Sales KPIs: Understanding Revenue Metrics with Examples
By Haris Halkic

---

Introduction

Key Performance Indicators (KPIs) in sales help businesses track their revenue performance, assess financial health, and optimize their sales strategies. The following revenue metrics are crucial for companies, particularly in SaaS (Software as a Service), e-commerce, and subscription-based businesses.

Metric	Definition	Calculation	Importance
MRR (Monthly Recurring Revenue)	The total predictable and recurring revenue generated by a business from all its active subscriptions in a month.	MRR = Total Number of Customers × Average Revenue Per User (ARPU)	It provides a clear view of the steady income stream, enabling businesses to make informed decisions about budgeting, forecasting, and financial strategies.
Example: If a company has 1,000 subscribers, each paying $50 per month, then: Code Select Expand MRR = 1,000 × 50 = $50,000This means the company expects to earn $50,000 every month from recurring subscriptions.
ARR (Annual Recurring Revenue)	The total predictable and recurring revenue that a business expects to receive from its customers over a year.	ARR = MRR × 12	This metric indicates long-term financial health and stability. It helps in forecasting future revenue, planning strategic investments, and evaluating company growth.
Example: If MRR is $50,000, then: Code Select Expand ARR = 50,000 × 12 = $600,000This shows the company's expected yearly revenue from recurring subscriptions.
Quick Ratio	Measures a company's ability to increase its recurring revenue despite customer churn.	Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)	A high quick ratio indicates growth, efficiency, and sustainability, showing how well the company retains and expands its revenue base.
Example: Suppose: - New MRR = $5,000 - Expansion MRR = $3,000 - Churned MRR = $2,000 - Contraction MRR = $1,000 Then: Code Select Expand Quick Ratio = (5,000 + 3,000) / (2,000 + 1,000) = 8,000 / 3,000 = 2.67 A ratio above 1.0 means the company is growing despite losing customers.
LTV (Customer Lifetime Value)	Estimates the total revenue a business can expect from a single customer throughout their entire relationship with the company.	LTV = Average Revenue Per User (ARPU) × Customer Lifespan	Helps assess customer value over time and indicates the potential for revenue growth.
Example: If: - ARPU = $100/month - Customer lifespan = 24 months Then: Code Select Expand LTV = 100 × 24 = $2,400 This means each customer is worth $2,400 to the company over their relationship.
LTV:CAC Ratio (Customer Lifetime Value to Customer Acquisition Cost Ratio)	Measures the relationship between the revenue a company gets from its customers and the cost of acquiring them.	LTV:CAC = LTV / CAC	A high ratio means profitability and marketing efficiency. If the ratio is too low, the company is spending too much to acquire customers.
Example: If: - LTV = $2,400 - CAC (Customer Acquisition Cost) = $600 Then: Code Select Expand LTV:CAC Ratio = 2,400 / 600 = 4.0 A ratio of 4:1 is considered healthy, meaning for every $1 spent acquiring a customer, the company earns $4 in revenue.
Bookings	The total value of all signed customer contracts.	Bookings = Σ(Value of Each New Contract Signed)	Shows sales performance and expected cash flow.
Example: If a company signs three contracts worth: - $5,000 - $8,000 - $12,000 Then: Code Select Expand Bookings = 5,000 + 8,000 + 12,000 = $25,000This represents revenue that will be recognized over time.
Gross Margin	The percentage of total revenue that exceeds the cost of goods sold (COGS).	Gross Margin = ((Total Revenue - COGS) / Total Revenue) × 100%	Indicates profitability and efficiency in covering operational expenses.
Example: If: - Total Revenue = $100,000 - COGS = $30,000 Then: Code Select Expand Gross Margin = ((100,000 - 30,000) / 100,000) × 100 = 70%This means 70% of revenue remains after covering the direct costs of production.
ARPA (Average Revenue Per Account)	The average revenue generated per account (or customer) over a specific period.	ARPA = Total Revenue in a Period / Number of Accounts in that Period	Helps businesses understand revenue trends per customer and pricing effectiveness.
Example: If: - Total Revenue = $200,000 - Number of Accounts = 500 Then: Code Select Expand ARPA = 200,000 / 500 = $400This means each account contributes an average of $400 in revenue.

---

Conclusion

Tracking these sales KPIs helps businesses make data-driven decisions, optimize sales strategies, and ensure sustainable growth. By analyzing MRR, ARR, LTV, CAC, and other revenue metrics, companies can refine their pricing models, improve customer retention, and maximize profitability.