There are several metrics to track the health of a recurring revenue business.

Here are some key metrics to know:

Cost of customer acquisition — this calculates how much sales and marketing spend goes into signing up a new customer.

Life-time value — this calculates how much a customer spends on the product over the lifetime of that customer on average.

CAC:LTV ratio — compares the cost of customer acquisition with the lifetime value to create a ratio.

A 1:3 ratio is the floor for a successful business.

ARR — annual recurring revenue measures the revenue based on annual contracts.

MRR — monthly recurring revenue measures the revenue based on monthly contracts.

Net MRR — this measures the amount of additional revenue the company generates month over month.

Churn — the percentage of customers who opt out of using the product by canceling.

ACV — Average Contract Value — this is the amount customers are paying for the product on average.

ARB — Annual Recurring Billings — this is the amount all customers pay annually.

Track these metrics so you understand the current state of your recurring revenue business.

 

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Thank you for joining your host Hall T. Martin with the Startup Funding Espresso — your daily shot of startup funding and investing.
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Hall T Martin is the director of Investor Connect, which is a 501(c)(3) nonprofit dedicated to the education of investors for early-stage funding. All opinions expressed by Hall and podcast guests are solely their own opinions and do not reflect the opinion of Investor Connect. This podcast is for informational purposes only and should not be relied upon for the basis of investment decisions.