The 10 best metrics for SaaS

Published 7 months ago

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Why use metrics for SaaS?

Metrics are essential for the success of any Software as a Service (SaaS) business. They provide actionable insights into how your business is performing, identify areas for improvement, and help in making data-driven decisions. By closely monitoring these metrics, SaaS companies can optimize their marketing strategies, improve customer satisfaction, and increase their return on investment. Whether you're a startup looking to grow or an established business aiming to scale, keeping an eye on the right metrics is crucial.

The top 10 metrics for SaaS

1. Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue (MRR) is a crucial metric for SaaS companies because it indicates the predictable revenue expected every month from your customers. It helps in measuring growth, setting revenue targets, and forecasting future earnings.

How MRR is calculated: MRR is calculated by multiplying the number of active subscribers by the average revenue per user (ARPU) for a month.
What tools can be used to get MRR data: Tools like Baremetrics, ChartMogul, and ProfitWell can automate MRR calculations.
What average, good, and best in class look like for MRR: Average MRR varies widely based on the industry and the target customer base but increasing MRR and a low churn rate indicate good financial health.

2. Customer Churn Rate

Customer Churn Rate is vital as it measures the percentage of customers who stop subscribing to your service over a specific period. High churn rates can severely impact growth and profitability.

How Customer Churn Rate is calculated: Customer Churn Rate is calculated by dividing the number of customers lost during a period by the number of customers at the start of that period.
What tools can be used to get Customer Churn Rate data: Tools like ChurnZero, Zaius, and Retain can track churn metrics.
What average, good, and best in class look like for Customer Churn Rate: A churn rate below 5% is considered good; below 2% is best in class.

3. Customer Lifetime Value (CLV)

Customer Lifetime Value (CLV) is a critical metric that estimates the total revenue a business can reasonably expect from a single customer account throughout their relationship.

How CLV is calculated: CLV is calculated by multiplying the average purchase value by the average purchase frequency rate and the average customer lifespan.
What tools can be used to get CLV data: Tools like Klaviyo, HubSpot, and Custora provide CLV analytics.
What average, good, and best in class look like for CLV: A higher CLV than your Customer Acquisition Cost (CAC) is essential; a ratio of 3:1 is typically considered good.

4. Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is the total cost associated with acquiring a new customer, including marketing and sales expenses.

How CAC is calculated: CAC is calculated by dividing total marketing and sales costs by the number of new customers acquired in a given period.
What tools can be used to get CAC data: Tools like Google Analytics, Marketo, and Salesforce can help track CAC.
What average, good, and best in class look like for CAC: A low CAC relative to CLV is ideal; startups often aim for a CAC payback period of less than 12 months.

5. Net Promoter Score (NPS)

Net Promoter Score (NPS) measures customer satisfaction and loyalty by asking customers how likely they are to recommend your service to others on a scale of 0-10.

How NPS is calculated: NPS is calculated by subtracting the percentage of Detractors (0-6) from the percentage of Promoters (9-10).
What tools can be used to get NPS data: Tools like SurveyMonkey, Delighted, and Qualtrics are popular for NPS surveys.
What average, good, and best in class look like for NPS: An NPS score above 30 is generally considered good; above 50 is excellent.

6. Gross Margin

Gross Margin is the difference between revenue and the cost of goods sold (COGS), expressed as a percentage of revenue. It indicates the efficiency of your business processes.

How Gross Margin is calculated: Gross Margin is calculated by subtracting COGS from total revenue and then dividing the result by total revenue.
What tools can be used to get Gross Margin data: Accounting software like QuickBooks, Xero, and FreshBooks can be used to track gross margins.
What average, good, and best in class look like for Gross Margin: SaaS companies often have high gross margins; 70-80% is typical, and best-in-class can exceed 80%.

7. Daily Active Users (DAU) / Monthly Active Users (MAU)

DAU/MAU ratio indicates the engagement level of your users. A higher ratio shows that users find value in your service and return frequently.

How DAU/MAU is calculated: DAU/MAU is calculated by dividing the number of daily active users by the number of monthly active users.
What tools can be used to get DAU/MAU data: Tools like Mixpanel, Amplitude, and Google Analytics help in tracking user engagement.
What average, good, and best in class look like for DAU/MAU: A DAU/MAU ratio of 20% is average, 30-40% is good, and 50% or higher is exceptional.

8. Customer Support Tickets

The number of customer support tickets can be an indicator of your service quality and customer satisfaction. A higher number could indicate underlying issues with your product.

How Customer Support Tickets is calculated: Count the number of support tickets opened over a specific period.
What tools can be used to get Customer Support Tickets data: Customer support platforms like Zendesk, Freshdesk, and Intercom can manage and track support tickets.
What average, good, and best in class look like for Customer Support Tickets: The average number of tickets should ideally decrease over time as issues are resolved; trends depend on user base size.

9. Conversion Rate

Conversion Rate measures the percentage of visitors who take a desired action (e.g., signing up for a trial or subscribing).

How Conversion Rate is calculated: Conversion Rate is calculated by dividing the number of conversions by the total number of visitors and multiplying by 100 to get a percentage.
What tools can be used to get Conversion Rate data: A/B testing and analytics tools like Optimizely, Google Analytics, and Crazy Egg can track conversion rates.
What average, good, and best in class look like for Conversion Rate: Conversion rates vary; a 2-3% rate is average, 5-7% is good, and anything above 8% is excellent.

10. Average Revenue Per User (ARPU)

ARPU measures the average amount of revenue generated per user. It's useful for understanding revenue at a per-customer level and for segmenting customers.

How ARPU is calculated: ARPU is calculated by dividing the total revenue by the number of users.
What tools can be used to get ARPU data: Tools like Baremetrics, ChartMogul, and ProfitWell can track ARPU.
What average, good, and best in class look like for ARPU: ARPU varies between industries; higher ARPU typically indicates better pricing strategy and value proposition.

How to track metrics for SaaS

Accurately tracking metrics for your SaaS business can be time-consuming, but it's essential for sustained growth and success. Utilizing a goal-tracking tool like Tability can save time and help teams stay focused on the right metrics. Tability allows you to set, track and visualise your team's key performance indicators in an organised manner, making it easier to monitor progress and make informed decisions. Additionally, the tool provides reminders and progress updates to ensure that your team stays on track.

FAQ

Q: Why is it important to track MRR? A: MRR provides predictable and consistent insight into your recurring revenue, making it easier to forecast growth, set realistic financial goals, and evaluate the effectiveness of your sales and marketing strategies.

Q: What is a good CAC to LTV ratio? A: A good CAC to LTV (Customer Acquisition Cost to Lifetime Value) ratio is generally considered to be 3:1. This means that the lifetime value of a customer should be three times the cost of acquiring that customer.

Q: How often should I track these metrics? A: It is beneficial to track these metrics monthly to provide a consistent view of your performance. However, some metrics like DAU/MAU and customer support tickets may require daily or weekly monitoring.

Q: What if my churn rate is high? A: A high churn rate indicates that you are losing customers more quickly than you should, which can harm growth and revenue. Focus on understanding the reasons behind churn by collecting customer feedback and addressing recurring issues.

Q: Which metric is the most important? A: The importance of a metric can vary based on your specific business goals. However, metrics like MRR, Churn Rate, and CLV are generally considered critical for assessing the health and growth potential of SaaS businesses.

By understanding and tracking these key metrics, SaaS companies can make informed decisions that drive growth, improve customer satisfaction, and measure their success more effectively.