Successful SaaS businesses track various metrics to measure their performance and growth. These metrics can be divided into two main categories: customer-related metrics and financial metrics.
Customer-related metrics include:
- Customer acquisition cost (CAC).
- Customer lifetime value (LTV).
- Monthly recurring revenue (MRR).
- Net promoter score (NPS).
- Churn rate.
- Customer retention rate.
CAC is the cost of acquiring a new customer, LTV is the total revenue generated by a customer over their lifetime, MRR is the total revenue generated from recurring subscriptions in a given month, Churn rate is the percentage of customers that cancel their subscription in a given month, while customer retention rate is the percentage of customers that remain subscribed over a given period of time. Finally, NPS is a measure of customer satisfaction.
Financial metrics include:
- Annual recurring revenue (ARR).
- Cost of goods sold (COGS).
- Marketing return on investment (ROI).
ARR is the total revenue generated from recurring subscriptions in a given year, COGS is the total cost of producing and delivering goods and services to customers, and ROI is the ratio of profits to investments.
By tracking these key indicators, SaaS businesses can gain valuable insights into their performance and growth. This data can inform decisions about marketing, sales, product development, and customer service. In addition, by understanding their customers and their financial performance, SaaS businesses can better optimize their operations and maximize their profits.
What common mistakes are made when measuring a SaaS business’s success?
When measuring a SaaS business’s success, there are a few common mistakes that companies make. One of the most common mistakes is focusing too much on vanity metrics, such as the number of users or leads, rather than on more meaningful metrics, such as customer churn rate and active users. Additionally, companies often fail to track key performance indicators (KPIs) such as conversion rate, customer lifetime value, and customer acquisition cost. Without monitoring these metrics, it can be challenging to measure the success of a SaaS business. Finally, companies may fail to set realistic goals and objectives for their SaaS business, which can lead to disappointment and frustration when those goals are not met.
By avoiding these common mistakes, companies can better measure the success of their SaaS business and make more informed decisions about their strategies.
Relevant SaaS Metrics to keep an eye on
Active Users
This metric measures the number of users who are actively using your service. This is an important metric as it can help you understand how many people are actually using your service.
Lead Conversion Rate
This metric measures the rate at which leads are converted into customers. This metric is essential as it can help you understand your marketing efforts’ effectiveness.
Number of (Customer) Companies
This metric measures the number of companies that are using your service. This is an important metric as it can help you understand the size of your user base.
Average Revenue Per User (ARPU)
This metric measures the average revenue generated per user. ARPU is an important metric as it can help you understand how much each user generates for your business.
Customer Churn Rate
This metric measures the rate at which customers are leaving your service. This is an important metric as it can help you understand how well you retain customers.
Revenue churn
This is an essential metric for measuring the success of a SaaS business. Revenue churn measures the amount of revenue lost due to customer churn. It is calculated by taking the total amount of revenue lost due to customer churn over a given period of time and dividing it by the total amount of revenue generated during that same period of time. This metric is vital as it can help you understand how much money you are losing due to customer churn. Additionally, it can help you identify areas of improvement in your customer retention strategy. By monitoring your revenue churn rate, you can make more informed decisions about retaining customers and maximizing your revenue.
Lifetime value (LTV) and how to calculate it
Customer Lifetime Value (LTV): LTV is an important metric for SaaS businesses to track. It measures the total revenue generated from a customer over their lifetime with the company. This metric is vital as it can help you understand the value of each customer and how much money they are generating for your business. Additionally, it can help you identify which customers are the most valuable and which customers are not as profitable. By tracking LTV, SaaS businesses can better understand their customers and optimize their operations to maximize their profits. Additionally, tracking LTV can help SaaS businesses identify areas where they can improve their services or products to increase customer satisfaction and loyalty. By understanding and monitoring LTV, SaaS businesses can ensure their long-term success.
To calculate LTV, SaaS businesses need first to determine the average revenue per Account (ARPA) (think ‘customers’ here). This can be done by dividing the total revenue generated by the total number of customers/accounts. Once the ARPA is determined, SaaS businesses can then calculate the customer lifetime value (LTV) by multiplying the ARPA by the average customer lifespan. The customer lifespan is the average amount of time a customer remains with the company. By understanding and tracking LTV, SaaS businesses can ensure their long-term success.
The average customer lifespan is an important metric for SaaS businesses to measure in order to understand their long-term success. To calculate the average customer lifespan, SaaS businesses need to first determine the average length of time a customer remains with the company. This can be done by tracking each customer’s length of time with the company and then calculating the average.
Customer Acquisition Cost (CAC) and how to calculate it
CAC is an important metric for SaaS businesses to track. It measures the amount of money that is spent to acquire a new customer. This metric is vital as it can help you understand how much it costs to acquire a new customer and how effective your marketing efforts are. Additionally, it can help you identify areas where you can improve your marketing efforts to reduce your CAC. By tracking CAC, SaaS businesses can better understand their customers and optimize their operations to maximize their profits. Additionally, tracking CAC can help SaaS businesses identify areas where they can improve their services or products to increase customer satisfaction and loyalty. By understanding and monitoring CAC, SaaS businesses can ensure their long-term success.
Calculating CAC is relatively straightforward. To do so, you need to add up the total cost of all the marketing and sales activities that were used to acquire new customers, and then divide that total by the number of customers acquired. This will give you the average cost of acquiring each customer.
For example, if a company spent $10,000 on marketing activities and $2,000 on sales activities, and acquired 100 new customers, then the CAC would be $120 ($12,000 divided by 100).
Additionally, you can use CAC to estimate how long it will take to recover the cost of acquiring a customer, also known as “Months to recover CAC”. Generally, it takes around 3-6 months to recover the CAC of a customer. However, this can vary depending on the industry, the customer lifetime value, and the marketing and sales activities used to acquire the customer. By understanding how long it takes to recover CAC, companies can better plan and budget for their customer acquisition strategies.
The CAC:LTV ratio is a key metric for SaaS businesses to track. It measures the ratio of customer acquisition cost (CAC) to customer lifetime value (LTV). This ratio is essential as it helps SaaS businesses understand the profitability of their customer acquisition efforts.
The CAC:LTV ratio is calculated by dividing the customer acquisition cost (CAC) by the customer lifetime value (LTV). A higher ratio indicates that the company is spending more money to acquire customers than they are making from them. Conversely, a lower ratio indicates that the company is making more money from their customers than they are spending to acquire them.
Ideally, SaaS businesses want to have a CAC:LTV ratio of 1 or lower. This indicates that the company is making more money from their customers than they are spending to acquire them. If the ratio is higher than 1, then the company is spending more money to acquire customers than they are making from them. In this case, the company should look for ways to reduce their CAC or increase their LTV.
By tracking the CAC:LTV ratio, SaaS businesses can better understand the profitability of their customer acquisition efforts and make informed decisions about their customer acquisition strategies. This can help them optimize their operations and maximize their profits.
Monthly Recurring Revenue (MRR) and how to calculate it
Monthly Recurring Revenue (MRR) is a metric that measures the predictable revenue a SaaS business can expect to receive each month from its customer base. The formula for calculating MRR is:
MRR = (Number of paying customers) x (Average revenue per customer per month)
To calculate MRR, you need to know the number of paying customers and the average monthly revenue per customer.
The number of paying customers can be obtained by counting the number of active customers who are paying for your service.
Average revenue per customer per month can be obtained by dividing the total revenue by the number of paying customers.
You can also calculate the MRR change by comparing the MRR of two different periods, by using the following formula :
MRR change = (New MRR – Previous MRR) / Previous MRR
It’s important to note that MRR also accounts for customer churn, upgrades, and downgrades. If a customer cancels their subscription, that revenue is removed from MRR. If a customer upgrades their subscription, that additional revenue is added to MRR.
Average Revenue Per Account (ARPA):
ARPA is an important metric for SaaS businesses to track. It measures the average amount of revenue generated from each customer account. This metric is crucial as it can help you understand how much money each customer is generating for your business. It can also help you identify which customers are the most valuable and which are not as profitable. By tracking ARPA, SaaS businesses can better understand their customers and optimize their operations to maximize their profits. Additionally, tracking ARPA can help SaaS businesses identify areas where they can improve their services or products to increase customer satisfaction and loyalty. By understanding and monitoring ARPA, SaaS businesses can ensure their long-term success.
Here are top 40 key metrics that are commonly used to measure the performance of SaaS businesses:
- Monthly Recurring Revenue (MRR)
- Annual Recurring Revenue (ARR)
- Customer Acquisition Cost (CAC)
- Lifetime Value (LTV)
- Gross Margin
- Net Promoter Score (NPS)
- Churn Rate
- Retention Rate
- Customer Acquisition Rate (CAR)
- Expansion Revenue
- Sales Efficiency
- Sales Cycle Length
- Sales Win Rate
- Monthly Active Users (MAUs)
- Daily Active Users (DAUs)
- Monthly Unique Visitors (MUV)
- Monthly Page Views (MPV)
- Bounce Rate
- Conversion Rate
- Average Order Value (AOV)
- Gross Merchandise Volume (GMV)
- Referral Rate
- Viral Coefficient
- Time to Value (TTV)
- Time to First Value (TTFV)
- Time to First Reply (TTFR)
- Time to First Resolution (TTFRes)
- Ticket Volume
- First Response Time (FRT)
- Resolution Time
- Gross Bookings
- Net Bookings
- Monthly Recurring Profit (MRP)
- Operating Margin
- Operating Expenses
- Employee Headcount
- Customer Headcount
- Revenue per Employee (RPE)
- Revenue per Customer (RPC)
- Customer Satisfaction (CSAT)
It’s important to note that the key metrics most important for your business will depend on your specific business model and goals. Therefore, it’s also crucial to pick the metrics that align with your business objectives and track them regularly to make data-driven decisions.
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