SaaS Dodo
Introduction
Keeping track of SaaS metrics can be tricky, but is essential for the success of your business. The top 17 SaaS metrics that matter most for your business can help you measure performance and identify areas for improvement.
Learn about these metrics and how to use them to boost your bottom line. We’ve put together a list of 17 SaaS metrics that will help you understand how successful your SaaS business really is.
What is a SaaS metrics?
A SaaS metric is a key performance indicator (KPI) of your business that helps you understand how your business is performing. It’s an easy way to see if you’re on track and whether or not you need to make changes to improve it.
SaaS metrics help you make informed decisions about:
- where your company should focus its efforts,
- what types of marketing campaigns are working best for them,
- whether or not they need more resources in order for their software development team members to reach their goals faster than before (and if so then how much time do they have left until those goals are reached), etcetera…
These metrics can provide insight into a variety of aspects of the business, such as customer acquisition, retention, revenue growth, and profitability.
Why SaaS metrics are so important?
- SaaS metrics help you understand your business
- SaaS metrics help you understand your customers
- SaaS metrics help you understand your competitors
- SaaS metrics help you understand your growth
By tracking these and other SaaS metrics, companies can identify trends and areas for improvement, and make informed decisions about their business strategy.
If you’re not using data analytics in your business, it’s time to start. There are a number of different ways that SaaS companies can use analytics and other technology-driven tools to get an edge over their competition.
SaaS Metrics:
- Customer Lifetime Value (CLTV)
- Customer Retention Rate
- Customer Acquisition Cost (CAC)
- Monthly Recurring Revenue (MRR)
- Annual Recurring Revenue (ARR)
- Churn Rate
- Conversion Rate
- Monthly Unique Visitors
- Signups
- Average Revenue per User (ARPU)
- Marketing Qualified Leads (MQLs)
- Return on Investment (ROI)
- Average First Response Time
- Product Qualified Leads (PQLs)
- Net Promoter Score (NPS)
- Number of Active Users
- CAC:CLTV Ratio
Customer Lifetime Value (CLTV)
What is Customer Lifetime Value (CLTV)?
Customer Lifetime Value (CLTV) is a measure of the total value of a customer to your company over their lifetime. It’s an important metric because it shows you how much revenue you’re generating from each customer, which allows you to compare your company’s performance against others in similar industries.
How to calculate Customer Lifetime Value (CLTV)?
It is calculated by multiplying the average purchase value by the number of purchases a customer is expected to make over their lifetime, and then subtracting the cost of acquiring and retaining the customer.
For example, if a customer has an average purchase value of $100 and is expected to make 10 purchases over their lifetime, and the cost of acquiring and retaining them is $500, the CLTV would be $1,000 (($100 x 10) – $500).
CLTV is an important metric for businesses to track because it helps them understand the profitability of their customer base and identify opportunities to increase customer retention and loyalty.
By understanding the CLTV of their customers, businesses can make informed decisions about how to allocate their resources and optimize their marketing and sales efforts.
Customer Retention Rate
What is the Customer Retention Rate?
Customer Retention Rate (also known as Customer Retention or Customer Stickiness) is a measure of the percentage of customers who continue to use a company’s product or service over a given time period. In simple language, It is the percentage of customers who remain active within a given time frame.
How to calculate Customer Retention Rate?
It is calculated by dividing the number of customers at the end of a period by the number of customers at the beginning of the period, and then multiplying by 100 to express the result as a percentage.
For example, if a company has 100 customers at the beginning of a month and 95 customers at the end of the month, its customer retention rate for that month would be 95%.
Customer retention rate is an important metric for businesses because it can provide insight into the effectiveness of their customer acquisition and retention efforts. A high customer retention rate indicates that customers are satisfied with the product or service and are likely to continue using it, while a low retention rate may indicate a need to improve the product or address customer concerns.
By tracking customer retention rate over time, companies can identify trends and take action to improve retention, such as offering promotions or incentives to keep customers engaged, or addressing issues that may be causing customers to leave.
Customer Acquisition Cost (CAC)
What is Customer Acquisition Cost (CAC)?
Customer Acquisition Cost (CAC) is a measure of the resources (e.g. money, time, effort) required to acquire a new customer.
How to calculate Customer Acquisition Cost (CAC)?
It is calculated by dividing the total cost of acquiring new customers (e.g. marketing and sales expenses) by the number of new customers acquired over a given period of time.
For example, if a company spends $100,000 on marketing and sales activities over the course of a year and acquires 1,000 new customers, its CAC would be $100 per customer ($100,000 / 1,000 = $100).
CAC is an important metric for businesses because it allows them to understand the efficiency of their customer acquisition efforts.
If CAC is high, it may be an indication that the company is spending too much to acquire new customers, which could impact its profitability.
On the other hand, if CAC is low, it may suggest that the company is effectively and efficiently acquiring new customers, which could lead to increased revenue and growth.
Monthly Recurring Revenue (MRR)
What is Monthly Recurring Revenue (MRR)?
Monthly Recurring Revenue (MRR) is a financial metric that measures the predictable revenue that a business can expect to receive on a monthly basis from its subscription-based products or services. It is calculated by multiplying the number of paying customers by the average price they pay per month.
MRR is an important metric for businesses that offer subscription-based products or services because it provides a reliable, predictable source of revenue that can be used to plan for future growth and expenses. It is also useful for tracking the health of a business over time, as changes in MRR can be an indicator of changes in customer demand or product pricing.
How do you calculate Monthly Recurring Revenue (MRR)?
To calculate MRR, you can use the following formula:
MRR = Number of paying customers * Average price paid per month
For example, if a business has 100 paying customers who pay an average of $100 per month, the MRR would be $10,000 (100 * 100). If the number of paying customers increases or the average price paid per month increases, the MRR will also increase. Conversely, if the number of paying customers decreases or the average price paid per month decreases, the MRR will also decrease.
It’s important to note that MRR only measures predictable, recurring revenue from subscription-based products or services. It does not include one-time or non-recurring revenue, such as revenue from one-time consulting services or product sales.
Annual Recurring Revenue (ARR)
What is ARR (Annual Recurring Revenue)?
Annual recurring revenue (ARR) is a metric that represents the amount of revenue that a company can expect to receive on an annual basis from its recurring sources of revenue, such as subscriptions, memberships, or recurring services.
ARR is important for businesses because it allows them to predict and forecast their revenue streams over the long term. By understanding the expected annual recurring revenue, a company can better plan for future growth and expansion, as well as make informed decisions about investments and resource allocation.
Additionally, ARR can be used to compare the performance of a business over time, or to benchmark against competitors.
How do we calculate annual recurring revenue (ARR)?
To calculate ARR, a company will first determine the total amount of revenue that it expects to receive from its recurring sources over the course of a year. This may include revenues from subscriptions, memberships, and recurring services, as well as any other regular sources of income. The company will then divide this total by the number of months in a year, to get the monthly recurring revenue (MRR). Finally, the company will multiply the MRR by 12, to get the ARR.
For example, if a company expects to receive $100,000 in recurring revenues over the course of a year, and has 10,000 subscribers paying $10 per month, the ARR would be calculated as follows:
MRR = $100,000 / 12 months = $8,333.33/month
ARR = $8,333.33/month * 12 months = $100,000/year
Churn Rate
What is Churn Rate?
Churn is the term used to describe when a customer or subscriber stops using a product or service.
Churn rate is the percentage of customers who churn within a given time period, typically measured on a monthly or annual basis. It’s one of the most important metrics for SaaS companies because it tells you how many users were lost over a specific period, which can be key to knowing if your product is effective at retaining users.
A high churn rate can be an indication of a problem with the product or service, or with the customer experience, as customers may be unhappy with the value they are receiving. On the other hand, a low churn rate may indicate that customers are satisfied with the product or service and are likely to continue using it.
The opposite of retention rate is the churn rate, so if your retention keeps increasing but your churn remains stable (or increases), then that’s good news!
Conversion Rate
What is the Conversion Rate?
Conversion rate is the number of visitors who convert into paying customers. The goal of your SaaS business is to get as many people onto your site as possible, but only a fraction of them will actually become customers.
How to calculate Conversion Rate?
It is calculated by dividing the number of conversions by the total number of visitors and is often used to measure the effectiveness of a website or marketing campaign.
A high conversion rate indicates that a large percentage of visitors are taking the desired action, while a low conversion rate may indicate that the website or marketing efforts are not effectively converting visitors into customers.
Conversion rate optimization strategies aim to improve the conversion rate by making changes to the website or marketing tactics to encourage more visitors to take the desired action.
Monthly Unique Visitors
Monthly Unique Visitors is the number of unique visitors to your website or app. It’s a good indicator of how many people are using your product, and it can also be used as a metric for determining how many customers you have.
If you are a SaaS company, this metric will give you an idea about how many people are using your product on a monthly basis. If there are more than 1 million monthly unique users, then it indicates that there could be lots of potential customers who could benefit from using your products/services!
Signups
Signups are a key metric to track because they help you understand the growth of your user base. Signups represent the first step in the customer acquisition process, so it’s important to keep an eye on this figure as it can give you valuable insight into how well your product is doing at converting users into paying customers.
Average Revenue per User (ARPU)
What is ARPU (Average Revenue per User)?
The average revenue per user (ARPU) is a measure of the average amount of revenue that is generated from each individual user of a company’s product or service.
How to calculate Average Revenue per User (ARPU)?
It is calculated by dividing the total revenue generated by the company by the number of users. ARPU is typically used in the telecommunications, media, and entertainment industries, where companies often have a large number of customers or subscribers who pay a monthly fee for their services.
By calculating ARPU, companies can determine how much revenue they are generating from each user, which can help them make strategic business decisions and allocate resources more effectively.
Marketing Qualified Leads (MQLs)
What is Marketing Qualified Leads (MQLs)?
MQLs are leads that have passed through the marketing funnel. They have engaged with marketing materials such as emails, social media posts, or landing pages, and have provided their contact information to the company.
MQLs are considered more likely to convert into paying customers compared to other leads, as they have already demonstrated a level of interest and engagement with the company’s marketing efforts.
MQLs consist of:
- Leads that were sent to sales.
- Leads that were qualified by sales, and then passed along to you or another department in your organization.
Marketing teams use MQLs to prioritize their efforts and focus on converting these leads into paying customers.
Return on Investment (ROI)
What is Return on Investment (ROI)?
Return on Investment (ROI) is a measure of the profitability of a business or investment. It is calculated by dividing the net profit of the investment by the initial cost of the investment, and then multiplying by 100 to express it as a percentage.
How do we calculate ROI for SaaS?
In the case of a SaaS (Software as a Service) business, ROI is calculated by dividing the net profit generated by the software by the initial cost of developing and launching the software. This includes the cost of research and development, marketing, and other expenses associated with getting the software up and running.
The goal of a SaaS business is to generate a high ROI by maximizing the net profit of the software and minimizing the initial cost of development and launch. This can be achieved through various strategies such as pricing the software appropriately, finding ways to reduce development costs, and effectively marketing the software to potential customers.
A high ROI is important for a SaaS business because it indicates that the software is generating a good return on investment, which can be used to reinvest in the business or to pay dividends to shareholders.
A low ROI, on the other hand, may indicate that the software is not generating enough profit to justify the initial investment, and may require the business to reevaluate its pricing, marketing, or development strategies in order to improve profitability.
Average First Response Time
What is AveFirst Response Time?
Average first response time refers to the average amount of time it takes for a company or organization to respond to a customer or client’s initial request or inquiry. This metric is commonly used to measure the efficiency and effectiveness of customer service operations, as it can provide valuable insight into how quickly and effectively a company is able to address and resolve customer concerns or issues.
Average first response time is typically measured in minutes or hours, and is calculated by taking the total amount of time it takes for all initial responses to be sent, and dividing it by the total number of responses.
By monitoring and improving average first response time, companies can ensure that they are providing timely and effective support to their customers, which can improve customer satisfaction and loyalty.
Average first response time is a key measure of customer satisfaction. It’s also important to track because it can be an indicator of how well you’re handling your support tickets, as well as the overall quality of service you provide.
Product Qualified Leads (PQLs)
Product Qualified Leads (PQLs) are leads that have been qualified by the sales team, and are ready to be sold. PQLs can be generated through a variety of sources:
- Lead generation campaigns
- Leads from existing customers
- Prospecting calls or emails
Net Promoter Score (NPS)
What is NPS (Net Promoter Score)?
Net Promoter Score (NPS) is a measure of customer loyalty and satisfaction. It is based on the idea that a customer’s likelihood to recommend a company’s products or services to others is a good indicator of their overall satisfaction with the company.
How to calculate NPS?
To calculate NPS, a company asks its customers a single question: “On a scale of 0 to 10, how likely are you to recommend our company to a friend or colleague?” Customers are then divided into three categories based on their response:
- Promoters (score 9-10): These are customers who are loyal and likely to recommend the company to others.
- Passives (score 7-8): These are satisfied customers, but they may not be particularly loyal or enthusiastic about the company.
- Detractors (score 0-6): These are unhappy customers who are unlikely to recommend the company to others.
- To calculate the NPS, the percentage of Detractors is subtracted from the percentage of Promoters. The resulting score can range from -100 (if all respondents are Detractors) to 100 (if all respondents are Promoters).
NPS is often used as a way to gauge customer satisfaction and loyalty, and it can be a useful metric for companies to track over time. By regularly measuring NPS, a company can identify areas where it is doing well and areas that need improvement, and it can take steps to increase customer satisfaction and loyalty.
Number of Active Users
In the context of a software as a service (SaaS) business, the number of active users refers to the number of individuals who are currently using the service on a regular basis. This metric is often used as a key performance indicator (KPI) for SaaS companies, as it reflects the level of engagement and adoption of the service by its customers.
The number of active users can be tracked and measured in a number of different ways, depending on the specifics of the service and the needs of the business. Some common methods for tracking active users include:
Tracking logins or account activity: This can be done by monitoring the number of times users log into the service or perform certain actions within the service, such as creating or editing content, collaborating with others, or making purchases.
Monitoring usage patterns: This involves analyzing data on how often users access the service, how long they spend using it, and what features they use most frequently. This can provide insight into the value that users are getting from the service and help identify areas for improvement.
Surveying users: Asking users directly about their level of engagement with the service can provide valuable insights into how active they are and how satisfied they are with the service.
The number of active users is an important metric for SaaS businesses because it can help inform business decisions, such as pricing and product development strategies, and can be used to measure the overall health and growth of the business. It is often used in conjunction with other metrics, such as customer retention and lifetime value, to provide a more complete picture of the business’s performance.
CAC:CLTV Ratio
What is CAC:CLTV Ratio?
The CAC:CLTV ratio is a financial metric that is used to evaluate the profitability and efficiency of a business. It is calculated by dividing the customer acquisition cost (CAC) by the customer lifetime value (CLTV).
The CAC is the cost of acquiring a new customer, including marketing and sales expenses. The CLTV is the expected revenue that a customer will generate over the lifetime of their relationship with the business.
The CAC:CLTV ratio represents the amount of time it takes for a business to recoup the cost of acquiring a new customer. A lower ratio indicates that the business is able to acquire new customers at a lower cost and generate more revenue from each customer over time. A higher ratio indicates that the business is spending more to acquire new customers and may not be generating enough revenue to cover the acquisition costs.
Understanding the CAC:CLTV ratio is important for businesses because it helps them assess the efficiency of their marketing and sales efforts and identify opportunities for improving profitability. By focusing on strategies that lower the CAC and increase the CLTV, businesses can improve their financial performance and achieve long-term growth.
What is the rule of 40 in SaaS?
The rule of 40 is a guideline that is commonly used in the software as a service (SaaS) industry to evaluate the health and growth potential of a company. It is calculated by adding the company’s annual growth rate to its profit margin, expressed as a percentage.
According to the rule of 40, a company is considered to be in a good position if the sum of its annual growth rate and profit margin is greater than or equal to 40%. For example, if a company has a 20% annual growth rate and a 20% profit margin, its rule of 40 would be 40 (20 + 20).
The rule of 40 is based on the idea that a company with a high growth rate and a high profit margin is likely to be successful and have strong future growth potential. Companies with a low rule of 40 may need to focus on improving their profitability or finding ways to increase their growth rate in order to achieve long-term success.
It’s important to note that the rule of 40 is just a guideline and should not be used as the sole basis for evaluating a company’s performance or potential. Other factors, such as the company’s business model, industry, and market conditions, also play a role in its success.
What is the magic number in SaaS?
The “magic number” in SaaS (Software as a Service) refers to the point at which a company’s revenue from its SaaS offering is able to cover all of its expenses, including the cost of acquiring new customers. This is also known as the “break-even point” or the “breakeven point.”
To calculate the magic number for a SaaS company, you need to know the following:
- The total cost of acquiring a new customer (CAC)
- The average revenue per user (ARPU)
- The average lifetime value of a customer (LTV)
- The churn rate (the percentage of customers who cancel their subscription each month)
Once you have this information, you can use the following formula to calculate the magic number:
Magic Number = CAC / (ARPU * (1 – Churn Rate))
For example, if a SaaS company has a CAC of $1000, an ARPU of $100, a churn rate of 5%, and an LTV of $1000, the magic number would be:
Magic Number = $1000 / ($100 * (1 – 5%)) = 20
This means that the company needs to acquire at least 20 customers to break even.
It’s important to note that the magic number is a dynamic metric and can change over time as CAC, ARPU, LTV, and churn rate all fluctuate. SaaS companies should regularly track and monitor their magic number to ensure that they are on track to achieve profitability.
Conclusion
SaaS metrics are important for your business. They can help you understand how well your product is performing, which helps you decide if it’s worth continuing to invest in or if it’s time for an upgrade. It’s also important that you understand what each metric means before using them in your decision-making process so that there aren’t any surprises when crunching numbers at the end of every month!
