Maximizing revenue: 6 essential financial metrics that measure company health & how to calculate them

To compete and win in today’s competitive business climate, organizations need to keep their fingers on the pulse of their financial health and sales performance.

Whether you’re selling for a high-growth startup or a well-established enterprise, monitoring the right financial metrics is essential for guiding strategic decision-making and ensuring sustainable growth.

At LeadIQ, we track a number of metrics to make sure we’re making steady progress toward our organizational goals. 

Keep reading to learn more about why financial metrics matter — along with the metrics that are most important to us.

Why sales teams need to care about financial metrics

If your SaaS business is growth-focused, you need to keep your fingers on the pulse of several metrics to gauge business health and determine financial well-being. More specifically, tracking financial metrics enables you to:

• Align sales goals with company objectives, which ensures that the sales team’s efforts directly contribute to the overall success and strategic direction of the organization. Sales targets can be set based on revenue goals and customer value metrics.

• Improve incentive and compensation planning, which helps you motivate and retain top-performing sales staff, driving better results for the organization. Sales compensation plans are often tied to revenue targets. The more familiar you are with financial metrics, the easier it is to design fair compensation structures for the sales team.

• Optimize your pricing strategy, which is crucial when it comes to maximizing revenue, profitability, and competitiveness in the market. Being able to decipher acronyms like ARR, ACV, and TCV (more on this in a bit) helps the sales team determine the pricing strategy for different products or services. To achieve success, it’s critical to understand the revenue impact of closing deals with various contract lengths and sizes.

• Maximize customer segmentation. Metrics like LTV and CAC (again, more on this in a bit) help the sales team identify which types of customers or accounts are most profitable in the long run. This information can guide them in focusing their efforts on the most valuable segments.

• Improve sales forecasting by leveraging metrics to make more accurate predictions. By understanding historical data and trends, it’s easier for sales teams to better predict future revenue streams.

• Strengthen competitive analysis. By monitoring financial metrics, sales teams can compare their performance and pricing strategies with competitors in the market and make any adjustments necessary to move faster than their peers. 

Add it all up, and it’s easy to see why measuring and optimizing financial metrics is critical for tracking a company’s growth trajectory.

Essential financial metrics businesses need to track

By tracking financial metrics, companies are able to measure progress, identify strengths and weaknesses, and make informed decisions. With the right tools in place, companies can leverage real-time insights into revenue, profitability, and spend, enabling them to respond with agility to challenges and opportunities as they arise. 

Interested in increasing financial stability, achieving growth objectives, and staying competitive in today’s challenging business environment? Here are six key metrics that the LeadIQ team tracks — and we encourage you to do the same.

1. Monthly recurring revenue (MRR)

As a SaaS company, we’re super interested in measuring and optimizing MRR, which is the predictable, recurring revenue generated from the subscription fees our customers pay each month. MRR includes all subscription-related income, like customer renewals, new subscriptions, and upgrades. By tracking this metric, we’re able to assess our financial health and stability while getting insights into existing revenue streams and being able to more accurately forecast future revenue. 

How to calculate MRR

To calculate MRR, add up the monthly subscription fees from all active customers during a specific month, excluding any one-time or non-recurring expenses and multiply that by the average monthly revenue per customer.

For example, if you have 10 customers paying an average of $100 per month, your MRR would be $1,000).

2. Annual recurring revenue (ARR)

ARR is similar to MRR, representing the amount of revenue a SaaS company expects to generate over a year from ongoing subscription contracts. This metric factors in both existing customers and new ones over a 12-month period. As such, it’s extremely valuable when it comes to gauging the long-term revenue stability and growth potential of a business. By keeping tabs on ARR, sales managers can budget and allocate resources more effectively while assessing team performance.

How to calculate ARR

To calculate ARR, add up the total value of all active customer subscriptions over a 12-month period, omitting one-time and non-recurring expenses.

3. Customer lifetime value (LTV)

LTV assesses the total revenue a company expects to generate from a customer’s subscription throughout the entire relationship. This sales metric includes factors like monthly or annual subscription fees, the length of a customer’s contract, and potential upselling and cross-selling wins. SaaS businesses that wish to grow need to evaluate and understand the long-term financial impacts of acquiring and retaining customers. When companies are able to achieve and maintain high LTV metrics, they can rest comfortably knowing that they have strong relationships with their customers and can justify the marketing and customer retention costs associated with maintaining and growing their subscriber base. 

How to calculate LTV

To calculate LTV, determine a customer’s average purchase value and multiply it by the average purchase frequency. Once you have that number, multiply it by the average customer lifespan.

4. Customer acquisition cost (CAC)

CAC measures the expenses a SaaS company incurs to acquire a new customer. It includes all costs related to sales and marketing efforts — including advertising, salary, and software expenses. Calculating CAC is critical because it helps businesses understand whether their customer acquisition strategies are efficient. Generally speaking, SaaS businesses are laser-focused on minimizing CAC as much as they can, since that’s the ticket to maximizing profitability and assessing the scalability and sustainability of their business model.

How to calculate CAC

To calculate CAC, add up all the sales and marketing expenses you’ve incurred over a specific period of time and divide that sum by the total number of new customers acquired over the same time.

5. Total contract value (TCV)

TCV refers to the total value of a customer’s contract over its entire duration. Often expressed as the sum of recurring subscription fees and other charges, TCV measures the total financial commitment a customer has made to a SaaS provider. This metric helps SaaS companies understand the long-term revenue potential of a customer relationship. It’s also crucial when it comes to assessing profitability and guiding strategic decisions — like resource allocation and pricing strategies.

How to calculate TCV

To calculate TCV, add up the total value of a customer’s subscription, including all recurring fees and any additional charges, for the duration of the contract.

6. Annual contract value (ACV) 

ACV measures the total value of all customer subscriptions over a one-year period. This metric is important for SaaS companies because it helps them figure out how much recurring revenue they can expect to generate from each customer’s annual commitment. Using ACV, companies can better forecast revenue, assess the financial health of the business, and understand the immediate financial impact of newly acquired customers.

How to calculate ACV

To calculate ACV, add the total of all customer contracts with an annual billing frequency, excluding any one-time charges or non-recurring fees.

The world of SaaS sales is full of metrics and acronyms. We’ll help you make sense of it. 

By measuring and improving the six sales metrics outlined in this piece, companies can get better results over time, taking a data-driven approach to outbound prospecting efforts and improving outcomes because of it.

Don’t fancy yourself an expert in SaaS sales terminology? Don’t sweat it. 

Truth be told, there’s an endless amount of acronyms and terms sales reps need to know to reach their full potential and close more deals.

When you’re ready to learn some more key SaaS sales terms, check out our free guide: The ultimate B2B SaaS sales glossary and acronym cheat sheet: 76 terms reps need to know.