SaaS companies have unique business models that require specific metrics to measure their success and growth.
Tracking the right metrics can help businesses identify areas for improvement and guide important business decisions. In this article, we will discuss the most important metrics to track in the SaaS industry and provide tips for tracking and improving those metrics.
To ensure growth and success, SaaS companies need to track important growth metrics such as:
- Customer churn
- Revenue churn
- Customer lifetime value
- Customer acquisition cost
- Months to recover CAC
- CAC-to-LTV ratio
- Customer engagement score
- Qualified marketing traffic
- Leads by lifecycle stage
- Lead-to-customer rate
- Customer health score
Understanding, measuring, and improving these metrics can help SaaS businesses grow their customer base and achieve success in this industry.
Financial Metrics
1. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is the amount of revenue generated from monthly subscription fees. Tracking MRR is crucial for SaaS companies as it helps them understand their revenue stream and make informed business decisions. By tracking MRR, businesses can identify trends in revenue growth, monitor revenue churn, and forecast future revenue.
According to Hubspot, and multiplying that by the number of months in the reporting period. For example, if a SaaS company has 500 paying customers who each pay $50 per month, their MRR would be $25,000.
Recommended Lecture: Monthly Recurring Revenue in SaaS
2. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the cost associated with acquiring a new customer. This metric is important for SaaS companies as it helps them understand the cost of acquiring new customers and compare that cost to the revenue generated by those customers.
According to NetSuite, CAC is calculated by taking the total cost of sales and marketing for a given period and dividing that by the number of new customers acquired during that same period. For example, if a SaaS company spends $100,000 on sales and marketing in a given month and acquires 100 new customers during that same month, their CAC would be $1,000.
Recommended Lecture: Venture Capital in B2B SaaS Companies
3. Customer Lifetime Value (CLTV)
Customer Lifetime Value (CLTV) is the amount of revenue a customer will generate over the course of their relationship with a company. This metric is important for SaaS companies as it helps them understand the long-term value of their customers and make informed decisions regarding customer acquisition and retention.
According to Appcues and multiplying it by the average customer lifespan. For example, if a SaaS company has an ARPU of $50 and an average customer lifespan of 24 months, their CLTV would be $1,200.
4. Churn Rate
Churn rate is the rate at which customers stop using a company’s product or service. This metric is important for SaaS companies as it helps them understand customer retention and identify areas for improvement.
According to Maxio, churn rate is calculated by taking the number of customers lost during a given period and dividing that by the total number of customers at the beginning of that period. For example, if a SaaS company has 1,000 customers at the beginning of the month and loses 50 customers during that same month, their churn rate would be 5%.
Recommended Lecture: SaaS Valuation
5. Annual Recurring Revenue (ARR)
Annual Recurring Revenue (ARR) is the amount of revenue generated from annual subscription fees. This metric is important for SaaS companies as it provides a clear picture of annual revenue and helps businesses forecast future revenue.
According to BuiltIn, and multiplying that by the number of years in the reporting period. For example, if a SaaS company has 500 paying customers who each pay $50 per month and the reporting period is one year, their ARR would be $300,000.
Recommended Lecture: SaaS Venture Capital Investing
Marketing Metrics
1. Customer Acquisition Cost (CAC)
As mentioned earlier, Customer Acquisition Cost (CAC) is the cost associated with acquiring a new customer. CAC is also an important marketing metric as it helps businesses understand the cost effectiveness of their marketing campaigns.
2. Qualified Marketing Traffic
Qualified Marketing Traffic is the amount of traffic generated by marketing efforts that is likely to convert to a paying customer. This metric is important for SaaS companies as it helps them understand the effectiveness of their marketing campaigns and identify areas for improvement.
According to Hubspot, Qualified Marketing Traffic is calculated by taking the total number of website visitors generated by marketing efforts and dividing that by the number of visitors who took a specific action, such as filling out a form or starting a free trial.
Recommended Lecture: How to make smart investments in SaaS Industry
3. Leads by Lifecycle Stage
Leads by Lifecycle Stage is the number of leads that are in each stage of the sales funnel. This metric is important for SaaS companies as it helps them understand the effectiveness of their marketing campaigns and identify areas for improvement.
According to BuiltIn, the sales funnel typically has four stages: Awareness, Interest, Decision, and Action. By tracking the number of leads in each stage, businesses can identify areas where leads may be dropping off and make adjustments to their marketing campaigns.
4. Lead-to-Customer Rate
Lead-to-Customer Rate is the percentage of leads that convert to paying customers. This metric is important for SaaS companies as it helps them understand the effectiveness of their marketing campaigns and identify areas for improvement.
According to NetSuite, Lead-to-Customer Rate is calculated by taking the number of customers acquired and dividing that by the number of leads generated. For example, if a SaaS company generates 1,000 leads and acquires 100 customers, their Lead-to-Customer Rate would be 10%.
Recommended Lecture: Business Models of SaaS Companies
5. Customer Health Score
Customer Health Score is a metric that measures the health of a customer relationship. This metric is important for SaaS companies as it helps them identify areas where customers may be at risk of churn and take proactive steps to improve the customer experience.
According to Maxio, Customer Health Score is typically calculated by taking a combination of metrics, such as product usage, customer satisfaction, and support tickets, and assigning a score to each. By tracking Customer Health Score over time, businesses can identify trends and take proactive steps to improve the customer experience.
Recommended Lecture: SaaS B2B
Metrics to track in SaaS Wrapping Up
Tracking the right metrics is crucial for the success of SaaS companies. By monitoring and optimizing key metrics, businesses can improve customer acquisition, retention, and revenue growth. In this article, we discussed some of the most important metrics to track in the SaaS industry, including financial and marketing metrics.
Remember, different metrics may be more important than others depending on your business model and goals. It’s important to regularly monitor and adjust your metrics based on your business needs to ensure long-term success.
Recommended Lecture: What constitutes a good NPS score for SaaS?
Important metrics to track in SaaS FAQ
Who should track the most important metrics in the SaaS industry?
Every SaaS company should track the most important metrics for growth.
What are the most important metrics to track in the SaaS industry?
The most important metrics to track in the SaaS industry include CAC, churn rate, and customer lifetime value.
How often should SaaS companies track their metrics?
SaaS companies should track their metrics on a regular basis to monitor and optimize their performance.
Who benefits from tracking SaaS metrics?
Tracking SaaS metrics benefits everyone from business owners to investors.
What is the best way to track SaaS metrics?
The best way to track SaaS metrics is by using a unified and integrated business infrastructure.
How can SaaS companies improve their metrics?
SaaS companies can improve their metrics by focusing on customer engagement and satisfaction, as well as optimizing their marketing and sales efforts.
