A Deep Dive into the 3 High 3 Low Metrics Framework

The "3 High/3 Low" framework provides a dashboard of the six most important leading indicators for a SaaS business. Tracking these metrics reveals the underlying health of your business and helps predict future growth or plateaus.

The 3 LOW Metrics (Minimize These)

1. Customer Acquisition Cost (Customer Acquisition Cost)

• What it is: The total sales and marketing cost to acquire one new customer.
• Why it matters: It measures the efficiency of your growth engine. A high Customer Acquisition Cost can make your business unprofitable, even with high revenue.
• Bootstrapper Rule of Thumb: Your CAC Payback Period (the number of months to recoup Customer Acquisition Cost) should be 2-6 months. Venture-backed companies can afford a 12+ month payback period; bootstrappers cannot.

2. Sales Effort

• What it is: The time and energy required to close a deal, measured by the length of the sales cycle and the number of touchpoints (calls, emails).
• Why it matters: High sales effort for low-value deals is a major drain on founder time and resources.
• How to lower it: Implement self-service options, target customers with a single decision-maker to achieve a "one-call close," and educate prospects before the demo.

3. Customer Churn

• What it is: The percentage of customers who cancel their subscription each month. Revenue Churn is the most important type to track.
• Why it matters: Churn is the silent killer of SaaS companies. It creates a ceiling on your growth. You can calculate your Revenue Plateau with the formula: New Churn Rate.
• B2B Benchmarks (Gross Revenue Churn):
  • < 2%: Great
  • 2-3%: Good
  • 4-5%: Fine
  • > 8%: Not Good

The 3 HIGH Metrics (Maximize These)

4. ACV (Annual Contract Value)

• What it is: The total revenue a customer pays over a 12-month period.
• Why it matters: For bootstrappers, ACV is a more practical metric than Lifetime Value of a Client (Lifetime Value) because it focuses on a shorter, more cash-flow-relevant timeframe. A higher ACV unlocks more expensive (and often more scalable) marketing channels.

5. Expansion Revenue

• What it is: The additional revenue generated from existing customers through upgrades, add-ons, or increased usage.
• Why it matters: This is a "SaaS Cheat Code." High Expansion Revenue can offset Net Negative Churn, meaning your business grows even without new customers.

6. Referrals

• What it is: The number of new customers referred by existing ones.
• Why it matters: Referrals are a powerful, often free, source of high-converting leads. It's a leading indicator of brand strength and customer satisfaction.
• How to increase it: Proactively ask happy customers for referrals, either through automated emails (for low-touch funnels) or personal requests (for high-touch funnels).

Tags: #SaaS #metrics #KPI #framework #churn #LTV #CAC #ARPA #ACV #referrals #sales-effort