When you’re working for a SaaS business, knowing your numbers is everything. Understanding how much it costs to acquire a customer and how much they’ll spend with you over a lifetime can help you make smarter decisions around marketing, development, and investment.
In this guide, we’ll take a look at some of the key SaaS metrics that you’ll want to understand and monitor. Whether you’re just starting out or want to track important metrics to optimize your growth, these are our must-have key performance indicators to keep an eye on.
It might sound obvious, but every business — including SaaS startups — needs to be mindful of cash in the bank. Cash flow is an important SaaS metric to track, because a low cash reserve can spell big potential problems. On the other hand, a healthy cash flow and profitability may mean the company can invest in new research, products, or hires.
There’s no fixed goal amount when it comes to how much cash your SaaS company should have. Ensure enough cash reserves to cover monthly costs like salaries, equipment, office space, and development, with enough left over that everyone can work comfortably and focus on your goals — not worrying about whether you need to look for a rescue investment.
2. Average Revenue Per Account (ARPA)
Knowing how much cash your SaaS company has is great, but you’ll also want to understand whether you’re making the expected average amount of revenue per customer or not. To help you figure this out, calculate your average revenue per account (ARPA) — also known as your average revenue per user (ARPU).
To get your ARPA figure, take your monthly recurring revenue and divide it by the total number of accounts. This will give you the average monthly revenue per account. If you need the annual figure, repeat the process with your annual recurring revenue.
With an understanding of how much revenue each account or user generates, you can better optimize your future plans. It’s easier to set a goal for a number of new customers to meet a financial target or show investors you can achieve a future revenue with growth. It also helps you identify opportunities to raise your average revenue per account — like adjusting your pricing model, offering a premium tier, or introducing add-ons.
3. Number of Customers
This might be an obvious SaaS metric, but it’s still important to track. Luckily, most platforms give you an easy way to do this. Keep track of your total number of customers and compare it monthly or annually.
If your business model features both free and paid plans, you should also measure the number of free plan customers vs. paying customers. This can help you identify opportunities to upsell more trial members to a paid plan, increasing your monthly revenue.
As well as your total number of customers, it’s a good idea to capture the number of monthly active users. This gives you an idea of what percentage of your total customer base actually uses your service each month. With this understanding, you can encourage inactive users to return through promotions, discounts, or calls with your customer care team.
4. Monthly Recurring Revenue (MRR)
Monthly recurring revenue (or MRR) is one of the key metrics that SaaS companies compare their success and progress against. This metric looks at the amount of revenue you generate from customers every month.
Your monthly recurring revenue is calculated by taking the average revenue per account and multiplying that by the number of total active accounts that month. If you want to understand your annual recurring revenue (ARR) too, multiply that figure by 12.
With most SaaS business models focused on a subscription business, a healthy MRR is a must-have. It’s a good indicator both that you have enough customers to sustain your operations and that your pricing is on point.
5. Lead Velocity Rate
You can’t increase your monthly revenue if you don’t have the right leads in your pipeline. Lead velocity rate (or LVR) measures the growth of qualified leads in your sales funnel, month by month.
To measure your lead velocity rate, take the number of qualified leads from this month and subtract the qualified leads from the previous month. Then, divide this by the number of qualified leads last month, and multiply by 100 for a percentage.
Measuring your lead velocity rate can give you useful insights into potential future sales revenue. The more qualified leads you bring in each month, the higher chance that those leads turn into new customers. Tracking this key SaaS metric every month can also help you be proactive if you have fewer inbound leads than usual or if your leads aren’t converting into paid customers. Without knowing your LVR, you can’t act on these challenges until later in the customer journey.
6. Customer Acquisition Cost (CAC)
Every company should have a good idea of the cost it takes to gain a customer, and that’s especially true for SaaS businesses. Customer acquisition cost (CAC) is one of those SaaS metrics and KPIs you just can’t be without. It measures how much money it takes to gain a new customer using your sales and marketing costs — including any costs involved in onboarding your new customer. It’s a useful indicator of whether the amount you’re spending on advertising and lead generation is profitable.
To find out your customer acquisition cost, take the sales and marketing costs for any given period and divide it by the number of new customers gained over that time. This CAC ratio will give you an idea of how much you’re spending to bring a new customer into your ecosystem.
Acquiring customers can be expensive, which is why it’s a great idea to focus on retaining existing ones. Look for ways to impress the customers you already have — like loyalty offers or referral bonuses. You can also look for opportunities to increase the number of leads that convert to customers. A live video chat tool like ServiceBell can help you engage with customers as they browse your website — giving you an easier way to build a relationship that can translate into a signup.
7. Activation Rate
Activation rate is another SaaS metric you’ll want to track to better understand how your company is performing. Your activation rate measures the percentage of customers or visitors who take a determined action as part of your onboarding process.
To measure your activation rate, take the number of people who complete the milestone and divide it by the total number of users that signed up. Multiply this by 100 to give you a percentage. This’ll give you the conversion rate for the milestone you’ve selected, giving you your activation rate.
It’s best to pick an activation milestone that makes sense for your business. For example, this might be the first time a user sends out an email campaign using your marketing tool, or when they add their first contact to your CRM database software. Whichever milestone you choose, make it one that you can easily measure. Once a user activates, they’re more likely to stick around, so make it a priority to speed up that customer journey between when they sign up for a free trial and actively use your service.
8. Customer Churn Rate
Not everyone will want to stay as a customer, which means you’ll always have some level of customer churn. Monitoring your customer churn rate lets you understand how many customers leave your service every month compared to how many you have overall.
To calculate your customer churn rate, take the number of customers you’ve lost during a period and divide it by the total number of customers at the start of that period. Multiply this figure by 100 to give you a percentage.
Ideally, you want to keep your average customer churn rate low — but that’s not always easy in a SaaS business with so many competitors and a user friendly subscription model. Still, aim for your monthly churn to stay in the low numbers.
If you find your customer churn rate rising or problematic, it’s time to look at ways to improve customer retention. Turn your focus to customer experience, and invest in a live video chat tool like ServiceBell to help you provide outstanding service to potential and existing customers. Being proactive about service and support means your customers are less likely to head to a competitor — especially if you can engage with them in a fun, immersive way like live video.
9. Customer Lifetime Value (LTV)
With customers coming and going thanks to the nature of SaaS business models, it’s useful to know how much revenue you can expect to gain from a customer while they’re with you. Customer lifetime value (LTV, or CLV) gives you an estimate of what a customer might spend with you before their expected churn date.
To calculate your customer lifetime value, take your average monthly recurring revenue per customer and divide it by your customer churn rate.
Tracking your customer lifetime value is essential if you want to increase your profitability. If it costs more to acquire a customer than their lifetime value, you need to look at reducing your marketing spend, increasing MRR, or reducing churn rate. For SaaS companies, a 3:1 LTV to CAC ratio is standard — so look to achieve a ratio close to or better than this to help profitability, growth, and cash flow.
10. Net Promoter Score (NPS)
If you want to understand what your customers think about your company, a net promoter score (NPS) is one of the best SaaS metrics to track for customer success. It’s a score that helps you understand whether or not customers would recommend your business to a friend or coworker — giving you a valuable insight into what value they place on your service.
To get the data to calculate your NPS, send a simple customer survey to active users over a given time period. Ask how likely they are to recommend your service, and offer a scale from 0-10 for them to rate you — with 0 being the lowest. To calculate and measure your score, count how many 9 and 10 ratings (known as promoters) you have and subtract the total number of 0-6 ratings (known as detractors) you received. This gives you a figure that you can use to measure customer satisfaction of your SaaS product. You can repeat this process every quarter or more frequently to help you monitor change.
Track your net promoter score over time. As you introduce pricing, plan, or product changes, it’s helpful to know the impact on customer satisfaction and experience. If you see a negative change, you might revisit your decisions. If your scores rise, you can double down on them. You can also use your NPS to identify customers at risk of churning before they leave and follow up with customers who gave a low score. You’ll want to talk through any issues they’re experiencing.
Track Your SaaS Metrics to Success
Being familiar with these key SaaS metrics helps you make positive change before anything becomes an issue. Track your customer churn rate to identify ways to improve customer experience, and keep an eye on monthly recurring revenue.
Once you start measuring these important SaaS metrics, you can find ways to optimize your strategies to improve your figures. If your focus is on enhancing customer experience, acquiring more customers, or retaining existing ones, try ServiceBell. Our live video chat works straight from your website, so you can engage with leads and customers while they’re already active on your site.