Innovation can no longer travel without environmental sustainability. At Startup Bakery, we believe in development with environmental and social themes at its centre, because without these pillars no progress exists. Our initiatives, in fact, answer to at least one of the UN’s sustainable development goals.
So we did an exercise of imagination and asked ourselves: is it possible to describe, and raise people’s awareness of, the danger of waste pollution through the main SaaS metrics?
Perhaps yes, because if a successful SaaS company has the trait of growing exponentially when the metrics we are about to explain are in balance with each other, the same growth curve is unfortunately occurring on the theme of waste production, carrying us towards an unliveable world with ever more serious consequences for us and for our ecosystem.
Let us draw a parallel, then, between the 5 main SaaS metrics and pollution, taking the chance to understand them better and to grasp more fully the dangers of growing waste.
1. Monthly/Annual Recurring Revenue (MRR/ARR)
MRR (or ARR if calculated annually) represents a customer’s monthly recurring revenue. For example, a service costing 100 € a month will have an MRR of 100 € and an ARR of 1,200 €.
SaaS initiatives that manage to scale find their answer in the growth of recurring revenues, the consequence of a product appreciated by the market and of a low abandonment rate (we will analyse Churn Rate further on).
MRR applied to pollution represents the quantity of waste produced monthly by one person, estimated in Italy at around 40 kg (or 500 kg per person per year if we consider ARR)!
2. Average Revenue Per Customer (ARPC)
ARPC is the metric describing the average revenue per customer, calculated by dividing MRR (or ARR) by the total number of customers.
If you take, for example, 1,000 client companies, ARPC will be the average cost of the subscriptions (monthly or annual) paid.
Every SaaS company’s goal is gradually increasing the ARPC of its customer base (and of the new customers acquired) by offering ever more new services and features.
In the waste field, it could therefore be described as the average of the waste produced in a specific period in given countries or continents (in Italy constantly rising over recent decades, with some hint of a decrease only in the last few years).
3. Customer Acquisition Cost (CAC)
It represents the cost of acquiring a customer, calculated by dividing the total Sales & Marketing costs (staff costs, media investments and suppliers) by the number of contracts closed in a given period.
For example, if the company spent 50,000 € a year on S&M to acquire 100 customers, it will have a CAC of 500 €.
It could be one of the greatest dangers to a business’s growth, very often the cause of a SaaS initiative’s failure.
A “healthy” SaaS should have a CAC at least 3 times lower than LTV (see below) and should recover it within 12 months at most. In other words, it is important to keep the costs of acquiring a customer under control and recover them in the shortest possible time through recurring revenues.
Most of the waste we produce has negligible costs (a very low or almost nil CAC for single-use products) because, in determining the price of a good, only production costs are considered, and not those of the product’s entire life-cycle impact!
It is important to disincentivise the use of single-use products, including through state initiatives such as the plastic tax, postponed for too long by the governments that have succeeded one another in recent years.
4. Churn Rate
It represents the customer abandonment rate, another fundamental metric for a SaaS.
Every company that abandons the service stops generating MRR. If your Churn rate is too high, growing exponentially becomes very hard, because the new-customer acquisition curve gets “flattened” by those leaving.
There are various ways to calculate Churn: the simplest is taking a reference period (e.g. monthly, quarterly, annual) and dividing the number of customers who abandoned the service by the average number of customers you had during that same period.
For example, if 10 customers leave in a month out of 1,000 companies using the service, monthly Churn will be 1%.
A SaaS company at cruising speed should have an annual churn rate below 5-7% and a monthly one below 1%. For a startup, instead, an annual churn rate below 10-15% and a monthly one below 3-5% is acceptable.
Waste is forever, exactly as the famous diamond advertisement used to say!
A glass bottle decomposes in 4,000 years, a plastic bottle takes between 100 and 1,000 years, a nappy 400-500 years.
This data shows us mercilessly how the churn rate of waste is almost 0%, so the very waste we produce without recycling will stay with us in the environment for centuries.
Exponentiality in its purest form!
5. Customer Lifetime Value (CLV)
The last metric mentioned in this article represents the estimated (or calculated) revenue of a customer across their life cycle.
If a customer buys a service for 500 €/year and stays for 4 years, you will have a CLV of 2,000 €.
Obviously, Customer Lifetime Value is inversely proportional to Churn rate: the higher the abandonment rate, the lower the CLV!
When waste is discarded it stays with us for eternity (CLV tends to infinity), it enters the food chain, and the microplastics found in blood, entering circulation in the human body, are the proof.
It is therefore mathematical that if we keep polluting this way, we will end up literally buried in waste!
The exponential growth of waste is proven by every metric analysed, and this must teach us and make us aware that we are playing with fire.
With Startup Bakery we try to do our part: we place the sustainability of the project at the centre of our assessment, and we take it very seriously!
We try to do our utmost to bring the SaaS initiatives we build to success, because sustainable companies are the foundation of a healthier, fairer world.
Startup Bakery is the Italian startup studio specialised in creating B2B SaaS companies with Artificial Intelligence. We offer aspiring Co-Founders the opportunity to develop a business idea. We create investment opportunities for Professional Investors. We help companies in their innovation process.