ionicons-v5-q Business Case Calculator

Learn more about SaaS metrics



SaaS business cases have many moving parts, but fortunately all Saas companies can rely on the same metrics to know how well it is performing. These are the actionable metrics which matter most to achieve sustainable and accelerating growth:

  • Churn
  • Account expansion
  • Customer Lifetime Value (CLTV)
  • Customer Acquisition Costs (CAC)
  • Profitability
  • Break-even period

Let’s break that down:

  • Churn: the churn ultimately sets your Customer Lifetime Value.
  • Account expansion: this is the flip side of churn. This is the revenue growth you can make on existing customers.

These are my number 1 and 2, because your whole business growth will accelerate almost automatically if you can achieve net negative churn, as described here: What is Net Negative Churn in SaaS - The SaaS CFO.

These two metrics are easy to track and are actionable:

  • You can find out what causes churn and how to possibly fix it.
  • You can embed an account expansion dynamic in your price plans. This can be:
    • usage thresholds which automatically causes customers to upgrade to a higher plan when they surpass it
    • metered pricing, such as a cost per active user on the platform or a cost per API call.

This line of thinking will also challenge you to measure (and price) on the actual value which you deliver to customers.

A minor change in churn will have a tremendous impact to the other key metrics:

  • CLTV: the net profit attributed to the entire future relationship with a customer.
  • CAC: the cost of winning a customer to purchase a product/service.

The ratio between these two metrics matters as well:

  • 1:1 or less: The company gets into financial difficulties because more is paid for customers than they are worth.
  • 3:1 is a very good level because the customer relationships are solid and customers are acquired for the right price. higher than 3:1 means the company has untapped growth potential to acquire customers.

I’ve seen many founders make mistakes calculating both CLTV and CAC:

  • They don’t calculate the profit, but assume that the revenue is the basis for the CLTV calculation. Although SaaS can operate on a high gross margin, there are many costs you should attribute to calculate a profit per customer, such as cost-of-goods-sold, costs for onboarding customers, etc.
  • They don’t add all marketing and sales effort (including their own time, cost of sales staff) in the equation to calculate the true CAC. They tend to only account for marketing ad dollars spent.

If you do this right you get to two other key metrics:

  • Profitability: are your commercial efforts generate a profit at all in the long run?
  • Break-even month: when have all your marketing investments been recovered? As mentioned above, this should be within 12 months ideally.

All these metrics are actionable. You might have to increase prices or shift to a different price plan altogether in case you can’t make the CLTV/CAC ratios work. It might even mean a shift in strategy.


How it works

The calculator is a single form which you can fill out. It contains up to 30 parameters to produce a cost benefit analysis for your business case. You can calculate your return on investment (ROI) in a few minutes.

It needs only a few basic parameters to get started, such as a selling price of your product, the number of customers you expect and such items. You can keep it either very simple or make a very sophisticated cost benefit analysis.

Although SaaS businesses revolve around a few metrics, it can get complex fairly quickly. For instance:

  • Only a slight shift in churn can dramatically impact your CLTV and so can your fixed costs for servicing customers.
  • In case you expect customers to upgrade from cheap price plans to more expensive ones, this too can have a positive impact on your CLTV.

We've noticed that a correct calculation which factors in all these effects can become cumbersome to figure out.

The Business Case Calculator has automated all these calculation to produce reliable outcomes. You can add up to three price plans in the calculator, which is the common amount of price plans SaaS companies tend to offer.

It also allows you to include additional revenue based on usage on top of the subscription price of a price plan. This can be helpful if you expect to bill your customers for some additional use, for instance if they have to pay some premium for additional users, processing messages, storing data or similar usage components.

You can best use this calculator to produce an ROI calculation of a marketing, sales and or product investment. If you anticipate to get more customers by investing 100k in marketing, this calculator allows you to justify that investment (or not). You would have to consider how such an amount is spent and how long it takes before the investment materializes into new customers. You can do that by using a warmup period. This is because you might not get all the new customers within the same month you've invested your marketing budget.