Average Cost of Service (ACS) is an important but obscure SaaS metric for SaaS finance. I reference this metric when speaking with SaaS founders and finance teams about the balance between their cost structure and pricing plans. It’s also a component of my SaaS Scalability Index (SSI). Average cost of service helps us determine if […]
The Pitch | Top Fundraising Lessons from SaaS Founders
As a host of my own podcast where I interview SaaS founders, I have had the privilege of tapping into the wealth of knowledge and experience founders possess when it comes to SaaS fundraising. I ask each founder what they learned from their recent fundraise. There is always a smile on their face when I […]
Understanding Remaining Performance Obligations in SaaS
Metrics that provide forward-looking visibility are golden in SaaS companies. Remaining performance obligations (RPO) is a relatively new revenue metric, but it’s a fascinating combination of important SaaS concepts. RPO’s are a required disclosure for US public companies, and I believe it’s popularity will gain in private SaaS. Let’s dive into the importance of deferred […]
Why Churn is a SaaS Killer
We know churn is bad for our SaaS company. Yes, we are losing customers and revenue. This impacts growth, metrics, and cash to name a few. I’d like to dive into the financial details as to why churn is a SaaS killer. We hear a lot of rules of thumb in SaaS. Those can be […]
How to Calculate Customer Retention Cost
The focus has shifted! Capital markets are tight. Economic conditions are unknown. New customer growth may be slowing down. Time to focus on customer retention and the health of our recurring revenue. What does it cost to retain a customer? It’s somewhat ambiguous when we try quantify our customer retention costs. We know that we […]
How to Calculate Your Renewal Rate
The health of your recurring revenue in SaaS is paramount. Healthy revenue drives predictable cash flow and higher valuations. Typically, you measure Gross Dollar Retention and Net Dollar Retention to assess the stickiness of your revenue. However, there is another metric that compliments retention. It’s called the renewal rate. You need to understand more than […]
The Rule of 40 SaaS | How to Calculate and Why It Matters in 2025? (Updated)
The rule of 40 in SaaS is a simple financial framework that balances revenue growth versus profit margins. It’s a rule of thumb to quickly determine the health and/or attractiveness of your SaaS company. You’ve probably heard of the rule of 40, but the application of the formula can be somewhat ambiguous. What exactly is […]
How to Calculate Net Dollar Retention
Net dollar retention measures the amount of revenue that you keep and expand in your existing customer base. Net dollar retention (NDR) along with gross dollar retention (GDR) have become popular metrics in the valuation world. Retention is Pillar 2 of my 5 Pillar SaaS Metrics Framework. Retention is critical to track, monitor, and improve […]
How to Calculate LTV with Variable Revenue
SaaS revenue models are changing, and so should our SaaS metrics. A SaaS founder emailed me recently about the customer lifetime value metric. His SaaS company has significant usage revenue in addition to traditional subscription MRR. However, traditional SaaS metrics are commonly set up for just one revenue stream. Customer lifetime value (LTV or CLTV) […]
What is Cash-adjusted EBITDA
At some point in your SaaS journey, you will be asked about your EBITDA. And then someone will calculate your cash-adjusted EBITDA. Say what? EBITDA represents Earnings Before Interest, Taxes, Depreciation, and Amortization. It’s a widely used measure of financial profitability. EBITDA attempts to eliminate non-cash and non-operating items. Over the long run, it measures […]