If you are running a SaaS business, you probably know that you are in a competitive industry. As a result, there are plenty of things you need to pay attention to, especially when measuring the growth trajectory of your business.
Customer acquisition, churn rate, monthly recurring revenue, customer lifetime value… There are so many SaaS marketing metrics, and they are extremely nuanced. As a result, it’s difficult to figure out how to get the most accurate and realistic understanding of your company’s growth. However, in a complex world like this, a few key variables can significantly affect future results.
Today’s guide talks about advanced SaaS reporting and some of the best metrics you should guide yourself on when running a competitive SaaS business or selling it to a prospective client.
Which metrics are essential for a successful SaaS business?
The software-as-a-service (SaaS) model is built on recurring revenue over an extended period, known as the customer lifetime. Hence, the dynamics of this model are different and revolve around acquiring the customer and keeping them (to maximize the lifetime value).
Because of the importance of customer retention, there are plenty of metrics to measure retention and churn. So let’s start listing all of them.
Your conversion rate is one of the first metrics you should consider and one that directly impacts your bottom line. If your strategies are not converting over to sales, it’s important to reassess them and pivot to some new campaigns. For example, SaaS businesses usually focus on conversion rates from leads to free trials and sales.
Easy and simple to track, a SaaS conversion rate should be implemented and tied to a form or other action on your website. Once leads start coming from your website or landing page, you can track your conversion rate and connect it to the customer lifetime value. SaaS companies look for conversion rate optimization (CRO) marketing specialists to increase it.
Customer Lifetime Value (CLTV)
Second on the list is what’s known as CLTV, or Customer Lifetime Value. The name of this metric refers to how important returning customers are. In a nutshell, customer lifetime value is the amount of revenue generated by a single customer during their subscription to the offer. It is also an excellent metric for the profits you make and one that you can work to improve through various channels. Also, it’s always easier to upsell on old customers than to acquire new ones.
Customer Acquisition Cost (CAC)
They say that you can’t measure everything in marketing precisely, and the customer acquisition cost is a good example. By definition, CAC is the cost of acquiring a new customer, including all of the resources and costs. It is the best approximation of the total cost of acquiring a new customer. And it typically includes things like advertising costs, the salary of your marketers, costs of salespeople, and other costs, divided by the number of customers acquired.
Customers are a total of many different marketing efforts, and the cost to acquire them should go down as the marketing and sales efforts become more targeted and focused.
Monthly Recurring Revenue (MRR)
The monthly recurring revenue is a self-explanatory metric and acts as the true backbone of any company. Through MRR, you measure the revenue you can always rely upon. It is also a metric to study to make sure your budget allows for more expenditures.
In SaaS, calculating MRR is easily done by multiplying the total number of paying customers by the average income per account. The number you will get is your MRR or a key metric you should focus on for numerous reasons. For instance, if your customer acquisition costs (CAC) are too close to your customer lifetime value (CLV), you can’t acquire a substantial number of customers, which will keep your MRR growth minimal and slow down your growing business.
YoY Revenue Growth Rate
The year-over-year (YoY) revenue growth rate calculates how quickly the net revenue (gross revenue minus returns, allowances, and discounts) is growing year to year. Net is used instead of gross to account for the revenue allocated to the business performance. To calculate it, you will need to take your current month’s growth number and subtract the same measure realized 12 months before. Once you do that, take the difference, divide it by the prior year’s total number, and multiply by 100 to convert the growth rate into a percentage rate.
Net Promoter Score (NPS)
A Net Promoter Score measures customer experience and is a metric that can predict the growth of a business. Surveys are the most common ways to calculate it, and the answer to the question “How likely you are to recommend this product/service to a friend or colleague” is an excellent example of how you can measure it. The idea behind NPS is for it to be the critical measure of your customers’ overall perception of your brand.
Average Revenue Per User (ARPU)
Lastly, we have the Average Revenue Per User, which can be instrumental in devising different marketing strategies. For example, SaaS businesses that are keen on upsells and contract renewals can get a clear idea of the revenue created by each customer and understand whether any funds can be allowed to secure and engage with each of the customers.
Growing your SaaS company or startup requires effort and concentration on what’s important. Numbers are certainly some of the best places to start and an essential element in all parts of your funnel. However, if you don’t track the numbers that matter, you will not know if you are moving closer to your goal or further away from it. We hope that this guide helped you learn how to calculate, adjust, and improve your SaaS metrics.