SaaS/Subscription businesses are built on recurring revenue. Recurring revenue is a blessing and a curse. It’s a blessing in that it is regenerative by nature, if you are a $100K MRR company, you know next month another $100K (give or take) is coming in. The curse? Well you gotta bust your rear-end to keep that $100K while also acquiring new customers and revenue to continue to grow and scale your business. Because of this constant battle to retain your revenue SaaS startups need to start being more proactive in how they track how efficiently they are renewing their revenue streams and spot potential inefficiencies, this metric is Cost per Recurring Retention Profit Dollar , or CRRPD.
CRRPD reflects how much you are spending to retain a $1 of retention profit, or the profit left over month to month from your recurring revenue. The formula to calculate CRRPD is as follows:
CRRPD = (Customer Acquisition Cost /Annual Net Revenue Retention + Cost to Serve) / Retention Profit
Most of these metrics are pretty straightforward and we have covered them in other blog posts or in our SaaSy Math Glossary. One note, for the purpose of this formula, Cost to Serve includes customer service, success and marketing costs all rolled up. Below is a sample segmented CRRPD breakdown for a fictional SaaS company:
There is a lot of information in this table but we want to highlight some information that helps us better understand the performance of how efficiently this startup renews their month-to-month revenue across segments.
Let’s examine the construction segment, comparing their CAC ($588.34) to their CRRPD ($2.02). $2.02 means that this company would need to spend $2.02 annually to keep a dollar of revenue from this segment which isn’t sustainable long term. If we purely examine CAC, which is a core SaaS metric, the Construction industry is actually our top performing segment at $588.34 which normally would indicate a healthy segment to continually acquire. But this is where the in-depth analysis comes in handy, why is their CRRPD so high?` To start, their MRR/Customer is the lowest of any segment making our potential to cover retention cost already to be thin. They also have below average retention margins (67.12%), the real drain on their efficiency is their annual revenue retention (56%) meaning that 44% of the dollars you acquire are still on the books at the end of the year despite the heavy retention margins. This means that you have high cost to serve with low revenue retention, a disaster for recurring revenue efficiency.
CRRPD is a great way to understand how efficiently a SaaS/Subscription startup is at maintaining their recurring revenue. The inputs to the formula give you an excellent opportunity to examine where efficiencies and inefficiencies might be coming from and allow you to help address operational needs to try and address any uncovered issues. Try pulling in the data from your source systems into the above table and calculating CRRPD, if you have any questions about how to do this feel free to shoot us an email and we can help provide some additional guidance!
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