As a SaaS business owner, predicting your revenue is critical to your success. Revenue forecasting tools help you to accurately anticipate your revenue, identify areas for growth, and make data-driven decisions for your business. In this article, we’ll explore the key metrics you should be looking at when using revenue forecasting tools to predict your SaaS revenue.
Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the bread and butter of SaaS businesses. It’s the total revenue generated from your recurring subscription fees each month. MRR is the most important metric to track, as it gives you a clear picture of your revenue stream and allows you to make informed decisions about growth.
To calculate your MRR, you simply multiply the number of active subscribers by the average subscription fee. This metric is particularly useful because it is a predictable and steady revenue stream that allows you to make reliable revenue projections.
Churn rate is the rate at which customers leave your subscription service. It’s a key metric to consider when forecasting revenue because it can impact your MRR. High churn rates can cause your revenue to decline, while low churn rates can lead to revenue growth.
To calculate your churn rate, you’ll need to know the number of customers who have canceled their subscription during a given period. Divide that number by the total number of subscribers at the beginning of the same period, and multiply it by 100 to get a percentage. A low churn rate indicates that your customers are satisfied with your service and are likely to continue their subscription.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the amount of money you spend to acquire each new customer. This metric is important to track because it helps you determine how much you can spend on marketing and sales to acquire new customers while still maintaining profitability.
To calculate your CAC, divide your total marketing and sales expenses for a given period by the number of new customers acquired during the same period. A low CAC indicates that you are effectively acquiring new customers at a low cost, while a high CAC may indicate that your marketing and sales efforts need to be adjusted.
Lifetime Value (LTV)
Lifetime Value (LTV) is the total revenue that you can expect to receive from a single customer throughout their time using your service. It’s an important metric to consider when forecasting revenue because it allows you to understand the potential value of each customer to your business.
To calculate your LTV, multiply your average subscription fee by the average length of time that customers stay subscribed. This metric is particularly useful because it can help you determine the optimal amount of money to spend on customer acquisition.
Revenue forecasting tools are critical for SaaS businesses to make data-driven decisions about growth and profitability. The key metrics to consider when using these tools are Monthly Recurring Revenue (MRR), Churn Rate, Customer Acquisition Cost (CAC), and Lifetime Value (LTV). By tracking these metrics, you can accurately predict your revenue, identify areas for growth, and make informed decisions for the future of your business.