The danger of waste explained through the main SaaS metrics

Innovation can no longer travel without environmental sustainability. At Startup Bakery, we believe in a development that centers around environmental and social issues because without these pillars, there is no progress. Our initiatives, in fact, respond to at least one of the UN's sustainable development goals. 

We have thus done a thought exercise and asked ourselves: is it possible to describe and raise awareness among people about the danger of pollution from waste through the main SaaS metrics?

Perhaps yes, because if a successful SaaS company has the characteristic of growing exponentially when the metrics we will explain are in balance with each other, the same growth curve is unfortunately occurring in the matter of waste production, leading us toward an unlivable world with increasingly serious consequences for us and our ecosystem.

Let us therefore draw a parallel between the 5 main SaaS metrics and pollution, seizing the opportunity to better understand them and gain a deeper understanding of the dangers of increasing waste.

1. Monthly/Annual Recurring Revenue (MRR/ARR)

MRR (or ARR if calculated annually) represents the monthly recurring revenue of a customer. For example, a service costing €100 a month will have an MRR of €100 and an ARR of €1,200.

Initiatives in the SaaS field that manage to scale find a response in the growth of recurring revenue, a consequence of a product appreciated in the market and a low churn rate (we will analyze the Churn Rate later). 

The MRR applied to pollution represents the amount of waste produced monthly by a person, estimated in Italy at about 40 kg (or 500 kg per person per year if we consider the ARR)!

2. Average Revenue Per Customer (ARPC)

ARPC is the metric that describes the average revenue per customer, calculated by dividing the MRR (or ARR) by the total number of customers.

For example, if there are 1,000 customer companies, the ARPC will be the average cost of the subscriptions (monthly or annual) paid.

The goal of every SaaS company is to gradually increase the ARPC of its customer base (and of the newly acquired ones) by continuously offering new services and features.

In terms of waste, it could thus be described as the average waste produced in a specific period in certain nations or continents (in Italy, consistently increasing over the last few decades with some signs of decrease only in recent years).

3. Customer Acquisition Cost (CAC)

It represents the cost of acquiring a customer calculated by dividing the total sales & marketing costs (organic costs, media investments, and suppliers) by the number of contracts closed in a given period.

For example, if the company spends €50,000 a year on S&M to acquire 100 customers, it will have a CAC of €500.

It could represent one of the biggest dangers to business growth, often a cause of failure for the SaaS initiative.

A "healthy" SaaS should have a CAC of at least 3 times lower than the LTV (see below) and should recover it within a maximum of 12 months. In other words, it is important to keep customer acquisition costs under control and to recover them as quickly as possible through recurring revenues.

The majority of the waste we produce has negligible costs (very low or almost zero CAC for disposable products) because only production costs are considered when determining the price of a good, not the entire lifecycle impact of the product!

It is important to disincentivize the use of single-use products also through state initiatives like the plastic tax, which has been delayed for far too long by the governments that have succeeded each other in recent years. 

4. Churn Rate

It represents the customer churn rate, another fundamental metric for a SaaS.

Every company that abandons the service stops generating MRR. If the churn rate is too high, it becomes very difficult to grow exponentially because the acquisition curve of new customers is “flattened” by those who leave.

There are various ways to calculate churn; the simplest is to take a reference period (e.g., monthly, quarterly, annually) and divide the number of customers who have left 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, the monthly churn will be 1%.

A stable SaaS should have an annual churn rate of less than 5-7% and a monthly rate of less than 1%. For a startup, conversely, an annual churn rate of less than 10-15% and a monthly rate of less than 3/5% is acceptable. 

A rejection is forever, just as the famous diamond advertisement said!

A glass bottle decomposes in 4,000 years, a plastic bottle takes between 100 and 1,000 years, and a diaper takes 400-500 years.

This data shows us ruthlessly how the waste churn rate is almost equal to 0%, so the same waste we produce without recycling will remain in the environment for centuries.

Exponentiality in its pure state!

5. Customer Lifetime Value (CLV)

The last metric mentioned in this article represents the estimated (or calculated) revenue of a customer over their lifetime.

If a customer purchases a service for €500/year and stays for 4 years, the CLV will be €2,000.

Of course, the Customer Lifetime Value is inversely proportional to the churn rate: the higher the churn rate, the lower the CLV!

When a waste product is abandoned, it remains with us for eternity (CLV tends to infinity), entering the food cycle, and the microplastics found in the blood entering circulation in the human body are proof of this.

It is therefore mathematically certain that if we continue to pollute in this manner, we will literally end up buried under waste! 

The exponential growth of waste is confirmed by all the metrics analyzed, and this should teach us and make us aware of the fact that we are playing with fire.

With Startup Bakery, we try to do our part, placing sustainability at the center of the project assessment and taking it very seriously!

We strive to do our utmost to lead the SaaS initiatives we create to success because sustainable companies are the foundation of a healthier and fairer world.

Startup Bakery is the Italian startup studio specialized in the creation of 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 the innovation process.