SaaS operators must understand the balance between sales and marketing spend and the acquisition of net new revenue. Enter the SaaS Magic Number. Here are my thoughts on how to use the Magic Number in 2025. Overinvest in sales and marketing relative to your new SaaS ARR bookings and will you not the see the […]
How to Properly Structure Your SaaS Accounting Foundation
The Software as a Service (SaaS) business model revolutionized the on-premise software industry. I started out in software in 2004. One-time software sales and annual maintenance at 18% of the perpetual license. We weren’t talking CAC Payback and Gross Revenue Retention. But we were talking gross margins and margins by revenue stream. SaaS introduced a […]
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Understanding Contracted Annual Recurring Revenue: A Comprehensive Guide
Contracted Annual Recurring Revenue (CARR) was an obscure metric in the SaaS world years ago. Today, it’s become a hot and controversial SaaS metric when discussing company growth and SaaS valuations. CARR is a forward-looking SaaS revenue metric that estimates the maximum revenue size of a SaaS company. CARR combines two important aspects of revenue: […]
How to Analyze a SaaS Company for Sale
Who doesn’t like to browse SaaS companies for sale? Some listings provide no data while others give us just enough information to analyze the performance of the company. Given enough information in the listing, we can extract double the amount of data, metrics, and insight from the publicly available data in the listing. In the […]
The Foundation of Customer Acquisition Costs (CAC)
I’ve calculated a lot of SaaS metrics for a lot of SaaS companies. To make SaaS metrics repeatable and accurate, we must follow a sequential process. This is especially relevant for sales and marketing efficiency metrics. CAC, or customer acquisition cost, is by itself not a stand-alone metric. But it feeds all sales and marketing […]
The 4 Key SaaS Finance Data Sources
There are four key finance data sources that we need monthly to scale our SaaS business. This data can mean the difference between running financially blind and financial transparency. The data sources that I outline below are core to my financial framework. I follow a sequential process to build data discipline and data integrity. You […]
How to Correctly Calculate your SaaS Gross Profit Margin
There are many financial metrics that I calculate and review each month, and this includes my SaaS gross margin. Of course, it’s not just your overall gross margin that is important. You must also calculate and understand gross margins for each of your revenue streams. Depending on your business model, these revenue streams may include […]
How to Calculate Margins by Revenue Stream
Gross margin analysis is fundamental to assessing the profitability and overall financial health of your SaaS business. First, we must understand our overall gross profit. Overall gross profit is commonly calculated incorrectly. Next, we must understand the health of each revenue stream. Each revenue stream’s gross profit contributes to our overall gross profitability. Margins by […]
How to Effectively Manage Your Professional Services Team with Metrics
Your professional services team plays an important role in your SaaS company. Botch a customer onboarding and you may have just lost valuable ARR. Services means different things to different companies. It could be a one-hour onboarding call or a twelve-month implementation project. Either way, we must understand several key concepts to effectively manage our […]
How to Calculate Gross Dollar Retention
Gross dollar retention measures the amount of revenue that you keep from your existing customer base. Gross dollar retention (GDR) along with net dollar retention (NDR) are critical metrics for SaaS operators and investors. Gross dollar retention is also known as gross revenue retention (GRR). As operators of our SaaS businesses, it’s critical to track, […]