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Critical metrics for selling a micro-startup

Insights on Key Metrics: Lessons from Selling 5 Micro-SaaS Businesses​

1. MRR (Monthly Recurring Revenue):​

MRR stands for Monthly Recurring Revenue, and it’s the most important metric for any SaaS business. It measures how much money you make every month from your customers who pay you on a recurring basis.

MRR is the lifeblood of your business because it shows how predictable and stable your revenue stream is. Buyers love businesses with high MRR, because they know they can rely on them to generate cash flow.

To measure your MRR, you need to multiply the number of customers you have by the average revenue per customer. For example, if you have 100 customers who pay you $10 per month, your MRR is $1,000. To optimize your MRR, you need to focus on two things: acquiring new customers and retaining existing ones.

You can acquire new customers by using various marketing strategies, such as SEO, content marketing, social media, email marketing, etc. You can retain existing customers by providing them with great value, support, and service. You can also use strategies like upselling, cross-selling, or offering annual plans to increase your revenue per customer.

2. Churn:​

Churn is the opposite of MRR. It measures how many customers you lose every month, either because they cancel their subscription, stop using your product, or switch to a competitor. Churn is the enemy of your business because it erodes your revenue and growth. Buyers hate businesses with high churn because they know they have to work hard to replace the lost customers and revenue.

To measure your churn, you need to divide the number of customers who left by the total number of customers you had at the beginning of the month. For example, if you had 100 customers at the start of the month, and 10 of them left, your churn rate is 10%. To optimize your churn, you need to understand why your customers are leaving, and try to prevent or reduce it.

You can use surveys, feedback, or interviews to find out the reasons for churn, and then address them with product improvements, customer education, or incentives. You can also use strategies like offering discounts, free trials, or referrals to entice your customers to stay. There are two types of churn that buyers look at:

  • Revenue Churn: This is the percentage of revenue that you lose every month due to churn. This is more important than customer churn, especially if you have different pricing plans or tiers. For example, if you lose a customer who pays you $100 per month, that’s worse than losing a customer who pays you $10 per month. To calculate your revenue churn, you need to divide the revenue that you lost by the total revenue you had at the beginning of the month.
  • Customer Churn: This is the percentage of customers that you lose every month due to churn. This is less important than revenue churn, but still useful to know. It shows you how loyal and satisfied your customers are with your product. To calculate your customer churn, you need to divide the number of customers that you lost by the total number of customers you had at the beginning of the month.

3. LTV (Lifetime Value):​

LTV stands for Lifetime Value, and it’s the average amount of money that you make from a customer over their entire relationship with your business. LTV is a key metric for your business, because it shows how profitable and scalable your business model is. Buyers love businesses with high LTV because they know they can invest more in acquiring and retaining customers, and still make a good return.

To measure your LTV, you need to multiply the average revenue per customer by the average customer lifespan. For example, if your average revenue per customer is $10 per month, and your average customer lifespan is 12 months, your LTV is $120. To optimize your LTV, you need to increase your revenue per customer and/or your customer lifespan. You can increase your revenue per customer by offering more value, features, or benefits to your customers, and charging them accordingly.

You can increase your customer lifespan by reducing your churn, and increasing your customer loyalty and satisfaction.

4. Costs:​

Costs are the expenses that you incur to run your business, such as hosting, software, marketing, salaries, etc. Costs are a crucial metric for your business, because they affect your profitability and sustainability. Buyers prefer businesses with low costs, because they know they can keep more of the revenue and profit.

To measure your costs, you need to add up all the expenses that you have every month and categorize them into fixed and variable costs. Fixed costs are the ones that don’t change regardless of your revenue or customers, such as rent, salaries, or software licenses. Variable costs are the ones that change depending on your revenue or customers, such as hosting, marketing, or commissions.

To optimize your costs, you need to reduce your fixed costs and/or your variable costs. You can reduce your fixed costs by switching to cheaper or free alternatives, negotiating better deals, or outsourcing some tasks. You can reduce your variable costs by improving your efficiency, automation, or performance.

Additional Considerations:​

While these four metrics are the most important ones for buyers, they may also ask you about other aspects of your business, such as:

  • User demographics: Who are your customers, and where are they from? What are their needs, preferences, and behaviors?
  • Plan distribution: How many customers do you have on each pricing plan or tier? How much revenue do they generate for you?
  • Website traffic: How many visitors do you get to your website every month? Where do they come from, and what do they do on your site?
  • Conversion rates: How many visitors convert into customers, subscribers, or leads? How do you optimize your conversion funnel?

These aspects can help buyers get a better understanding of your business potential, performance, and challenges. You can use tools like Google Analytics or PostHog to track and analyze these aspects.

In summary, these are the four key metrics that buyers look for when they want to buy a micro-SaaS business:

  • MRR: How much recurring revenue do you make every month?
  • Churn: How many customers do you lose every month?
  • LTV: How much money do you make from a customer over their lifetime?
  • Costs: How much money do you spend to run your business?

By mastering these metrics, you can not only improve your business efficiency and profitability but also make it more attractive and valuable to buyers.