Understanding and effectively utilizing key performance indicators (KPIs) are paramount for sustainable growth and longevity.
Allan Wille, CEO and Co-Founder of Klipfolio, joins Consero’s Jeff Stoss to discuss the essential KPIs that drive business success, particularly for companies with recurring revenue models.
Drawing from years of experience working with technology companies and SaaS businesses, they provide actionable insights on measuring what matters most at different stages of business growth.
Mapping Recurring-Revenue Models
There are several types of recurring revenue models that companies can implement, each with its own metrics to track for performance, business operations, and financial health.
Time-based subscriptions: Annual, quarterly, monthly or lifetime plans with auto-renewal and scheduled price increases.
Hybrid usage + subscription: Upsell tiers or pay-per-use add-ons (ex. Netflix premium events, printer-ink refills).
Outcome-based pricing: Charging only when a customer achieves a result. More disruptive but can scale.
Tiered pricing structures: With different feature combinations.
Per-user pricing models: That scale with customer growth.
Cash Flow Implications
Recurring revenue should provide predictable cash flows. However, certain models (especially usage-based ones) create significant cash pressure early until a substantial customer base is established because revenue comes in slower than traditional perpetual licensing models.
Companies should consider annual or multi-year deals to improve cash flow while maintaining flexibility for expansion revenue.
“Being able to overlay different recurring element offerings alongside the consumption-based model allows them to grow.”
Investor Implications
Investors place a premium on businesses with recurring revenue models due to the predictable, scalable income streams.
However, businesses need to find investors who understand and support their specific recurring revenue model, especially if it deviates from traditional subscription-only approaches (like outcome-based pricing).
“Early stage investors worry a pure usage model (will) be hard to finance, but combining consumption-based and subscription elements actually produces stronger, financeable growth.”
The KPI Core: Acquire, Expand, Retain
Jeff and Allan focus on the three pillars of SaaS growth: customer acquisition, expansion, and retention, and how these metrics should be tailored by the business’s stage of development.
Acquisition
The fundamental customer acquisition KPIs include:
Customer Acquisition Cost (CAC): The ROI of customer acquisition efforts; shows how acquisition methods (sales headcount, product-led growth) influence costs.
Return on Investment (ROI): For acquisition efforts
Payback period: For initial customer investments, speed to breakeven on acquisition spend.
Customer Lifetime Value (LTV): To understand long-term customer worth
LTV to CAC ratio: For efficiency measurement
Companies often underspend on acquisition when the metrics support increased investment for growth.
“It’s been interesting to work with companies and be able to tell them you’re not actually spending enough on acquiring customers, which seems a little bit ironic. Usually, it’s the fund police when you’re talking to your CFO.”
Expansion & Retention
Key expansion and retention metrics include:
Expansion Revenue: Expanding existing customer accounts (more users, increased consumption) is crucial for hyper-growth and validates product value. Expansion rate measures the growth in average deal size per customer.
Net Dollar Retention (NDR) / Net Revenue Retention (NRR): Accounts for expansion, downgrades, and churn, indicating whether a business is growing revenue from its existing customer base. It’s considered a “gold standard” metric. Upsells, user-seat growth or usage spikes boost Net Revenue Retention (NRR).
NRR above 100% indicates that existing customers are generating more revenue over time, demonstrating strong product-market fit and customer satisfaction. This metric has become increasingly important to investors as it shows the health of customer relationships.
Customer Retention: Retaining existing customers is significantly more cost-effective than acquiring new ones, with some studies suggesting it’s 5 to 25 times more expensive to acquire a new customer. Offering diverse services, bundling services, and monetization avenues can raise stickiness.
Churn rate: Customer and revenue loss over time.
User/seat expansion: Growth in usage within existing accounts.
Cash Discipline & the Rule of 40 (or 30)
Financial resilience themes dominate recent years. Among investors, the “Rule of 40” has been the traditional measuring stick for SaaS business performance.
The Rule of 40: Revenue Growth % + EBITDA Margin % ≥ 40
A SaaS business’s revenue growth rate plus profit margin should ideally equal or exceed 40%, as a quick gauge of the company’s health. The current economic climate has seen a softer shift to a “rule of 30.”
Earlier-stage firms can post far higher growth rates, so Rule of 40 targets flex with size/maturity.
Key Financial Metrics + Their Significance
Beyond customer-centric KPIs, financial metrics provide a holistic view of a recurring revenue business’s performance.
Monthly Recurring Revenue (MRR): A fundamental metric for recurring revenue businesses, tracking the predictable revenue generated each month. MRR/ARR growth are the top-line heartbeat.
Customer Churn: While binary, it’s important to track, especially in usage-based models, often requiring cohort analysis to understand nuances. Customer & Dollar Churn vs. NRR captures downgrades as well as cancellations.
Customer Lifetime Value (LTV) to Customer Acquisition Cost (CAC) Ratio: The LTV:CAC ratio indicates the long-term value generated by a customer compared to the cost of acquiring them, though NRR has gained more investor attention recently.
Average Revenue Per Account (ARPA) / Per Customer (ARPC): Measures the average revenue generated from each customer or account, providing insights into customer value.
Annual Recurring Revenue (ARR) per Full-Time Employee (FTE): A metric gaining renewed attention, especially with AI advancements, as companies seek to grow revenue with optimized headcount.
Contribution Margin and Gross Margin: Essential for understanding the profitability of services, distinguishing between direct throughput costs and broader accounting gross margin when significant variable costs exist.
Cash Burn and Cash Runway: Critical balance sheet metrics, particularly in the current economic climate, as companies prioritize extending their cash runway and achieving profitability. Post-2022, alarms ring well before the 12-month mark.
“We’ve learned hard lessons about extending cash runway and inching closer to profitability.”
Matching Metrics to Company Stage
One KPI set does not fit all, and “some executive teams are measuring things that really don’t matter for the stage they’re at.”
Allan frames three maturity phases:
| Stage | Core Focus | Key Metrics |
|---|---|---|
| Product-Market Fit | Prove value | Daily Active Users, Activation Rate, early NRR, NPS |
| Growth | Scale efficiently | MoM revenue & logo growth, NRR > 100%, churn trends |
| Efficiency / Late Stage | Profitability | LTV:CAC, Rule of 40 (or 30), Revenue per Employee |
Businesses should align KPIs with their development stage to ensure relevance and effectiveness.
Early Stage: Product-market fit can vanish, so listening to customers is top priority. Emphasize user feedback and satisfaction, daily active users, Net Promoter Score (NPS), basic retention and churn metrics, activation rates and user engagement.
Early-stage companies should balance quantitative metrics with qualitative feedback, as statistical significance may be limited with smaller customer bases.
Growth Stage: Focus on month-over-month revenue growth, customer account growth, and efficiency.
Maturity Stage: Concentrate on profitability metrics like LTV:CAC ratios and revenue per employee. Product-led revenue also measures how well the product itself drives revenue growth without heavy human intervention.
“Measure the things that matter to that stage of the company that you’re at. Anecdotally, there’s some softer non-metric things that you want to be hearing.”
Building a Data-Driven Culture
Data-driven organizations leverage metrics effectively, promoting transparency and strategic decision-making.
- Identifying trends in retention and expansion
- Informing product development decisions
- Supporting sales and marketing strategies
Service Revenue Tracking
For businesses with significant service components, specialized tracking approaches are necessary to maintain visibility into this revenue stream.
Service revenue considerations:
- Workforce management integration
- Time tracking systems
- ERP system capabilities for service revenue recognition
- Aggregation tools for comprehensive reporting
- Scalable systems that grow with the business
The complexity of service revenue requires robust systems that can handle different recognition patterns compared to subscription revenue.
Next-Gen Metrics
Jeff and Allan concluded by highlighting their most indispensable metrics:
Essential for measuring customer value and business sustainability. Encompasses customer satisfaction, product value, and growth potential in a single number.
Critical financial indicator particularly vital for CFOs.
Helps evaluate early engagement and predict long-term customer conversion to paid customers. Klipfolio uses a benchmark of converting 30% of activated users to paid customers as a leading indicator for feature releases, A/B tests, and advertising campaigns.
Find the “gravity” of high-value deals instead of misleading overall averages by assessing revenue distribution across customer segments.
Track how much ARR originates from in-app PLG motions.
Slice customers by start date or acquisition channel to pinpoint the best NRR.
By effectively utilizing these KPIs and establishing robust data practices, businesses can significantly enhance their strategic decision-making and long-term success.
KPI Monitoring & Insights on Autopilot with Consero
Whether you’re fine-tuning product-market fit or wringing every dollar of expansion from a maturing SaaS, Consero puts your metrics, benchmarking, and financial insights on autopilot.
With nearly two decades of SaaS industry expertise, our Finance as a Service (FaaS) and advisory solutions are tailored to streamline your KPI tracking and reporting, transforming data into growth.
Get in touch today to discuss how we can help.
