5 Most Important SaaS Metrics
SaaS metrics provide answers to important questions: how can we increase customer acquisition? How profitable are our customers?
Today, the biggest issue with metrics is not about the ways to measure them. Google Analytics alone is a valuable tool that can help calculate and visualize your success. The problem lies in choosing the right KPIs to focus on for your business.
To help you understand and improve your performance, in this post we will describe the 5 most crucial SaaS metrics, and also provide you a guide on 60+ SaaS metrics that you can download to measure your growth, marketing, sales, and customer success.
The key metrics for most products revolve around customer acquisition and retention and monetization. Correctly chosen and calculated metrics show the welfare of the company and helps correct problems fast.
1) Customer churn rate
Customer churn rate is one of the paramount metrics for tracking business performance over time. No matter how good a product or service is, a zero rate is impossible. However, it’s feasible to set realistic goals, monitor the metric consistently, and control or even lower your customer churn.
Earlier in the article on customer churn rate, we explained the correlations between the customer attrition rate and other important indicators, how to calculate it, and what steps can reduce customer churn. Also, we’ve described 3 leading reasons for customer churn and how to fix them.
Customer dissatisfaction is one of the major reasons behind customer attrition. Knowing the customers’ thoughts and impressions is key to reducing customer churn. An effective process of gathering and analyzing feedback will be extremely helpful to this end.
2) Customer Acquisition Cost (CAC)
Understanding how much every customer costs and identifying the most profitable marketing and sales channels is key to scaling profitably. CAC tells you exactly how much you need to spend to attract and acquire a single new paying customer.
Divide your total sales and marketing expenditure in a given period by the number of new customers acquired within that period. As a rule, CAC is calculated at the rate of a year. If you spent more money to acquire customers than you’ve received, you have a problem.
3) Monthly recurring revenue (MRR)
MRR is one of the major startup metrics for SaaS. It is essential for understanding your business’ growth, and with a good handle on customer acquisition and churn rates, you can use it to predict your future revenue.
The most straightforward way to calculate MRR is to summarize all the revenue you receive from your paying customers per month.
4) Customer lifetime value (CLV, LTV, or CLTV)
CLV is the economic value of a customer over their lifetime. When you are calculating it, you’re actually making a prediction on what you will profit from your clients.
The simplest formula to calculate your CLV is average revenue per account (ARPA) divided by the customer churn rate. It can help you understand whether it’s time to reconsider your pricing and product marketing strategy, where your most valuable customers are, and much more.
5) Average revenue per account (ARPA)
It is an easy metric to calculate, but very valuable for SaaS businesses. At the production stage, the startup’s goal is to increase the revenue it receives from customers. ARPA will tell you whether you are succeeding. If the business relies on monthly subscriptions, it usually calculates APRA per month, but every SaaS company can do it quarterly or yearly according to its plans and billing options.
A simple way to do it is to calculate the total MRR you have at the end of a period and divide it by the number of active accounts at that time. A good practice is to measure ARPA for new and existing customers separately to understand how your ARPA is evolving.
Instead of trying to manage lots of KPIs, try to choose what is important for you as a SaaS business owner. With fewer KPIs, you would be able to focus on the main one, while data that you gather can be used to make great business decisions.
For your convenience, we have compiled a list of 60+ SaaS metrics in the Growth, Marketing, Sales, and Customer Success categories.
It’s recommended to select up to ten metrics, the combination of which gives a comprehensive view of your business performance. Tune them according to your unique needs and stick to them.