If you’re measuring everything, then you’re measuring nothing.
In SaaS businesses (software as a service), data-driven decisions are of the utmost importance. Although the data is served on plates, you should know which is right for your business. That is why it is essential to measure SaaS growth metrics to determine important factors for your SaaS business.
With the information overload these days, it is very likely that you will fall into the maze and get confused about what needs to be tracked and measured. But fear not! In this blog, we have created a list of important SaaS growth metrics that need to be tracked and why it is essential to track them.
Product managers, marketing departments, and customer-facing teams usually track these most important SaaS metrics.
The SaaS metrics are divided into five types:
Acquisition metrics help you understand the efficiency and effectiveness of your customer acquisition strategy and their ability to generate revenue. These SaaS metrics can then be used to optimize your marketing efforts and sales strategies.
Engagement metrics are the most important SaaS metrics that help you understand how actively paying customers use your product and how engaged they are. This enables you to improve the user experience and functionality of the product.
Retention metrics are critical for understanding how well you retain your paying customers and the recurring revenue generated. These metrics indicate customer satisfaction score.
Growth metrics focus on your business's overall expansion and scalability. They’re essential in refining customer acquisition and customer retention.
Economic metrics provide insights into your SaaS business operations' financial health and efficiency, including profit, cash flow, and other expenses.
Every organization has a different stage as the business evolves. While the industry grows, the priorities shift, and so do the important SaaS metrics you need to track. In this article, we have divided the metrics based on your company's stage.
At this stage, SaaS companies have limited internal resources. Hence, it would make sense to focus solely on acquiring customers and validating the product-market fit. This requires the SaaS business to focus on minimum viable metrics, ensuring SaaS companies focus on what truly matters and make better-informed decisions.
Customer acquisition cost (CAC) measures the amount spent on acquiring a new customer, including all marketing efforts, sales team, and other associated expenses. It is calculated by dividing the total amount paid and the number of customers acquired that month. It helps you understand the efficiency of your acquisition efforts.
Customer acquisition cost (CAC) = Total amount spent on marketing and sales process over a month ÷ Number of customers acquired within a month
This metric measures how long it takes to recover the cost of acquiring a customer.
Months to Recover CAC = CAC / (MRR x GM)
LTV is the total revenue an organization can expect from a customer account over its lifetime. Understanding this metric helps make informed decisions about customer acquisition and customer retention strategies. As paying customers use your service for longer, the lifetime value increases.
LTV = (Customer revenue × customer lifetime value) – the cost of acquisition and maintenance
The customer conversion rate is the percentage of trial users who convert into paying customers.
Conversion rate = total no. of trial users who signed up for paid subscription ÷ total no. of trial users
The LTV-to-CAC ratio compares a customer lifetime value (LTV) to the cost of acquiring (CAC) that customer.
LTV-to-CAC ratio = Customer lifetime value over a specific period/customer acquisition cost over a particular period
While the SaaS company grows, the metrics involved and the metrics that need to be tracked increase. Plus, now that your organization is growing, you have the resources and infrastructure to analyze the metrics more deeply. This helps improve the strategies, which eventually helps discover missed and hidden opportunities.
Here is the detailed breakdown of the SaaS growth marketing metrics you need to track as an advanced SaaS company in the growth stage:
MRR represents the predictable monthly revenue that SaaS companies can expect every month. It's a key indicator of growth and stability.
Monthly Recurring Revenue (MRR) = Total contract value / No. of years
Annual recurring revenue represents the predictable total revenue a SaaS company can expect annually from its paying customers.
The customer churn rate is the percentage that shows customers who stop using your service during a given period. It's a critical metric for understanding customer retention and satisfaction.
Customer Churn rate = (No. of churned customers in a period ÷ total number of customers to start period) × 100
The revenue churn rate is the percentage of recurring revenue lost due to cancellations or downgrades.
Revenue Churn Rate = (MRR Lost During Period / MRR at Start of Period) × 100
The customer retention rate is the percentage of existing customers SaaS companies retain over time.
Retention Rate = [(Number of customers at the end of the period - No. of new customers acquired during the period) / (Number. of customers at the start of period)] × 100
Net revenue retention measures the percentage of recurring revenue growth over a period retained from existing customers, including upsells and cross-sells, minus downgrades and customer churn.
NRR rate = (Retained revenue / Base recurring revenue) x 100
Net Promoter Score (NPS) is a customer loyalty metric that indicates whether existing customers will recommend your product to others. It's a strong indicator of customer satisfaction and brand loyalty. You need to send a Net Promoter Score (NPS) survey and get responses from your current customers.
CMGR measures the monthly growth rate of your customer base.
CMGR = ( No. of Customers at End of Period / No. of Customers at Start of Period) × 100
Daily active users and monthly active users measure the number of unique users engaging with your product daily and monthly, respectively.
CES is a comprehensive metric that evaluates the level of engagement and interaction customers have with your SaaS company. It combines various indicators of user activity to provide a holistic view of customer involvement.
The customer engagement score is typically calculated by assigning weighted values to different engagement activities (e.g., logins, feature usage, session duration) and summing these values to get a total score for each customer. The exact formula varies depending on the specific activities and weights necessary for your product.
CES = (w1*n1) + (w2 * n2) + … + (w# + n#)
Example Formula:
CES=(Login Frequency×0.3)+(Feature Usage×0.4)+(Session Duration×0.3)
The traffic-to-lead rate measures the percentage of website visitors that convert into leads.
Traffic-to-Lead Rate = (No. of Leads / Total Traffic) × 100
ARPU is the average revenue generated per user over a specific period. This metric helps understand individual users' revenue contributions.
Average Revenue Per User (ARPU) = MRR ÷ total no. of active subscriptions
The activation rate is the percentage of users who take a critical action that signifies initial success with your product.
Activation Rate = (No. of users to successfully reach your critical event / total no. of users) x 100
Expansion revenue indicates additional revenue generated from existing customers through add-ons, upselling, or cross-selling.
Expansion revenue = Total MRR generated by upselling and cross-selling from existing customers
The SaaS quick ratio measures a company's ability to grow recurring revenue relative to losses from customer churn over a specific period.
Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)
Gross margin is the percentage of revenue that exceeds the cost of goods sold (COGS).
Gross margin = ((Revenue - COGS) / (Revenue)) x 100
SaaS (software as a service) growth metrics are key performance indicators that help measure a company's health and growth potential. They provide insights into customer acquisition, retaining customers, revenue generation, and overall business performance.
SaaS metrics are crucial for understanding the effectiveness of your SaaS business strategies, identifying improvement areas, and making data-driven decisions that drive growth and profitability.
The most critical metrics for a SaaS company include:
A company's growth can be tracked by regularly monitoring key SaaS metrics, using analytics tools, and comparing performance against set benchmarks. Periodically reviewing and analyzing these metrics helps make informed decisions and adjust strategies for sustained growth for your SaaS company.
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