In addition to curtailing upfront and ongoing infrastructural costs, Software as a Service (SaaS) solutions are easier to configure, customize, and scale than on-premise solutions. Also, an enterprise can access the new version of the SaaS software and enhance data security without investing in extra resources. That is why; companies and startups these days prefer SaaS solutions to on-premise solutions.
But the steady growth of the worldwide SaaS market creates opportunities for each enterprise to choose from many SaaS solutions and SaaS companies. Most SaaS companies find it challenging to remain profitable in the long run. But many companies achieve and sustain profitable growth by tracking performance and driving growth using a slew of SaaS metrics.
SaaS metrics can be defined as benchmarks or important data points. Your SaaS company can combine the right SaaS metrics to measure performance and growth accurately. These metrics will help you understand if your company is successful in acquiring, retaining, and monetizing subscribers. Also, they will help your company finetune strategies by understanding what is working and what is not.
Your company cannot enhance the reach of a SaaS product without increasing website traffic. You can track the number of unique visitors visiting your website every month using this performance metric. Each of these unique visitors accesses your website using the same device.
Some of them even access your website multiple times. You can calculate the number of unique website visitors per month using one of the widely-used web analytics tools. But you must improve this SaaS metric consistently to generate more leads and convert them into subscribers.
You can analyze the website traffic more accurately by dividing it into two broad categories – organic and paid. Organic traffic refers to the number of visitors diverted to your website using unpaid marketing strategies like search engine optimization (SEO) and social media promotion.
On the other hand, paid traffic refers to the website visitors acquired by running search engine ads and social media ads. Web analytics tools make it easier for you to differentiate organic website traffic from paid website traffic.
This SaaS metric helps you measure the effectiveness of your subscriber acquisition strategies. You must focus on controlling customer acquisition costs by increasing organic traffic. But it is also important to acquire more website visitors by investing in PPC campaigns.
You can assess the health of your customer base based on the number of customers using your SaaS product currently. This metric helps you identify users who do not access the solution after the free trial period. Hence, you can increase the number of active users by engaging with inactive users through personalized and targeted messaging.
You can measure the metric to track the number of active users per week, month, or year. But you must remember that the active users access the same SaaS solutions in different ways. For instance, some active users access certain features, while others access multiple features. Likewise, some active users access the SaaS solution more frequently than others.
Most users access and evaluate SaaS solutions by opting for a free trial. But many users do reengage with the SaaS product after the free trial period. This metric helps you measure the percentage of users who become subscribers after the free trial.
If a large percentage of users do not reengage with the SaaS product, you must understand what prevents users from unlocking the value of your solution. You can improve the metric only by focusing on the series of steps a user takes to discover the full value of your SaaS solution.
Your business incurs sales and marketing costs to convert leads into paying subscribers. You can use this key SaaS metric to determine the funds spent by your company to acquire a subscriber. The metric can be calculated accurately based on the costs across individual customer acquisition channels.
Based on the customer acquisition cost, you can decide the funds to be allocated for marketing and sales activities. Also, the metric will help you set up revenue targets to sustain growth. You can improve the metric significantly by implementing various strategies to lower customer acquisition costs.
Some subscribers will use your SaaS solution for a longer duration than others. Likewise, some subscribers will pay more for the same SaaS solution than others. You can use customer lifetime value as an important metric to measure the total revenue generated from a subscriber over a period when he was using the SaaS solution.
You can calculate the metric by multiplying the average revenue generated per subscriber by the average lifespan of a subscriber. You can accelerate growth by retaining subscribers with higher lifetime value. Also, you should complement the subscriber retention strategy by making your SaaS product stand out from the competition consistently.
This metric helps you ascertain subscriber satisfaction and loyalty based on how likely they will recommend your SaaS solution to others. You need to request subscribers to rate your SaaS solution by answering a simple question – “How likely are you to recommend the product to others?”
Based on their scores, you can divide the subscribers into three broad categories – promoters (Score 9 or 10), passive (score 7 or 8), and detractors (score below 7). You need to ignore the passive subscribers while calculating the net promoter score. You will calculate the major SaaS metric by deducting the percentage of detractors from the percentage of promoters.
The metrics help you reduce overall customer acquisition costs and understand if the SaaS solution meets subscribers’ expectations. You can improve the metric by working on the product’s weaknesses based on the feedback of subscribers. However, it is also important to change the negative perceptions about the SaaS solution by publishing expert reviews.
You can use this SaaS metric to measure the financial performance of your company. The quick ratio is calculated based on monthly recurring revenue (MRR). You have to divide new MRR and expansion MRR by contraction MRR plus churn MRR.
You can assess the financial health of your company regularly based on the quick ratio. Also, you can improve the financial health of your SaaS company by increasing expansion MRR and reducing churn MRR consistently.
You have to invest funds to start and run a SaaS company. You can recover the investment only when the costs and revenues reach the break-even point. The payback period is an important SaaS metric that helps you measure the amount of time required by your company to break even.
You can use the metric to assess the financial risks undertaken by your company. Also, you can reduce the payback period by focusing on boosting revenue. The shortening of the payback period will help your business to sustain growth by maintaining a positive cash flow position.
This metric is calculated as a ratio of customer acquisition cost (CAC) to customer lifetime value (LTV). The ratio helps you measure the effectiveness of marketing programs in generating recurring revenue. Successful marketing programs help SaaS companies to measure the acquisition costs of customers with higher lifetime value.
Your company can recover customer acquisition costs quickly when the ratio is low. On the other hand, you have to invest more resources to gain customers with higher LTV. You can improve this metric by reducing customer acquisition costs by investing in high-performing marketing campaigns.
This metric helps you track the guaranteed revenue your SaaS company can generate per month. You can calculate monthly recurring revenue (MRR) by multiplying the average revenue generated by each subscriber by the number of paying subscribers. But you can track the metric accurately only by measuring new MRR, Churn MRR, and Expansion MRR.
New MRR considers the amount of revenue generated by new customers acquired every month. Expansion MRR helps you monitor the increase in monthly revenue due to subscribers upgrading to a higher-value plan. On the other hand, churn MRR indicates the amount of monthly revenue lost due to subscribers canceling or downgrading plans.
Annual recurring revenue (ARR) helps you track the revenue generated by your SaaS company during a particular year. You can calculate this metric by multiplying MRR by 12. You can project the long-term growth of your company based on ARR with the assumption that MRR will not change in the near future. Also, your business can increase ARR consistently by growing MRR using marketing strategies.
Your company cannot acquire and retain subscribers without using the right sales model. This metric helps you assess the effectiveness of your sales model based on the average price paid by a company while subscribing to your company initially.
You can calculate the average sale price by dividing the total revenue by the total number of subscribers. However, you must not consider the revenue generated through renewals and upgrades while calculating this SaaS metric. Your company can increase the average sale price only by understanding the target audience and making the SaaS solution meet their needs and expectations.
Some subscribers contribute more monthly revenue than others. You can use this SaaS metric to understand the average revenue contributed by a subscriber on a monthly basis. The metric is calculated by dividing MRR by the number of active subscribers per month.
Many SaaS companies track this metric accurately by separating the average revenue contributed by new subscribers and existing subscribers every month. You can measure revenue by comparing the contribution of both existing and new subscribers. Also, you can improve the metric consistently through cross-selling and up-selling activities.
Your company cannot attract and retain subscribers without providing outstanding customer support. Hence, you have to spend a part of the revenue to deploy dedicated customer support executives. This metric helps you assess the performance of the customer support team based on the number of subscribers needing assistance and raising support tickets.
You can measure the metric accurately using real-time customer support data. A higher number of support tickets raised by subscribers make it essential for your company to improve the SaaS solution’s usability and user experience. But a lower number of support tickets does not indicate that your SaaS product is easy to use.
You can use conversion rate as an important metric to measure the performance of your website/mobile app. The metric helps you know what percentage of users become paying subscribers after accessing your SaaS solution on the free trial.
Your company can generate revenue and sustain growth by increasing free to paid subscription rates consistently. If the rate is low, you must identify what prevents free users from becoming paid subscribers. You can make more users become paying customers by optimizing your SaaS product.
The churn rate refers to the percentage of subscribers your company has lost over a specific period. This metric helps you measure another important SaaS metric – customer lifetime value – accurately. Many companies calculate this metric by dividing the number of users who unsubscribed during the current month by the number of subscribers in the previous month.
A higher churn rate indicates that your SaaS product no longer meets the needs and expectations of your subscribers. You must reduce the churn rate by updating your products with additional features. However, you must remember that many users these days unsubscribe due to poor customer service. Hence, you must divide the unsubscribing users into multiple categories based on their reason for unsubscribing.
This metric helps you measure the percentage of subscribers who continue to use your product. You can calculate this metric by deducting the number of new customers acquired during the current month from the total number of subscribers and dividing the value by the number of subscribers at the beginning of the current month.
A high customer retention rate indicates that your SaaS product is meeting the needs and expectations of subscribers. However, your company can sustain profitable growth only by improving this SaaS metric consistently using strategies like superior customer service and customer loyalty programs.
SaaS companies can generate revenue only by encouraging subscribers to renew their subscriptions every month. Hence, they need to track what percentage of MRR is being renewed by subscribers. This metric is calculated by dividing the total MRR of renewed subscriptions by the MRR due per renewal.
You can use this metric to track the percentage of subscribers renewing their subscriptions every month. If the MRR retention rate is low, your company must engage subscribers by sending targeted messages. Also, your company must incentivize users to renew subscriptions by running customer loyalty programs.
You can use this metric to track the monthly revenue lost due to the cancellation or down-gradation of plans by subscribers. Net MRR churn rate is calculated by deducting expansion MRR from MRR churn and dividing the figure by the MRR at the beginning of the current month.
The metric will understand the percentage of subscribers canceling or downgrading subscriptions to your SaaS solutions on a monthly basis. If the MRR churn rate is low, you must identify the reasons for subscription cancellations and downgrades. Also, you must improve this metric consistently by improving subscriber experience and satisfaction.
SaaS companies nurture leads by converting them into two broad categories – marketing qualified leads (MQL) and product qualified leads (PQL). The marketing-qualified leads are potential subscribers acquired through organic and paid marketing channels.
On the other hand, product-qualified leads refer to the current users of the SaaS product who are showing interest to upgrade subscriptions. Your business can track and evaluate MQLs based on predefined buyer personas.
But it must persuade and incentivize existing subscribers to upgrade to generate incremental revenue. You can convert MQLs into subscribers and PQLs into high-paying customers by running targeted marketing campaigns.
Here is an interesting blog about MQL to SQL conversion rates.
Your business can generate more qualified leads by running multi-channel digital marketing campaigns. But it must measure the performance of marketing campaigns accurately only based on the increase or decrease in the number of qualified leads generated every month.
This metric helps you compare the number of qualified leads generated in the previous and current months. You can calculate the lead velocity rate by deducting the number of qualified leads generated in the previous month from the number of qualified leads generated in the current month and dividing the figure by the number of qualified leads in the previous month.
Your business can sustain growth only when the lead velocity rate increases month over month. You need to evaluate individual marketing campaigns if the lead velocity rate is low. Also, you should remember that often misalignment between sales and marketing activities results in lower lead velocity rates.
Often delay in solving issues or providing required information makes subscribers switch to SaaS companies. Hence, you can increase subscriber retention rate only by providing customer support early and quickly. This metric helps you track the average time required by your customer support team to respond to support tickets raised by subscribers.
You can know if your support team is resolving customer queries in an efficient and timely way. You must focus on reducing the average first response time to impress subscribers and prevent them from switching to your competitors. Your company can improve this metric by deploying additional customer support executives or boosting the efficiency of your customer support team.
Your business cannot sustain profitable growth without strengthening customer relationships. You can use customer health score as an important metric to assess the health of subscribers’ relationship with your company.
Your company must invest in a predictive analytics tool to know if a subscriber is about to stop using your SaaS solution. Predictive analytics calculate customer health scores by considering both customer churn and customer loyalty.
You can retain subscribers based on their customer health scores by providing educational resources or required support. The metric helps your business to reduce customer churn by engaging with q subscriber before he ends his relationship with your company.
Your sales team has to put in time and effort to convert leads into customers. The amount of time required to convert a lead into a customer varies across deals. You can use this metric to measure the average time required by your sales team to close a deal.
The length of the sales cycle is calculated as the gap between the date on which first contact was made with the lead to the date on which the deal was closed. You can use the metric to forecast sales and plan sales activities accurately. Also, your sales team can improve the metric by delivering personalized and targeted content to each lead across the sales funnel.
Many SaaS companies use annual contract value as a metric to measure customer acquisition costs accurately. They calculate the metric by considering the total revenue generated over a period of time by subscriber contracts. Your company can improve annual contract value through special offers and cross-selling and up-selling activities.
As benchmarks, SaaS metrics help your business measure performance and growth. You can combine the right SaaS metrics to measure performance, revenue, sales, and customer success. Regular tracking of these important metrics will help you improve your SaaS product and finetune your strategies. Hence, your company can achieve and sustain profitable growth by making the measurement, tracking, and improvement of these SaaS metrics an ongoing process.