🎙️ Hey there, SaaSpreneurs!🎙️

Hey SaaS Mavericks! 🚀

I'm Ben Murray, and I'm excited to welcome you to this electrifying edition of SaaS Metrics School! Today, we're not just scratching the surface – we're diving deep into the art of cutting through the noise in booking forecasts. Join me as we unravel the magic behind deciphering the BS, and trust me, it's a game-changer. ✨

In the spotlight of this episode is the cost of ARR, also known as the SaaS CAC ratio. It's not just another metric; it's your compass, whether you're steering the ship as an operator or eyeing opportunities as an investor. I'm here to guide you through the intricacies of understanding the relationship between net new ARR and the dollars you're shelling out on sales and marketing expenses. 💸

Ready to level up your metrics? My next, live SaaS Metrics Foundation class begins February 6th!

You can also listen to this episode here.

📓Key Concepts to Learn💡

1. 💰 Cost of ARR: This metric measures the relationship between the net new Annual Recurring Revenue (ARR) generated in a SaaS business for the year and the sales and marketing expense. It helps in evaluating the efficiency and effectiveness of the sales and marketing efforts in acquiring new ARR.

2. 📊 SaaS CAC Ratio: You may hear this term. It’s another name for the Cost of ARR.

3. 🎯 Forecast Evaluation: Using the Cost of ARR or SaaS CAC Ratio to assess the accuracy and feasibility of sales, marketing, and booking forecasts. It allows businesses to gauge the reality of their forecasts and make adjustments if necessary.

4. 📈 Benchmarking: Understanding how to benchmark a SaaS business based on its Average Contract Value (ACV) and go-to-market motion. This helps in contextualizing and interpreting the Cost of ARR or SaaS CAC Ratio by comparing it to industry benchmarks and similar businesses. Don’t use aggregate benchmarks! You must benchmark based on your type of SaaS business.

5. 🔄 Relationship Analysis: Analyzing the relationship between sales and marketing expenses and the net new ARR to gain insights into the efficiency and forecast accuracy in a SaaS business.

By understanding these key concepts, businesses can enhance their ability to assess and optimize their sales, marketing, and forecast strategies in the SaaS industry. 🚀

If you found this episode helpful, make sure to tune in to future episodes of SaaS Metric School to broaden your knowledge on essential SaaS metrics and finance topics.

Got any burning questions or specific metrics you'd like us to cover?

Drop us a line, and we'll do our best to address them in upcoming episodes.

Until next time, keep hustling and measuring those metrics!

Best regards,

Ben Murray
Host of SaaS Metric School

📝 Episode Recap 🎧

In this episode of SaaS Metrics School, Ben delves into the key metric of the cost of Annual Recurring Revenue (ARR) and how it can be used to call out inaccuracies in booking forecasts. The cost of ARR metric provides valuable insights for both operators and investors by analyzing the relationship between net new ARR generated and sales and marketing expenses.

Ben breaks down the calculation and significance of the cost of ARR metric, emphasizing its role in evaluating the forecasted budget and determining if it aligns with reality. He points out that the benchmark for this metric varies based on factors such as the company's go-to-market motion and the average contract value (ACV).

Ben recommends checking out Ray Rike's data for benchmarking at Benchmarket.ai and highlights the importance of understanding how these benchmarks differ depending on the nature of the SaaS business.

The episode concludes with a reminder that the cost of ARR metric provides a straightforward way to assess the accuracy of booking forecasts and serves as a vital tool for operators to evaluate the relationship between sales and marketing expenses and net new ARR. Listeners are encouraged to leverage this metric as a means of benchmarking their business and ensuring a realistic outlook.

Overall, this episode equips SaaS professionals with a practical tool for critically evaluating booking forecasts and gaining insights into their business's performance.

P.S. Don't forget to subscribe to our podcast and share it with your SaaS business buddies. Together, let's conquer the world of SaaS metrics!

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