For the growing number of businesses that use a usage-based (or hybrid usage-based and subscription) pricing model, it can be more complicated to track standard SaaS metrics like ARR and Net Revenue Retention (NRR) than it is for traditional subscription-based businesses.
The challenge is that usage-based pricing doesn’t play by the standard rules of SaaS, making the metrics trickier to calculate.
The most commonly-used SaaS metrics focus on contractual recurring revenue. For usage-based and hybrid businesses, a significant amount of their revenue isn’t strictly recurring and can vary quite a bit from month to month. To add to the complexity, for hybrid businesses, the usage-based revenue can occur either before or after a customer signs a subscription contract.
However, while usage-based revenue (also known as metered revenue or consumption revenue) isn’t contractual, it helps tell the complete story of your business.
So, how should you be calculating your SaaS metrics as a usage-based business? And, should usage-based revenue be included in your metrics like ARR and NRR?
To get an accurate picture of how your business is performing, you’ll want to have a thorough understanding of your metrics both with and without usage-based revenue.
Let’s explore some recommendations for how to approach the metrics.
Key SaaS metrics for usage-based businesses
The metrics that matter the most to usage-based businesses are generally the same as subscription-based businesses: ARR, NRR, LTV, CAC Payback Period, and other key B2B SaaS metrics.
Unsurprisingly, usage-based revenue can have a big impact on your numbers. You’ll especially want to pay attention to how your usage-based revenue impacts your ARR and NRR. We strongly recommend measuring these two metrics both including your usage-based revenue and excluding it to get the full story.
For ARR, it’s helpful to measure the metric both ways to understand how much usage-based revenue is adding to your total revenue. And, by toggling back and forth between the two measurements, you can understand the trends in your revenue both with and without usage-based revenue.
Measuring NRR both with and without usage-based revenue is crucial, as it helps you answer two different questions.
- When you measure NRR without usage-based revenue, you’re finding out how your contracts are growing over time.
- When you include usage-based revenue, you’re learning whether, on the whole, you’re making more or less money from a set of customers this year than you did last year.
Tips for measuring B2B SaaS metrics as a usage-based business
Two things will make your SaaS metrics more accurate and helpful for your usage-based business: segmenting by cohort and using Trailing Twelve Months (TTM).
1. Cohort analysis
Segmenting across different customer cohorts can give you a more accurate ARR projection in a usage-based pricing model, according to Matt Peterson, SVP of Finance at Attentive.
Cohort your customers based on the month they first gave you revenue and then analyze how that revenue grows (or shrinks) over time. You can even apply segments to those cohorts to see if that growth is coming from a specific subset of customers. For example, maybe Mid-Market is growing much faster than SMB for you.
Being able to reference usage history (and revenue) for a cohort over time tells a more thorough story than new customer data alone. You get to see the true value of a customer, not when they sign a contract, but as they add more and more usage-based revenue over the course of their lifetime.
2. Trailing Twelve Months
If most of your customers are on annual contracts, then you're likely better off looking at the Trailing Twelve Months (TTM) version of your retention metrics. That way you're tracking the average monthly growth over the last year, instead of just last month’s data.
This allows you to get a clearer picture of trends, without the data being skewed by unusually high or low months—which is especially helpful for usage-based businesses that are likely to experience seasonality and swings in usage.
Calculating your SaaS metrics doesn’t have to be a pain point
If you’re calculating your SaaS metrics manually in a spreadsheet, then measuring your performance both with and without usage-based revenue can take twice as long. (And that’s not to mention the added challenge of cohort analysis and TTM!)
This is all a lot easier with Subscript.
Subscript gives you access to all your B2B SaaS metrics in a single, visually intuitive dashboard. You can toggle usage-based revenue on your metrics so you can get the complete story of how your usage-based business is growing—and how much usage-based revenue is impacting your numbers.
Plus, you can easily slice the data by cohort, customer size, or any other trait.
Interested in learning more? Request a demo here.