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Did you know that the SaaS market is projected to reach $195 billion by 2023, according to Statista?
To remain competitive and achieve sustainable growth, as a SaaS company, you must prioritize tracking key metrics, such as revenue, churn rate, leads, etc.
In this article, we will explore the most important SaaS growth metrics, why they matter, and how they can be used to support business strategy and drive growth.
Whether you are a SaaS founder, marketer, or product manager, this article will help you identify the right metrics you should start tracking today.
Let's dive in!
Why is Tracking Metrics Important for Your SaaS Business?
Tracking metrics is essential for the success of any SaaS business, because it enables you to:
- Identify opportunities - Analyzing current processes, considering customer feedback, and researching industry trends enable you to identify opportunities for improvement.
- Monitor and analyze changes in the industry - By monitoring industry changes, including tracking competitors, understanding customer needs, and following the best practices, you remain competitive.
- Predict future growth - Following the right metrics and combining past performance with current market conditions can help you make future predictions.
- Get a better understanding of your customer's journey - The customer journey includes steps from researching, engaging, buying, and post-purchase behavior. By tracking the right metrics will help you understand a customer's journey.
11 Most Important SaaS Metrics You Should Track
Let’s go through some of the most important SaaS growth metrics you should consider tracking to increase business success.
1. Growth Rate (GR)
Growth Rate (RGR) is a SaaS growth metric that measures the rate of increase in a company’s growth over a period of time.
It is a key performance indicator that can be tracked to measure a company’s performance.
To calculate the GR, use the current value and subtract that from the previous value. Then divide the difference by the previous value and multiply the result by 100.
The result will be expressed as a percentage and indicates the rate at which a business grows.
You can use GR to analyze your company’s performance and decide how to improve it.
If the GR is positive, it indicates that the business is growing and can be used to identify areas where additional investments or changes can be made to increase the growth further.
On the other hand, if the GR is negative, it indicates that the business is shrinking.
It can be used to identify areas where further investigation is needed to determine why the growth is decreasing.
Here's an example of Amazon's long-term growth:
Growth Rate is an important metric as it measures a company’s ability to generate more revenue from its existing customer base and identify new customers.
2. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) is an important metric for understanding the sustainability of a business.
It measures the total revenue generated from customers on a recurring basis.
MRR = Total # of revenue from subscriptions and services billed monthly ÷ # of customers
It is calculated by dividing the total revenue from subscriptions and services billed monthly and dividing it by the number of customers paying for them.
From this metric, you can identify the most profitable sources of customers and determine how to allocate resources best to increase revenue.
Additionally, you can use it to monitor customer loyalty and the effectiveness of any promotions or discounts you offer.
MRR can also help identify customer spending trends and enable you to make more informed decisions about your pricing strategy.
3. Customer lifetime value (CLTV)
Customer Lifetime Value (CLV) is a critical metric for measuring the success and growth of a SaaS business.
CLV is defined as the total revenue a customer generates throughout their lifetime with the company.
By tracking CLV, you can gain insight into which customers provide the most value to the company over time.
It also allows you to identify which channels drive customer acquisition to optimize your marketing strategy.
It is calculated by taking the average purchase value and multiplying it by the average customer lifespan.
As a business owner, you can use CLV to identify and target the best customers and measure the effectiveness of different customer loyalty programs.
You can also use CLV to inform your marketing decisions and help you optimize your customer acquisition and retention strategies.
The importance of tracking CLV cannot be understated.
It helps you understand how customer segments behave differently over time and how they use your product.
Furthermore, it provides valuable data on which features are being used more than others and where customers find value in your product.
Finally, it enables you to create targeted campaigns and offers to maximize revenue potential over a customer's lifetime.
4. Churn Rate
Churn rate is a valuable metric that measures the percentage of customers who stoped using a product over a certain period.
It is measured by calculating the number of customers that have stopped using the product divided by the total number of customers at the beginning of the period.
You can use this metric to understand how well your product meets customer needs.
If the churn rate is high, it may indicate that the product or service is not meeting the needs of customers.
And you, as a business owner, can take actions to address this issue by improving the product or service and addressing customer feedback.
By tracking your churn rates, you can better understand your customer attribution and take actions to reduce it if needed.
Analyzing customer feedback, performing A/B testing on pricing models, and offering discounts or rewards can help you keep current customers engaged and attract new ones.
Additionally, providing quality support services will help to ensure customers to remain satisfied with your product.
5. Net promoter score (NPS)
Net Promoter Score (NPS) is a crucial metric that every business should track to measure customer satisfaction and loyalty.
It is a metric that can be used to gauge the opinion of customers and their willingness to recommend a product or service to others.
To measure your NPS, you only need to ask your customers one simple question:
“On a scale of 0 to 10, how likely would you recommend our company to someone else?”
NPS is calculated by asking customers how likely they are to recommend a service on a scale from 0-10.
The scores are then grouped into three categories: Promoters, Passives, and Detractors.
Promoters are customers who gave a score of 9-10, passives gave a 7-8, and detractors gave scores of 0-6.
The NPS score is calculated by subtracting the percentage of detractors from the percentage of promoters.
A positive NPS score indicates that more people are willing to recommend your product or service, whereas a negative score indicates that more people would not recommend it.
NPS can help your business identify areas where improvements need to be made to increase customer satisfaction and loyalty.
You can monitor customer sentiment by tracking NPS over time and make changes accordingly.
Additionally, tracking NPS will provide valuable insights into customer behavior which can be used to inform marketing strategies and improve overall performance.
6. Average Revenue Per User (ARPU)
Average Revenue Per User (ARPU) is a key metric for any SaaS business that can provide valuable insight into customer lifetime value.
ARPU measures the revenue generated by a single user within a given period.
This metric is often tracked on a monthly or yearly basis and can provide valuable insight into which customers are providing the most value to the company.
Calculating ARPU is relatively straightforward and involves taking the total revenue generated by all users during a given month and dividing it by the total number of users.
This will give an average revenue figure per user for that month, which can then be tracked over time to determine whether user lifetime value is growing or declining.
Additionally, if there are changes in customer behavior or product usage, this can be seen in how ARPU changes over time.
Using ARPU as part of your overall growth strategy helps you identify areas for improvement and potential opportunities for increasing customer lifetime value.
It also provides insights into where your investments should be focused to ensure your SaaS business continues growing and succeeding.
7. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is one of the most important metrics to track when evaluating the growth of a software-as-a-service (SaaS) business.
CAC measures the cost of acquiring a new customer and can include expenses such as marketing, advertising, sales commissions, and other related costs.
Comparing CAC to a SaaS company’s lifetime value (LTV) of customers makes it possible to determine whether your company is achieving an acceptable return on investment.
Measuring this metric over time is important, as it can help you identify areas where money is being wasted or could be better spent.
You should also track your CAC by source, such as organic versus paid search, to determine which channels are most effective in driving new customer acquisition.
In addition to tracking CAC over time and by source, you should also measure your average revenue per user (ARPU).
ARPU indicates how much revenue each customer generates on average throughout their lifecycle with the company.
Comparing ARPU and LTV can provide valuable insights into how well your SaaS company monetizes its user base and generates long-term customer value.
8. Lead-To-Customer Conversion Rate
The Lead-to-Customer Conversion Rate is an important metric for measuring the growth of a SaaS company, as it indicates how successful a company is at turning leads into customers.
By tracking this metric over time, you can identify areas for improvement in your sales and marketing processes, such as targeting more relevant leads or optimizing your onboarding process.
Furthermore, analyzing the Lead-to-Customer Conversion Rate by region or industry can provide useful insights into which markets are most effective at converting leads to customers.
To track this metric accurately, you must define what counts as a lead and a customer and then measure how often that definition is met within a given period.
Ideally, you should compare your Lead-to-Customer Conversion Rates with industry norms to identify opportunities for improvement.
You can also use A/B testing to explore different approaches to improving your conversion rates.
For example, you can test different outreach messages or offers to determine which ones impact lead conversion most.
Lead-to-Customer Conversion Rate is an essential measure of success for SaaS companies.
By setting appropriate benchmarks and tracking performance over time, you can optimize your sales and marketing strategies to convert more leads into customers.
9. Cost Per Lead (CPL)
Cost Per Lead is a metric that measures how much it costs to acquire a new lead.
It is calculated by dividing the total cost of a marketing campaign by the number of leads generated from that campaign.
For example, if a marketing campaign costs $1000 and generates 20 leads, the CPL would be $50.
CPL is an important metric to track because it allows you to understand the success of your marketing campaigns.
A high CPL indicates that the cost of acquiring a new lead is too high and that the campaign may not perform well.
On the other hand, if the CPL is low, it indicates that the campaign is performing well and the cost of acquiring a new lead is low.
As a business owner, you can use CPL to make decisions about your marketing campaigns.
You can also use CPL to identify which campaigns are performing well and focus your efforts on improving those campaigns.
Finally, you can use CPL to compare different campaigns and determine which ones yield the best results.
Then double down on the ones that perform well.
10. Activation Rate
Activation Rate is an essential growth metric to measure a product or service's success in converting prospects into actual users.
It is typically measured as the percentage of users who complete an action (such as signing up for an account, making an initial purchase, or completing an onboarding process) within a given period of time.
For example, if a company has 100 new prospects in a given month and 30 of them sign up for an account, the activation rate for the month would be 30%.
Activation rate is a valuable metric because it provides an indication of how effectively a product or service is converting prospects into customers.
As a business owner, you can use the activation rate to track the effectiveness of your product or service and make changes to improve it.
For example, if a company's activation rate is low, it may need to focus on improving the onboarding process or changing the product or service to make it more appealing to potential customers.
You can also analyze the customer journey to identify which points of the process may be causing customers to drop off and work to improve those points.
Overall, activation rate is a valuable growth metric that can be used to measure a product's or service's effectiveness and guide business owners in making changes to improve customer conversion.
11. Free Trial Conversion Rate
Free trials are a great way to acquire new customers and increase customer loyalty by allowing potential customers to sample the product before committing to a full purchase.
Understanding the rate at which a product's free trial converts into paying customers is essential for any Saas business.
Measuring the success rate of free trial conversions requires tracking the total number of trials over time and how many of those trials convert into paying customers.
For example, if 100 customers start a free trial, and 10 of those customers cancel the trial, then the free trial conversion rate would be 90%.
You must have an effective method for identifying whether a customer has become a paying customer after their free trial period.
This can be done through manual observation or through automated processes such as email tracking, website analytics, or payment gateway integration.
The success rate of free trial conversions can provide valuable insights into how well products appeal to customers.
Another valuable insight is information about how well customer service teams respond to inquiries about products and services.
By understanding this metric, you can decide where to invest resources to maximize your return on investment from Saas operations.
To wrap up
Tracking SaaS growth metrics is an important tool for your business to measure performance and adjust as needed to achieve success.
As a SaaS company, you can maximize your chances of success by understanding which metrics are most important for your business and monitoring them regularly.
By monitoring these metrics, you can gain insight into your customer journey, identify opportunities for improvement, and optimize your marketing campaigns.
If you need help tracking and analyzing all these metrics, Omnius can help.
Write us, and we'll gladly answer all your doubts and queries.
Book a 30-minute call to learn how you can implement and improve all the metrics above.
FAQ
What are the 4 SaaS metrics?
SaaS metrics, crucial for evaluating the performance and health of a software-as-a-service (SaaS) business, typically include:
- Monthly Recurring Revenue (MRR) - MRR measures the predictable monthly revenue generated from subscription-based customers. It helps track revenue stability and growth.
- Customer Acquisition Cost (CAC) - CAC represents the cost incurred to acquire a new customer. It's essential for assessing the efficiency of your sales and marketing efforts.
- Churn Rate - Churn rate measures the percentage of customers who cancel their subscriptions during a specific period. A high churn rate can indicate customer retention issues.
- Customer Lifetime Value (CLV or LTV) - CLV quantifies the total revenue a customer is expected to generate over their entire relationship with your SaaS company. It helps assess the long-term value of customers.
How do you track SaaS growth rate?
To calculate your SaaS growth rate, use the following formula:
SaaS Growth Rate (%) = ((Ending MRR - Starting MRR) / Starting MRR) × 100
This formula considers the change in Monthly Recurring Revenue (MRR) over a specified period, typically monthly or annually.
It provides insight into your SaaS company's revenue growth.
What's a good SaaS growth rate?
A "good" SaaS growth rate varies depending on factors like your industry, target market, and business stage.
However, healthy SaaS companies often aim for a monthly growth rate between 3% to 5% or an annual growth rate of 30% or more.
Consistent, sustainable growth is key, but what's considered "good" can differ from one company to another.
What are SaaS metrics?
SaaS metrics are specific key performance indicators (KPIs) and data points that SaaS companies track to evaluate their financial health, customer acquisition, retention, and overall business performance.
These metrics help SaaS businesses make data-driven decisions, optimize their strategies, and ensure long-term success in the competitive SaaS market.
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