What are SaaS Metrics?

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For SaaS founders, future growth is the primary objective, and it can only be attained by implementing an efficacious business strategy. Unlike organizations, such as e-commerce companies, which are dependent on immediate sales for financial stability, SaaS businesses are more concerned with the entire customer lifecycle. When it comes to SaaS, retaining customers is necessary for financial growth. Consequently, merely attracting customers is not sufficient. The best financial return comes from creating long-term customer relationships, as revenue that recurs is critical for ongoing growth.

The metrics of a SaaS company are designed to support sales, marketing, and customer success departments. For SaaS companies, understanding the power of the three is essential to success, and it requires careful planning to accurately determine the effectiveness of each. SaaS metrics are put in place to guide organizations to success.

To maintain a scaling business, there are many factors to consider and numerous ways for companies to determine how their organization is growing and what they can do to keep the growth going.

POPULAR SAAS METRICS TO TRACK

• Churn
• Activation Rate
• Burn rate
• Customer Lifetime Value (CLV)
• Customer Acquisition Cost (CAC)
• Monthly Recurring Revenue (MRR)
• Net Promoter Score (NPS)

Churn

Customer churn for a SaaS company is the number of customers or accounts that cancel use of the company's services within a period of time. By understanding churn rate, SaaS companies can learn how and when customers interact with their product, helping the company to create more effective retention strategies. It is essential for companies that are looking to expand to determine customer churn rate, as it gives a more comprehensive view of the overall wellbeing of the business.

Activation rate

For example, if a user downloads a ride-sharing app, the product is only activated once that user makes their first trip. After this happens, the user has unlocked the value of the company’s product. The company can then explore the user journey further, allowing them to optimize the user experience for other customers. By understanding how users interact with a product, the company can reduce the time it takes for users to unlock the value of the product.

Many users fail to re-engage with a software service once a free trial has ended, so companies must decide how to keep customers interested in their product.

Burn rate

A company's burn rate (the rate at which it spends its cash supply) is one of the biggest challenges faced by fledgling SaaS companies. By determining how a company spends its cash over a period of time, investors can then gauge how much time there is left before the business runs out of capital. The burn rate can be determined by companies by examining their cash flow statement, which will show any changes in cash position from one period to another. To find out how much money is being lost each month, a company can use the net burn rate formula:

• Cash amount / monthly operating expenses = net burn rate

It is essential for a growing SaaS company to be aware of their burn rate, as it tells investors and venture capitalists how much funding they should give to that business. Since getting good funding is key to the success of a new business, figuring out the burn rate is one of the most important aspects of running a SaaS company.

Customer Lifetime Value (CLV)

It is important for SaaS companies to focus on the entire customer lifecycle and calculate the economic impact of each customer account. Customer lifetime value (CLV) is the projected total revenue generated by a customer over their lifetime. Using the following formula, it can be calculated that the longer a customer uses a company's product, the greater their lifetime value will be:

• Customer value * average customer lifespan = CLV

By determining the customer lifetime value, companies can forecast how profitable a customer will be in the future, allowing them to make changes to their engagement strategies as necessary.

Customer acquisition cost (CAC)

The customer acquisition cost (CAC) is a metric that enables companies to determine how much money they spend on attracting new customers, taking into account marketing, sales and other costs. The following equation can be used to calculate a company's customer acquisition costs:

• Total cost of sales and marketing / number of acquired customers = CAC

By evaluating their customer acquisition costs, companies can devise more efficient marketing strategies.

Monthly recurring revenue (MRR)

In the software as a service (SaaS) industry, monthly recurring revenue (MRR) is a metric that measures the amount of revenue generated each month from new sales or expansions of existing business.

ARR and MRR are both metrics that offer organizations insight into the financial well-being of their business and its collective progress.

Net Promoter Score (NPS)

The Net Promoter Score is a way for companies to determine how their customers feel about their product. For young SaaS businesses, NPS is a useful metric as it allows organizations to make adjustments to their product or service.

How businesses use SaaS metrics

SaaS companies that want to stay afloat in an increasingly competitive industry need to focus on careful planning and capturing and retaining customers. If a business does not have a sound strategic roadmap, it can quickly lose sight of its primary focus, which is to construct a robust organization that can withstand challenging setbacks.

While calculating benchmarks may seem like a daunting task, there are numerous technologies designed to help businesses measure their performance. Software such as Tableau enables organizations to more closely interact with their data so they can make informed decisions that can potentially affect the future of their organization. Organizations that take a deep dive into their data can more easily adapt to market needs and build up a competitive advantage.

Being able to quickly adapt and address new changes, be they financial or otherwise, is vital to maintaining a high-speed business. Within the SaaS industry, where enhancements are happening every day, following a robust business model is necessary to accomplishing goals and setting future ones.

Success does not come overnight, but is the result of years of hard work and planning. In order to be successful, it is essential for SaaS businesses to establish benchmarks that outline their dreams for their organizations, serving as a compass to guide their biggest business decisions.