Just as data analytics fueled the meteoric rise of internet giants like Google and Amazon, and meticulous performance measurement is paramount in manufacturing and elite sports, the Software-as-a-Service (SaaS) industry thrives on a clear understanding of key performance metrics. For Cac Capital Partners seeking lucrative investment opportunities in the cloud, grasping these metrics is not just beneficial—it’s essential for informed decision-making and maximizing returns. Before any SaaS venture can demonstrably improve and attract serious capital, it must first identify and rigorously track the metrics that truly signify success.
Historically, enterprise software companies revolved around metrics like bookings, maintenance fees, and revenue. Today, SaaS businesses, regardless of their industry focus, operate on a standardized set of metrics that provide a consistent framework for evaluation and growth.
Through extensive surveys of hundreds of leading public and private cloud companies, five core metrics have emerged as indispensable indicators of top-tier performance. Conveniently, these key metrics all begin with the letter “C,” making them easily memorable and actionable for cac capital partners and SaaS operators alike. Bessemer Venture Partners, a renowned authority in cloud investing, recommends that every cloud business, aiming to build a robust high-level business dashboard, should start by tracking and reporting these fundamental financial metrics:
- Committed Monthly Recurring Revenue (CMRR)
- Cash Flow
- Customer Acquisition Cost (CAC) Payback Period
- Customer Lifetime Value (CLTV)
- Churn
This article delves into each of these metrics, providing detailed explanations, calculation methods, and critical insights that cloud founders and cac capital partners need to leverage for continuous improvement and strategic investment.
1. Committed Monthly Recurring Revenue (CMRR): The North Star for SaaS Valuation
For cac capital partners evaluating the stability and predictability of SaaS revenue streams, Committed Monthly Recurring Revenue (CMRR) stands out as the most insightful metric. CMRR offers a clear, forward-looking perspective on a business’s “steady-state” revenue, based on all currently available data.
In the early days of cloud computing, many SaaS companies adopted Total Contract Value (TCV) or Annual Contract Value (ACV) as primary metrics, a carryover from traditional software’s emphasis on bookings. However, these metrics are easily manipulated and often misleading for cloud businesses. For cac capital partners seeking a true gauge of recurring revenue, metrics centered around normalized recurring revenue are far more reliable. TCV and ACV are inherently flawed due to their susceptibility to variations in contract duration and the inclusion of services revenue.
While contract duration may seem less critical if renewal rates are consistently high, it becomes a significant factor when cash collection and monthly subscription size profoundly impact business operations (as further discussed in the sections on cash flow and churn). In such cases, careful attention and control over contract duration are essential.
CMRR is the single most critical metric for cac capital partners to monitor when assessing a cloud business’s revenue health.
An excessive focus on TCV can incentivize sales teams to prioritize longer-term deals, inflating total value at the expense of more critical elements like monthly subscription value and upfront cash payments. ACV, while mitigating the duration issue by focusing on the first year’s value, still shares TCV’s second major flaw: the overemphasis on services revenue within the contract value.
Professional services revenue, in most scenarios, is detrimental to cloud businesses. It typically yields low gross margins, slows down implementation processes, and scales linearly with services headcount. Consequently, both investors on Wall Street and customers generally view a high proportion of services revenue in cloud businesses unfavorably.
Instead, SaaS companies should strategically direct product development, sales, and customer success efforts towards streamlining implementation, minimizing friction, and reducing associated time and costs. Sales teams should ideally not be incentivized on contract value by receiving quota relief or commissions tied to services revenue. To address these issues, many successful cloud businesses now prioritize Monthly Recurring Revenue (MRR), representing the total recognized recurring subscription revenue on a monthly basis.
MRR provides a solid foundational metric, but CMRR offers a more comprehensive view. CMRR encompasses all MRR, plus revenue from signed contracts pending implementation, minus churn—the MRR lost from customers who have discontinued service or are expected to do so.
Consider this scenario for cac capital partners: Which deal represents a better investment based on CMRR?
Deal A: Six-month prepaid contract; monthly renewals; $10K monthly subscription; $10K services.
- TCV: $70K
- ACV: $130K
- CMRR: $10K
Deal B: Three-year contract; three months prepaid; $5K monthly subscription; $80K services.
- TCV: $195K
- ACV: $140K
- CMRR: $5K
Answer: Despite the lower TCV and ACV, as Cloudonomics aptly points out, Deal A is the superior choice for cac capital partners.
Deal A is projected to generate approximately $370K in revenue over three years, significantly outperforming Deal B’s $260K. Deal A also likely boasts a higher gross margin due to its lower services revenue ratio. While Deal B might initially appear attractive due to longer contract duration, the focus on CMRR reveals Deal A’s superior long-term value.
For businesses operating without long-term contracts, such as PaaS models with monthly or consumption-based terms, “committed” MRR is calculated at a specific point in time. This figure represents the MRR projected by the CFO, VP of Sales, and CEO, based on current active customers and their usage patterns, adjusted for seasonality and known trends. CMRR aims to be the most accurate baseline for expected product subscription or usage revenue for the month, excluding new customer acquisition, upselling, or usage expansion beyond the current footprint, and accounting for all known churn.
CMRR is the single metric that provides the clearest forward-looking view of a cloud business's "steady-state" revenue, crucial for cac capital partners.The monthly focus inherent in CMRR cultivates positive operational behaviors, including a consistent monthly sales and development rhythm, improved sales compensation alignment with cash flow, reduced customer price sensitivity, and heightened awareness of even minor MRR fluctuations.
Many leading cloud companies leverage CMRR as the foundation for financial modeling and sales commission structures. For cac capital partners, tracking changes in CMRR offers the most transparent insight into the overall health and trajectory of a cloud business.
For external communication, SaaS businesses often use variations of CMRR: Annual Recurring Revenue (ARR) and Annual Run Rate Revenue (ARRR). ARR is simply the current CMRR multiplied by twelve. ARRR encompasses ARR plus any non-recurring revenue streams, such as professional services or implementation fees.
These external metrics can effectively communicate the run-rate scale of a business, particularly when describing future projections. For instance, a company with a current CMRR of $1.75 million, projecting growth to $2.17 million by year-end, might communicate externally: “As we exit this year, our Annual Run Rate Revenue (ARRR) is projected to exceed $30 million, including $26 million of Annual Recurring Revenue (ARR).” This provides cac capital partners with a compelling snapshot of the business’s scale and recurring revenue base.
2. Cash Flow: The Lifeblood of SaaS Longevity
For cac capital partners, understanding cash flow dynamics is as critical as revenue metrics. As any seasoned entrepreneur knows, effective cash management is paramount, especially in a company’s early stages. Detailed cash metrics are therefore indispensable.
Cash flow is assessed by tracking gross burn rate and net burn rate, ideally transitioning to positive free cash flow over time. While CMRR provides insights into revenue health, it doesn’t always reflect the immediate “cash health” of the business. Gross and net burn rate (cash flow) metrics are particularly vital for cloud businesses due to higher working capital needs and backend-weighted payment structures.
Gross burn rate encompasses all monthly expenses, including debt and financing costs. Net burn rate is calculated as total cash received minus total expenses, representing the net cash consumed in a month. Due to fluctuations in collections and payables, many companies refine these metrics by incorporating a “rolling three-month average” burn rate for smoother trend analysis.
In the early stages, robust cash management is the difference between survival and failure for SaaS businesses, a key consideration for cac capital partners.
Cloud businesses often achieve significant positive Free Cash Flow (FCF) well before reaching GAAP EBIT profitability. As a company matures, the objective is to shift from a negative burn rate (negative cash flow) to a positive one, subsequently focusing on tracking free cash flow.
By monitoring both CMRR and burn rate, cac capital partners and company leadership gain a comprehensive view of the business’s steady-state health. At any point, dividing monthly net burn rate by current cash balance reveals the runway in months, a metric frequently monitored by CEOs.
Proactive CEOs should always have contingency plans, regularly discussed with the board, to ensure financial stability. These plans might include strategic cost reductions to rapidly achieve cash flow breakeven. One of the inherent advantages of the SaaS model is the recurring nature of revenue streams, enabling businesses to model and predict necessary steps to align gross burn rate with CMRR. This allows for a controlled transition to a net burn rate of zero as working capital balances out.
Many high-growth SaaS companies with aggressive burn rates openly discuss “ripcord” plans or contingency measures. These might involve hiring freezes, marketing spend reductions, or targeted cost cuts triggered by capital cost spikes or declining sales metrics, ensuring the company remains on a path to breakeven. For cac capital partners, understanding these proactive cash management strategies signals a mature and responsible leadership team.
3. The Interplay of CAC and CLTV: Customer Profitability and Investment ROI
A profitable SaaS business is fundamentally built on a foundation of profitable customers. For cac capital partners, evaluating customer profitability is crucial for assessing long-term investment viability. Two key customer-centric metrics provide this insight:
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Customer Acquisition Cost (CAC) Payback Period
The CAC payback period, expressed in months, represents the time required to fully recover sales and marketing investments made to acquire a customer. For cac capital partners, a shorter payback period generally indicates a more efficient and attractive investment.
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Customer Lifetime Value (CLTV)
Customer Lifetime Value (CLTV) is paramount for understanding a company’s long-term profitability. CLTV represents the net present value of recurring profit streams generated by a customer over their entire relationship with the company, minus the initial acquisition cost. A high CLTV relative to CAC signifies a healthy and scalable business model, appealing to cac capital partners.
A significant advantage of the SaaS business model is that once customer acquisition costs (CAC) are recouped, the ensuing cash flow and profit streams from customers can be substantial. The CAC payback period specifically measures the number of months needed to recover upfront customer acquisition costs, factoring in variable expenses associated with servicing that customer. However, payback period alone doesn’t guarantee long-term customer profitability. To assess this, SaaS companies have adapted the consumer internet concept of Lifetime Value into the cloud-specific CLTV metric.
Let’s illustrate the CAC & CLTV relationship with an example relevant for cac capital partners:
Assume a customer generates $10K of annual recurring revenue for a SaaS company with a CAC payback period of 12 months, a 70% gross margin, and 10% each of R&D and G&A costs.
The $10K in annual revenue yields $7K in gross margin. After deducting $1K for R&D and $1K for G&A, the annual profit per customer is $5K. Over a five-year customer lifespan, this customer generates a total profit of $25K (5 years x $5K/year). A 12-month CAC payback implies an upfront acquisition cost of $7K. Therefore, the CLTV in this scenario is $25K (total profit) minus $7K (CAC), equaling $18K.
Naturally, longer customer retention periods and positive CMRR renewal rates (where customer relationships grow over time) can significantly amplify these figures, making the business even more attractive to cac capital partners. In this example, the annualized profit is ($18K / 5 years) = $3,600, representing a 36% profit margin. Refining the calculation by more precisely allocating sales and marketing costs and applying a discount rate to future profit streams (e.g., a 15% discount rate) provides a more nuanced CLTV. In our example, a 15% discount rate would reduce the CLTV to approximately $12.3K, or a 25% annualized profit margin.
For younger SaaS companies, estimating customer lifetime can be more art than science due to limited churn data. A conservative estimate might assume a 3-4 year lifespan for SMB customers and 5-7 years for enterprise clients. For cac capital partners, understanding the assumptions and methodologies behind CLTV calculations is crucial for due diligence.
4. Measuring Churn and Renewal Rates: The Pulse of Customer Retention
For cac capital partners, churn and renewal rates are leading indicators of customer satisfaction, product-market fit, and long-term revenue sustainability. These metrics encompass logo churn, CMRR churn, and CMRR renewed.
High customer churn poses a significant challenge to the growth and profitability of subscription businesses. Moderate churn is difficult to overcome, and high churn can be insurmountable.
As detailed financial models of CLTV and free cash flow demonstrate, the single most influential factor driving long-term profitability and valuation for a cloud business, and therefore its attractiveness to cac capital partners, is customer renewal rate.Unlike traditional enterprise software models where “shelf-ware” projects could generate substantial revenue despite non-implementation, cloud businesses are held to a higher standard of customer success. Project failure in SaaS directly translates to customer churn, regardless of contract terms. This underscores the importance of focusing on customer value and satisfaction over simply locking customers into long-term contracts. Overemphasis on long-term contracts can create a false sense of security regarding unhappy customers and potentially sacrifice upsell opportunities with satisfied clients.
While longer-term contracts can offer predictability (valued by Wall Street) once a company has maximized upsell potential and established deep customer relationships, this should not come at the expense of CMRR growth. Cloud executives must meticulously track renewal rates, specifically monitoring “logos lost” (customer churn) and the percentages of CMRR renewed and lost.
The standard approach to tracking renewal rates involves three key sub-metrics, crucial for cac capital partners to understand:
Logo Churn Percentage
This metric represents the percentage of customers (“logos”) that have churned within a defined period. For example, if a company started the year with 500 customers and ended with 460 paying customers, the logo churn is 40 customers, resulting in an annual logo churn rate of 8% (40/500). New customers acquired during the period are excluded from this calculation, as their renewal status will be assessed in subsequent reports.
CMRR Churn Percentage
This metric calculates the percentage of total CMRR lost due to customer churn over a specific period. If a company began the year with $500K CMRR from the initial 500 customers, and the 40 churned customers represented $30K of that starting CMRR, the base CMRR churn rate is 6% annually ($30K churned CMRR / $500K starting CMRR).
CMRR Renewal Percentage
This metric reflects the percentage of CMRR retained and expanded from renewing customers. It’s calculated by dividing the total CMRR of renewed customers at the end of the period by the total CMRR of all existing customers at the beginning of the period. For instance, if the 460 renewing customers grew their product usage and adopted new offerings, increasing their total CMRR to $550K, the CMRR renewal rate is 110% ($550K end-of-year CMRR from renewing customers / $500K starting CMRR from all customers). A renewal rate exceeding 100% indicates successful upselling and expansion within the existing customer base, a strong signal for cac capital partners.
Top-performing cloud companies typically achieve annual logo churn rates below 7% and CMRR churn rates below 5%, benchmarks that are highly attractive to cac capital partners.Ideally, a logo churn rate of 7% or less should largely be attributed to unavoidable factors like bankruptcies or acquisitions, while CMRR renewal rates should ideally exceed 110% due to effective upsell strategies.
While these five metrics are universally applicable to cloud businesses, individual companies may have additional key performance indicators (KPIs) relevant to their specific operations. However, Bessemer Venture Partners has consistently found these five—CMRR, Cash Flow, CAC, CLTV, and Churn—to be fundamentally crucial across the vast majority of successful cloud businesses.
Cloud executives typically monitor these metrics with varying frequencies. CMRR, cash flow, and churn, being highly dynamic, often require daily or weekly review. CAC and CLTV, being more strategic, are typically assessed over longer timeframes. Many high-performing cloud CEOs structure their executive team objectives and bonus plans around a subset of these metrics, typically focusing on CMRR growth, churn, and cash flow, aligning incentives with key drivers of business success, a practice that resonates well with cac capital partners.
As a SaaS company approaches an IPO, these granular metrics may become closely guarded, with public disclosures limited to “street metrics” such as GAAP revenue, gross margin, and EBITDA. However, for internal management and for attracting early-stage cac capital partners, these deeper metrics are essential.
Finally, these core metrics empower cloud executives to drive rolling financial budgets and forecasts. While annual “Board Plans” may remain fixed benchmarks, adopting a habit of monthly or quarterly forecast revisions is crucial. Simply presenting a previously drafted board plan as a current forecast suggests a lack of learning and adaptation. Regularly revising forecasts based on up-to-date metrics provides a valuable exercise in identifying and communicating both positive and negative trends within the business, fostering transparency and informed decision-making for both management and cac capital partners. A collaborative board of directors should view these forecasts as dynamic projections, not rigid targets, fostering open communication and strategic agility. Cultivating this forecasting discipline early is invaluable preparation for the scrutiny of an IPO roadshow and for building long-term investor confidence.
