Being able to track and measure the performance of your SaaS business is one of the most important things you can do to grow it.
Knowing which KPIs are important for your company is going to be crucial for unlocking the true growth and profitability of your business.
What are the 7 most important metrics for SaaS companies?
There are many SaaS KPIs that you can track to help grow and maintain the profitability of your company, but I’ve chosen the most important KPIs that will help you do just that.
This list isn’t in any specific order, they’re all equally important though make sure you’re tracking them on a weekly or monthly basis.
#1 Monthly Recurring Revenue (MRR)
While this may be one of the most obvious KPI, there are still a lot of SaaS companies that don’t track this.
Tracking your MRR is the best way to know what your sales traction is month over month, if you’re not tracking it how do you know what growth to expect?
There are different ways of tracking your MRR such as through the use of a platform like Baremetrics or through your billing system itself.
However you plan on tracking it, make sure you are actually doing so.
Monthly Recurring Revenue is the best way to track your company’s growth or loss month over month because it provides a direct relation to your sales numbers (or lack thereof).
#2 Customer Churn Rate
Customer churn is one of the most important KPI’s you will want to track and understand in your SaaS business.
Customer churn is defined as the rate at which existing customers stop subscribing to your service, and it’s incredibly important because the higher that number is the harder you’ll have to work to get new customers.
The best way to track this KPI is by looking at your monthly churn rate which you can find by dividing your number of lost customers by the total number of customers that month.
For example, if you lose 20 customers in a month and have 100 total customers at the end of the month your monthly churn rate would be 20%.
If you have a high churn rate you’ll want to try and figure out why your customers are leaving, otherwise you aren’t going to see any growth.
One of the easiest ways to find this information is through the use of a cancellation survey which emails a customer a few days before they cancel to ask them why they’re leaving.
Always try to fix this leaky bucket ASAP since that could harm the future growth of the company.
#3 Average Revenue Per User (ARPU)
One of the most important things you can track in your SaaS business is the average revenue per user.
This is especially important if you’re running a freemium model because it allows you to see how many free users are converting to paid users.
This is important because you don’t want to be spending too much on free users since you aren’t making any money off of them, but you also don’t want them to all leave because they aren’t using enough of your paid features.
This is why the average revenue per user is a great metric to track.
#4 Lifetime Value (LTV)
Another extremely important KPI for SaaS companies is the lifetime value of a customer.
This is more complicated than tracking ARPU because you’ll want to figure out how much revenue a customer brings in over their lifetime with your company.
This is important because business that have high LTV’s are going to be worth a lot more than those that don’t.
The best way to track this KPI is by setting up a proper attribution model where you’re able to accurately track how much revenue each customer brings in over their lifetime.
#5 Customer acquisition cost (CAC)
Next on the list we’ve got your customer acquisition cost (CAC).
This KPI can be calculated by dividing the total amount of money spent on marketing costs by the number of new customers you’ve acquired during that same time frame.
For example, if your marketing costs are $100k and you’ve acquired 20 new customers the CAC would be $500.
What you want to do with this KPI is get your number lower and lower because if it’s higher than your customer lifetime value it’s going to be harder to become profitable.
#6 Marketing ROI
Another extremely important KPI is the marketing return on investment.
This measures exactly what it sounds like which is how much revenue your company generates compared to the money you spend on marketing.
The best way to track this KPI is by setting up a separate AdWords account and only spending money on ads that directly refer visitors to your website.
By doing this you’re able to accurately track how much revenue your company brings in for each dollar your spend on ads.
#7 Burn rate
Last but not least we’ve got your burn rate which should be calculated by dividing your total cash spent in a month by the number of days in that same month.
This KPI is important because if it’s negative your business is going to run out of money.
The best way to track this KPI is by looking at your monthly net burn which you can find by taking the total amount of cash spent in a month and subtracting it from the total cash you have left.
If your net burn is negative you’ll want to cut back on your expenses.
How do you measure the success of a SaaS product?
The true measure of success is typically through the number of users that are using your product as well as the customer LTV.
However, if you’re not profitable then this is probably not the best way to measure success.
The best KPI’s for measuring success are typically derived from customer acquisition, conversion rates, retention, and revenue.
One of the best ways to track these KPIs is by setting up a marketing funnel that allows you to see how many users are going from a free user to a paid user.
This will allow you to see how successful your marketing campaigns are as well as where users are converting.
The Saas Funnel Explained
The first step of this funnel would be your free users since you will want to make sure that you’re getting as many people as possible to sign up.
The next step in the funnel would be your paid users because you’ll want to make sure that you’re getting as many of these as possible.
The final step would be your revenue-generating users because this is where you’re really going to want to focus your efforts.
To wrap up:
So here were the 7 key performance indicators for SaaS startups and how to track them.
You’ll want to make sure that you’re keeping an eye on your LTV and your retention rates because these will typically be the most important factors in determining if you’ll be able to make any money.
If your customer acquisition cost (CAC) is higher than your customer lifetime value (LTV) then you’re going to want to focus on getting more people to sign up.
If your retention rates are low then you’ll want to figure out what’s causing them to leave so that you can improve on this in the future.
If you spend all of your money on marketing then it probably won’t be that effective since good marketing campaigns are typically very cheap when it comes to your revenue.
Hope that was helpful!