The software-as-a-service (SaaS) industry is constantly developing, growing, and new trends are emerging, without any signs of slowing down. Facing fierce competition, SaaS startups need to know how to measure the business’ performance and what to do to stay afloat.
A variety of metrics may help to measure the growth and boost a startup’s revenue. The most important of these, the key performance indicators (KPIs), are the subject of this article.
4 Tips to Choose the Right KPI
Usually, up to ten metrics are enough to check the business performance and tune it for success, but it is vital to choose and combine them carefully. Tracking wrong indicators may do more harm than good; data irrelevant for your business’ success may lead you astray.
1. Be clear on the business goals your product serves. To know the right KPIs, it is crucial to know the goals. For example, if your product generates revenue directly, then revenue will be your key indicator. Thus, analyze your product well before getting to KPIs.
2. The goals should be SMART:
- Specific. Define what you want and how much you want.
- Measurable. Goals should be measurable so you could tell whether you achieved them or how close you are to achieving them.
- Attainable. Adjust your goals to the current situation and your capabilities. If you see that you are not succeeding, divide your goals into smaller milestones.
- Realistic. Your own perspective may not be enough for building realistic objectives. Try to test your goals with your team and people who know how your market works.
- Time-bound. Each goal needs a target date. Without a full commitment to your deadline, you risk losing momentum and that driving force that leads to success.
3. Remember that every industry and business model has its preferable KPIs. For example, the metrics to focus on will largely differ for a SaaS startup founder and an eCommerce business owner.
4. Use leading and lagging indicators. Leading indicators will help you understand how likely your product is to meet its goal; lagging indicators inform you about the outcome of past actions.
There is a lot to consider when choosing metrics for SaaS startups’ growth, marketing, and revenue-related data. For most startups, it is possible to apply over 50 performance indicators. The good news is that a few principal one-size-fits-all metrics will definitely help you understand how your SaaS startup performs. They may be not enough to see a full picture of your unique business, but they’ll give you something to start with.
15 Most Important SaaS Startup KPIs
1. Monthly recurring revenue (MRR) measures the total amount of revenue that paying customers generate on a monthly basis (additional payments are not included).
2. Customer churn rate is one of the most valuable metrics to track a business’s vitality. Churn rate shows the number of customers leaving the service during a specific period as a percentage of overall customer numbers.
3. Revenue churn is as good an indicator of a business’s health, but it is still recommended to measure both. Revenue churn shows the amount of revenue lost, as a percentage of overall revenue, because of customers leaving.
4. Bounce rate. ‘Bounce’ occurs when someone visits your website but leaves without interacting with anything. The bounce rate shows the percentage of such visitors.
5. Qualified marketing traffic refers to traffic from entirely new visitors who have the potential to become prospects.
6. Lead-to-customer rate. This metric serves as a benchmark for how well your marketing team is nurturing leads and turning them into paying customers.
7. Customer acquisition cost (CAC) is needed to measure the ability of your business to generate new revenue from sales. This metric shows how much your business spends to gain a new paying customer.
8. Average selling/sale price (ASP) stands for the average initial price that customers pay at the time of conversion. It is key to determining a SaaS startup’s sales model.
9. Total contract value shows how much a contract is worth once executed.
10. Average revenue per account (ARPA), or average revenue per user (ARPU), is needed to measure the revenue generated by customers.
11. Lifetime value (LTV) shows the average amount of revenue generated by a customer over the lifetime of their account.
12. Customer engagement score is based on customer activity: the higher, the better.
13. Number of sessions per user shows the frequency with which a user engages with the product within a given period.
14. Net promoter score (NPS) measures the number of customers who are likely to recommend your product or company to others.
15. Net burn rate is the difference between the money your business spends and generates. It shows the profitability of your business: if the rate is negative, your business earns more than it spends.
These metrics should be monitored regularly. Another good practice is to set benchmarks for each. If you have data from the previous quarter or a whole year, you already have a baseline to measure against. You can use it to evaluate your startup’s growth in the coming months. In case your startup is too young and doesn’t have any previous data on performance, you can look at some average numbers from the competition.
Analytics Tools to Measure Your SaaS Startup Success
Modern self-serving analytics empower even young startups’ teams to extract valuable insights from limited data with a focus on achieving strategic outcomes. They present the power and flexibility that SaaS startups need to measure their vitality and optimize their product and marketing strategies.
The most popular of these tools are Google Analytics, Mixpanel, and Chartmogul:
- Google Analytics offers the easiest way to get started with data analysis, especially since it is a free tool. It is recommended to implement it first-thing if you have an eCommerce or lead-creation website. With Google Analytics, you will be able to track funnels and marketing attribution — the most important data sources at yearly stages.
- Mixpanel is considered the most popular tool even for non-tech users: it has everything needed to improve your SaaS startup conversion rates, revenue, and retention. The most helpful features are analysis of cohorts, user engagement, user profiles, and funnel.
You can use Mixpanel for free as long as your startup has under 1K active users per month. For businesses with 10K active users/month, Mixpanel will cost over $400/month. Yet, there are special propositions for startups, e.g., startups under 3 years of age and with less than 10 employees can have a 90% discount during their first year.
- Chartmogul not only helps to calculate crucial revenue metrics like churn or retention but also helps to understand why they are as they are. For this purpose, Chartmogul can be connected to most payment solutions, as well as with Apple’s App Store and Google Play to analyze your startup’s mobile subscribers.
This tool is free until your startup reaches 10K in MRR. They also have a program that allows its startup members a $50 monthly reduction.
This is only a small part of the analytics tools that can be helpful while running a SaaS startup. Most tools on the market have freemium plans so you can try them and choose the ones that best satisfy your business needs.
A metric is a quantifiable measure that lets startup founders evaluate their SaaS product and track changes. Monitoring the right financial, marketing, and product performance metrics, they can increase the odds of building a successful product and business.
It is recommended to select up to ten metrics and track them regularly. With a plethora of analytics tools that can do the job for you, it won’t be hard, especially if your goals are clear and SMART.
This article covers only the tip of the iceberg of business metrics and analytic tools. If you are eager to research further, here is a downloadable list of 60+ metrics for SaaS startups to track, divided into Growth, Marketing, Sales, and Customer Success categories, with formulas, industry benchmarks, and relevant tips.