Given the nature of the SaaS model, which relies on periodical recurring revenues, achieving customer and sales success is a lot harder than traditional businesses with steadier streams of revenue. More to the fact, SaaS revenue streams are dependent on acquiring high quantity of qualified leads and customer retention rates, but the sales cycle makes it necessary for marketers to make the most of their budgets to ensure that their customer acquisition costs don’t exceed their sales revenue.
SaaS businesses need to measure their performance by keeping track of metrics that can help them make smart data-driven decisions. These metrics – known as key performance indicators (KPIs) – can help derive insights such as
- important trends and patterns in the data,
- identify success and problem areas in business tactics
- decide on future strategies to help the business scale and grow successfully
There are, however, hundreds of metrics associated with a business’ performance; and it can be near impossible to keep track of them all.
20 KPIs Central to a SaaS Business’ Performance
1. Monthly Unique Visitors
The number of unique individuals visiting your website per month: this means even if a single visitor visits multiple times, they are considered as one unique visit. This metric can give you an indication of the overall size of your target audience and the cumulative effect of your marketing efforts, especially your top-of-funnel efforts, i.e during the awareness stage.
Additionally, businesses can also track the unique visits from multiple sources and channels to gauge the effectiveness of their campaigns in each of their channels. Ideally, you want to use the monthly visitors in conjunction with other engagement metrics like
- average time on website
- repeat visits
- page activity
2. Signups Per Month
If you’re offering a free trial or freemium, this metric can show how well your marketing efforts drive product sign-ups. By monitoring the number of free trial signups per month, you can assess the impact of your middle-funnel lead-nurturing activities during the consideration stage, which are primarily aimed at converting visitors into potential customers, i.e. product qualified leads.
3. Product Qualified Leads per Month
The number of free-trial users who have reached a certain point in the decision stage where they have engaged in meaningful activity on the free-trial and achieved a desired output from the product. These free trial users have a high potential of converting into paying customers. If you have determined your lead qualifying factors, you can easily track this metric using an automated marketing tool like HubSpot or Databox.
4. Organic vs Paid Traffic Rate
Organic traffic is derived from your natural rankings in search results, while paid traffic is derived from paid channels like PPC, sponsored ads and paid advertising. This metric lets you determine and compare which channels are driving more qualified traffic.
Even though organic channels get more clicks than paid channels, the conversion rates are lower. So, depending on your goals, you can use this to determine which channel is more profitable against the costs and resources invested. You can also derive insights on how individual keywords and ad campaigns are faring.
5. Qualified Lead Velocity Rate (LVR)
Lead Velocity Rate is a real-time indicator of your business’ lead growth, measured each month. As such, by knowing your LVR you can predict your future sales attainment patterns.
QUALIFIED LEAD VELOCITY RATE
[ (Qualified Leads in Current Month – Qualified Leads in Previous) / Month Qualified Leads in Previous Month ] x 100
According to this article by SaaStr, if you’re hitting a consistent LVR each month, a dip in sales revenue can be borne as long as you have a strong sales team.
6. Monthly Recurring Revenue
Since the majority of the revenue for SaaS companies is derived from its existing customer base, it’s necessary to track the recurring revenue earned per month instead of tracking the overall monthly revenue. However, there are multiple MRR numbers which to consider:
- New MRR which is the total MRR generated by new customers
- Add-on MRR which is MRR generated by customers who have upgraded or bought new features
- Churn MRR is the revenue lost due to cancellations or package downgrades
- Net MRR is the overall MRR calculated by taking the above numbers into consideration
MONTHLY RECURRING REVENUE
New MRR + Add-on MRR – Churn MRR
By looking at your New and Churn MRR numbers, you can ascertain whether your business is retaining a steady revenue against the costs that are incurred in acquiring new customers and revenue lost due to customer churn.
7. Free Trial to Customer Conversion Ratio
This metric helps you track the number of free trial users who have successfully converted into paid customers. It is calculated by dividing the total number of new paid customers by the total number of new users gained during a particular period.
TRIAL TO CONVERSION
Total Number of New Paying Customers / Total Number of New Users Gained in that Period
The customer conversion ratio is an indication of how well your lead nurturing or customer onboarding tactics are faring.
8. Average Revenue Per Account (ARPA)
Also known as Average Revenue Per Unit (ARPU), this SaaS metric is used to track the average revenue generated by a single user over a given period of time, usually a month. To do so, you need to divide your MRR by the total number of active customers you have at that time.
AVERAGE REVENUE PER ACCOUNT
Net MRR / Total Number of Active Users at that Time
It is generally advised to calculate the ARPA for new and existing customers separately to have a better idea of how your ARPA is changing over time. You can gauge the differences in the activity and engagement of new and existing customers.
9. Customer Acquisition Cost (CAC)
Generally known as a metric that can make or break a business, the Customer Acquisition Cost is the total cost invested into sales and marketing for acquiring a new customer. The lower the costs, the more profitable a business is.
CUSTOMER ACQUISITION COST
Total Marketing and Sales Costs / Total Number of Customers Acquired
10. Customer Churn
Churn is the total number of customers lost within a given period of time. Now, even though there is no industry-wide defined formula to calculate the churn, at its most basic sense, it is calculated by dividing the total number of customers who churned by the total number of customers in the month.
Total Number of Customers Lost / Total Number of Existing Customers within the Period
Some businesses may differ in their definition of the total customers for a month: it can be the number of customers at the beginning of the month or at the end of that month or even the average number of customers over the month. But regardless of how you define churn, it is a metric you should be keeping track of, because
it is more expensive to acquire a new customer than to retain an existing customer.
Ideally, you want to aim for negative churn, but a churn rate up to 3% can be considered manageable.
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11. Customer Lifetime Value (CLTV or LTV)
This metric is the expected net profit attributed to a customer over the time during which they do business with you: their lifetime. To calculate a customer’s lifetime, you take the reciprocal of your churn rate. (1/customer churn)
From there, you can calculate your CLTV by multiplying the Average Revenue Per Account (ARPA) by the Customer Lifetime.
CUSTOMER LIFETIME VALUE
ARPA x Customer Lifetime
Of all the SaaS Metrics, knowing your CLTV is crucial, since it is directly impacted by your churn rates. The lower your churn rates, the higher can be the total value you derive from each customer you acquire. The LTV can also help you determine whether your current SaaS business model is sustainable.
12. Lifetime Value to Customer Acquisition Cost Ratio (CLV:CAC)
This metric defines the relationship between two metrics we’ve just defined above: CLTV and CAC. Now, as to why this metric is crucial, because the balance between these two essentially defines the viability and scalability of your current business model.
A balanced SaaS model is defined by a CAC which is significantly lower than LTV: ideally 3 times lower. This means a customer’s value should be at least 3 times the cost it took to acquire them.
13. Free Trial Sales Efficiency
This is the total sales revenue generated from successful conversions against the total costs incurred in the marketing efforts expended to effect the conversions.
FREE TRIAL SALES EFFICIENCY
Total Number of Successful Sales Conversions / Total Marketing Expenditure
14. Customer Retention Rate
The percentage of customers who have continued to use your product; in other words, it is an indication of how effective your customer retention and support tactics are.
CUSTOMER RETENTION RATE
[(CE – CN) / CS] x 100
- CE is the total number of customers at the end of a given period
- CN is the total number of new customers acquired during that period
- CS is the total number of customers at the start of the given period
15. Active Users
This defines how many users are actively using your product and is yet another indicator of your SaaS business’ sustainability. However, it also comes down to your definition of an “active user”. Ideally, an active user isn’t just someone who is using certain features a certain number of times, but rather is a user who engages in meaningful activity. Active users can be measured within different time-frames such as Daily (DAU), Weekly (WAU) or Monthly (MAU) active users.
On their own DAU and MAU can be considered vanity metrics, however the ratio of DAU to MAU is a better metric to track, also known as stickiness. This tells you how often your customers return to use your product within a given month.
16. Viral Coefficient
The virality of your product: in essence, the number of new users that a current customer brings to your business. It is calculated by multiplying the average number of referrals or invitations sent by a user by the percentage of the invited users who converted into customers.
Average Number of Referrals x Conversion Rate
A successful SaaS business is one that is able to convert its existing customers into promoters. Therefore, the higher your viral coefficient, the faster your company growth rate will be.
17. Net Promoter Score (NPS)
NPS measures the likelihood of a customer to promote or recommend your product to another customer. The numbers for this metric can be derived from customer satisfaction surveys where businesses can ask their customers to rank how likely they are to recommend your product on a scale of 1 to 10.
Businesses can then quantify the results to determine the customer loyalty in the following way:
- Those who score between 0-6 are classified as Detractors
- Those who score 7-8 are called Passives
- Those who score 9-10 are Promoters
By keeping track of your NPS, you can reduce churn by nurturing those customers who scored less than 9 and incentivizing prospective promoters to recommend your product to new customers.
18. Net Cash Burn
How quickly a business is eating into its capital within a given time against the total revenue generated for that period. It can be calculated by subtracting the MRR from the gross cash burn. The gross burn is the total expenses incurred by the company in that period.
NET CASH BURN
Gross Burn – MRR
A company with a positive net burn is spending more than they are earning in terms of revenue.
The runway is defined as the amount of time left for a company to burn through their cash balance. It indicates how long your business will be able to sustain itself on its current cash reserves.
Cash Balance / Net Burn
The projected date on which you’ll burn through your entire cash balance is called the zero cash date.
20. Bookings and Billings
These two SaaS metrics are tied to the nature of a subscription model. Bookings refers to the amount that the client has committed to pay before they actually start using your service. In this case, the customer has signed a contract for that amount but has not yet paid the amount. Therefore your bookings for a month is calculated by summing the values of all closed deals within a given period of time.
Billings, on the other hand, is the actual amount paid by the customer: i.e. the money is considered earned revenue for the business. The amount is calculated depending on the type of subscription packages available, such as if the customer pays an percentage of a 12-month subscription upfront or pays a fee for a monthly subscription.