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1. Growth
- MRR or ARR: For startups seeking a Series A funding round, the old benchmark used to be $1 million in ARR. But recently, the threshold has been around $500k ARR, as rounds get preempted and happen earlier.
- Compound Monthly Growth Rate (CMGR): For startups seeking Series A or B funding, we like to see a CMGR of at least 15% below $1M ARR and 10% above $1M ARR. A CMGR of 10% is about 3x year-over-year growth.
- MRR Components: Retained MRR / New MRR / Resurrected MRR / Expansion MRR / Contraction MRR / Churned MRR
- Customer Concentration: Is growth driven by a few big contracts or many small ones?
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2. Retention
- Dollar Retention / Net Revenue Retention (NRR): measures how much revenue a cohort is generating in each period relative to its original size.
- Logo Retention: measures the percent of customers that stay active (non-churned).
Logo Retention is typically a function of customer size: 90-95% is common for enterprises, 85% for mid-market, and 70-80% for small businesses.
Dollar Retention is much more important than Logo Retention.
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3. Sales Efficiency / Unit Economics
- New Sales ARR vs S&M Expense: How much did S&M departments (all programs and personnel) spend vs how much New Sales ARR was added in the same period.
- CAC: divides S&M expense in the preceding period (month or quarter) by the number of new customers in the current period.
- New ACV vs CAC: It’s useful to compare Annual Contract Value (ACV) of new customers to their CAC. Ideally, ACV is greater than CAC.
- CAC Payback: divide S&M spend by MRR x Gross Margin.
- Magic Number: the Net New ARR in a period divided by S&M expense from the prior period. Ideally, the ratio is > 1.
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4. Margins
- Gross Margin: reflects a company’s margin after subtracting the cost of goods sold (COGS) from revenue. In the long-term, SaaS companies should have a Gross Margin of at least 75%.
- LTV: is the cumulative gross profit contribution, net of CAC, of the average customer in a cohort. Therefore, LTV incorporates CAC, Dollar Retention, and Gross Margin to show overall company health. Healthy cohorts cross the $0 LTV line before month 12, and LTV grows to at least 3x original CAC over time.
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5. Capital Efficiency
- Burn Multiple: a company’s Net Burn divided by its Net New ARR in a given period. For fast-growing SaaS companies, a Burn Multiple of less than one is amazing, but anything less than two is still quite good.
- Hype Ratio: Capital Raised (or Burned) divided by ARR.
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6. Engagement
- DAU/MAU: A good metric for most SaaS startups is 40% DAU/MAU during non-holiday weekdays.
- DAU/WAU: A good metric for most SaaS startups is 60% DAU/WAU during non-holiday weekdays
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