What is meant SAAS? – SAAS stands for Software as a service. SAAS companies are the companies that use software to provide service to their customers. There are two main Software as a Service (SaaS) metrics that can help pave the way to profitability. It is the customer acquisition cost (CAC) ratio and the customer lifetime value (CLTV).
Customer Acquisition Cost (CAC) Ratio:
The customer acquisition cost (CAC) ratio is a comparison of two factors: the total sales and marketing costs associated with acquiring new customers and the incremental increase in gross profit on new customers over a specified period of time.
CAC Ratio= Annualised Gross Profit / Sales and Marketing Expenses
The calculation uses gross profit and not revenue because gross profit is what you really earn from a customer by selling your product after deducting its cost.
Customer Lifetime Value CLTV Ratio:
Customer lifetime value (CLTV) is, on average, the total revenue expected per customer. In other words, CLTV is an estimate of the average customer’s total subscription value. As the name implies, CLTV measures the overall lifetime value of a customer.
CLTV= Average Revenue Per Account (ARPC) x Average Customer lifetime
Source: https://www.lightercapital.com/blog/how-to-chart-a-path-to-profitability/
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