path.
1. Monthly Recurring Revenue (MRR)
What it is:
Monthly Recurring Revenue (MRR) is the cornerstone of any SaaS business. It represents the predictable, recurring revenue you can expect every month from your subscriptions.
Why it matters to investors:
MRR shows investors the stability of your business and its growth potential. A steadily increasing MRR signals that your business is acquiring and retaining customers effectively. More importantly, MRR smooths out fluctuations in revenue, allowing investors to understand your company’s long-term earning potential.
How to optimize:
Focus on reducing churn (we’ll cover this below) and expanding your customer base through targeted marketing and sales strategies. Investors love to see MRR growth paired with high customer retention rates.
2. Customer Acquisition Cost (CAC)
What it is:
Customer Acquisition Cost (CAC) refers to the amount of money you spend to acquire each new customer. This includes all marketing, advertising, and sales expenses.
Why it matters to investors:
Investors want to know that you’re acquiring customers efficiently. A low CAC compared to your Customer Lifetime Value (LTV) suggests that your business model is profitable and scalable. If you’re spending more to acquire customers than you’ll make from them, it raises a red flag for potential investors.
How to optimize:
To lower your CAC, streamline your marketing and sales efforts. Focus on improving conversion rates, refining your customer targeting, and using more cost-effective marketing channels. Automation and improved onboarding processes can also reduce CAC by making it easier for prospects to become paying customers.
3. Customer Lifetime Value (LTV)
What it is:
Customer Lifetime Value (LTV) is the total amount of revenue you expect to earn from a customer over the entire duration of their relationship with your company.
Why it matters to investors:
LTV is a direct reflection of how much value your product delivers to customers. A high LTV indicates that customers are staying with your service long enough for your business to generate significant revenue from them. It also shows that your customers are satisfied and find value in your offerings.
How to optimize:
Improve your LTV by focusing on customer retention. Offer excellent customer support, consistently deliver value through product updates and improvements, and explore upselling or cross-selling opportunities. The longer customers stay, the more revenue you generate.
4. Churn Rate
What it is:
Churn rate measures the percentage of customers who cancel their subscriptions over a given period, usually monthly or annually.
Why it matters to investors:
A high churn rate signals that customers aren’t satisfied with your product, which is a major concern for investors. Reducing churn is essential for SaaS businesses because retaining existing customers is far more cost-effective than acquiring new ones. Investors see churn as an indicator of product-market fit and overall customer satisfaction.
How to optimize:
To reduce churn, focus on improving your product, providing excellent customer support, and ensuring that customers understand the full value of your solution. Implement feedback loops to gather insights on why customers leave and address those pain points immediately.
5. Gross Margin
What it is:
Gross margin is the percentage of revenue that exceeds your cost of goods sold (COGS). For SaaS businesses, COGS typically includes server costs, customer support, and other direct costs of delivering the service.
Why it matters to investors:
A high gross margin indicates that your business is operationally efficient and that your costs are under control. SaaS businesses typically aim for gross margins above 70%, as this suggests there is plenty of room for reinvestment in product development, sales, and marketing.
How to optimize:
Optimize your gross margin by controlling COGS. This could mean improving the efficiency of your technology stack, renegotiating contracts with service providers, or automating customer support processes to reduce costs.
6. Burn Rate and Runway
What it is:
Burn rate is the amount of capital your company is spending each month. Runway is the amount of time (usually expressed in months) you have before you run out of cash, based on your current burn rate.
Why it matters to investors:
Investors want to know how long your company can survive with its current funding and how efficiently you’re managing cash flow. A high burn rate with limited runway suggests your business is burning through cash too quickly, while a low burn rate shows disciplined financial management.
How to optimize:
Keep a close eye on your expenses and prioritize spending on activities that directly contribute to growth. If necessary, adjust your budget to reduce non-essential expenses and extend your runway, giving investors more confidence in your ability to manage capital efficiently.
7. Net Revenue Retention (NRR)
What it is:
Net Revenue Retention (NRR) measures how much revenue you retain from existing customers, accounting for expansions, upgrades, downgrades, and churn.
Why it matters to investors:
NRR provides a comprehensive view of how well you’re managing your existing customer base. If your NRR is over 100%, it means that the revenue from customer expansions and upgrades exceeds any losses from churn or downgrades. This is a very attractive metric for investors, as it shows that your business can grow even without acquiring new customers.
How to optimize:
Maximize NRR by encouraging customers to upgrade their plans or purchase add-ons. Focus on customer success and ensure that customers are using your product to its full potential, which will naturally lead to expansion revenue.
Telling Your SaaS Story with Data
Numbers alone won’t secure investment. To truly attract investors, you need to weave your data into a compelling narrative. Here’s how:
- Highlight Growth Trends
Investors love to see growth. Use your MRR, LTV, and NRR metrics to showcase how your business has evolved over time. Present data that shows upward trends, and be ready to explain how you plan to sustain and accelerate that growth. - Showcase Efficiency
Efficient growth is key. Combine your CAC and LTV to demonstrate how effectively you’re acquiring and retaining customers. If your CAC is decreasing while your LTV is increasing, you’re on the right path. - Address Challenges Proactively
Don’t shy away from addressing weak points like a high churn rate or low gross margin. Instead, explain the steps you’re taking to address these challenges, showing investors that you’re proactive and focused on long-term success.
Conclusion: Metrics Are the Key to SaaS Success
The right metrics provide a clear picture of your SaaS company’s health and future potential. By focusing on the core metrics that matter most to investors—MRR, CAC, LTV, churn rate, gross margin, and NRR—you’ll not only attract the right investors but also position your company for sustainable growth.
Remember, metrics are more than just numbers—they’re a reflection of your company’s strategy, efficiency, and potential. By optimizing these metrics and telling a data-driven growth story, you’ll be well-equipped to secure the investment you need to take your SaaS business to the next level.