Metrics are at the heart of SaaS business success. As a SaaS company, it is essential to track and analyze key performance indicators (KPIs) in order to understand how your software-as-a-service is performing. These metrics will help you measure success, identify areas of opportunity, and make informed decisions about the future of your business. In our post we'll discuss why it is important to track SaaS metrics, which metrics you should be tracking, and how to calculate them.
Why Should You Track Important Metrics for your SaaS Business?
Metrics give you an indication of the health of your SaaS company and help inform the direction that you can take. Tracking key performance indicators allows you to measure progress towards your goals and identify trends over time. Metrics provide an objective measurement of success by providing insight into key aspects such as customer acquisition and retention rates, user engagement levels, and overall profitability. They also allow you to measure progress towards specific goals or objectives, such as improved user experience or tracking customer churn rate which helps you understand when customers are leaving your software tool and why they are leaving.
What Key SaaS KPI Metrics Should You Track?
There are many different metrics that a SaaS company should track but some of the most important ones include:
- Monthly unique visitors
- Trial or demo conversion rate
- Trial-to-paid conversion rate
- Retention rate
- Daily or monthly active users (DAU or MAU)
- Monthly recurring revenue (MRR)
- Annual growth rate
- Revenue churn
- Customer lifetime value (CLV)
- Customer acquisition cost (CAC)
- CAC to CLV
- Cost per ticket
- Average resolution time
- Net promoter score (NPS)
These metrics provide insights into various aspects of your business such as customer loyalty and engagement, product usage trends, profitability, market penetration rate etc. Tracking these metrics gives you valuable data that can help inform decisions related to pricing models and marketing strategies.
How Do You Calculate These Important SaaS Metrics So You Can Set Benchmarks?
- Monthly unique visitors - indicates how many new people visited the website each month. Knowing your monthly unique visitor numbers allows your SaaS business to effectively track your growth, providing valuable insight into what methods have proven effective for attracting new subscriber accounts.
To get this metric the best thing you can use will be an analytic software for your website such as Google Analytics.
- Trial or demo conversion rate - are your website visitors really interested in what you've got to offer? Check out trial and demo conversion rates, which tell you how many people are signing up for a free test-drive of your product or demo. It's the perfect way to identify potential leaks such as form friction or insufficient information before leads commit! Measure these conversions on a weekly/monthly/yearly basis - whatever works best for ya!
Just take the amount of trial or demo signups and divide that by the amount of total visits to your website or page in a given timeframe. Then multiply that by 100.
- Trial-to-paid conversion rate - is your business leaking potential customers during the trial stage? Trial-to-paid conversion rate is an important metric to measure - it's a percentage of users who took their free trial and decided to stick around! Keep track, detect any weaknesses in onboarding or features, then plug those leaks for increased revenue.
Just like the trial or demo conversion rate to calculate this SaaS metric you can take the amount of paid users from your trial and divide that by the amount of total trial users in a given timeframe. Then multiply that by 100.
- Retention rate - keep those customers close with your retention rate! Measure just how satisfied people are sticking around for more of what you have to offer.
You are going to get the number of subscriptions for a certain period such as monthly or yearly. Then find the number of remaining subscriptions at the end of that period and subtract the number of new subscriptions within that period. Then multiply that by 100.
- Daily or Monthly Active Users (DAU or MAU) - need to know if your product's engaging users? DAU and MAU are the answer! These metrics measure how many unique people use it daily or monthly - guiding you towards valuable insights of retention rates, engagement levels & more.
Calculate the amount of daily active users by taking the amount of days in month and dividing that by your total number of unique users from each day. The answers gives your average active users in a day.
Then to calculate the amount of monthly active users you choose the amount of months to calculate (up to 12) and divide that by the sum of each of the month's unique users. The answers gives your average active users for each month.
Another metric, DAU/MAU ratio, measures how active monthly users are on a daily basis based on percentage. Take the DAU and divide that by the MAU then multiply that by 100 to get your ratio percentage.
- Monthly recurring revenue (MRR) - MRR is your business's monthly scorecard! It expression what you’ve earned from all of those sweet, recurring subscriptions – minus any one-time fees. MRR takes the complexities created by discounts, coupons and add-ons into consideration to give you a single consistent number on how well that month went.
MRR can have complexities in calculations but the easiest we'll discuss here is knowing your average revenue per account (ARPA) and multiplying that with the total number of active accounts to get your MRR.
- Annual recurring revenue growth rate - Looking to build your SaaS business and platform? Keeping an eye on the Annual Recurring Revenue (ARR) Growth Rate is key! It's a simple way to measure how well you're doing in terms of revenue, expressed as a percentage. Keep that growth rate up - every year it should be steadily getting better!
For this calculation you will want to take the total annual recurring revenue of a period such as the previous year and subtract that with the total ARR for another period such as the end of the current year. Then divide that by the same total ARR for the same current year period and multiplying that by 100 to get your percentage rate.
Example formula: (Made 10 million at the end of this year - Made 6 million the previous year) / same 10 million at the end of this year x 100 = 40% ARR growth rate.
- Revenue churn - Keeping track of your revenue churn is essential if you're running a subscription business - it'll tell you how much income evaporates in each period. To get the best insight into this, break down by MRR, ARR or quarterly cycles to see the bigger picture!
Start by selecting your time period. For instance, let's use MRR. Get your starting MRR for the beginning of the period, any lost MRR during the period and any upgrades from existing customers. Subtract any upgrades from your lost MRR value. Then take that number and divide that by the starting MRR in which will give you a percentage and your revenue churn rate.
- Customer lifetime value (CLV) - Got customers? Fantastic! Curious to know how they can bring your business the most growth? Consider Customer Lifetime Value (LTV): it's a great way to measure the revenue one customer brings over their lifespan with you. Think of it this way: just gaining 1 subscriber could generate years worth of profits so, when strategizing acquisition and costs, calculate LTV for maximum gain!
Take your average annual revenue of an account and multiply that by the average lifetime of accounts in years. Yes, it is helpful to know how many years your typically customer stays on for, but if you're starting out and don't know do some research or go under the assumption that they will stay on at least 1 or 2 years.
- Customer acquisition cost (CAC) - trying to maximize your customer acquisition? Calculating and understanding CAC is the key. Just take a look at how much money was spent on sales and marketing, then divide it by the number of new customers acquired during that same period - this could be for an entire year or just one month. Lowering your CAC will give you room to reach more new people so don't forget about making these calculations!
Find your amount of sales and marketing spend and divide that by the number of new acquired accounts.
- CAC to CLV - Cut losses before they start! Keep a close eye on your customer lifetime value versus cost of acquisition so you know where potential pitfalls may be lurking in the depths of retention and support.
Take your customer acquisition cost and subtract that by your customer lifetime value.
- Cost per ticket (CPT) - Looking to make the most out of your customer support initiatives? Check out CPT! It's a SaaS metric that shows you how much each ticket costs on average - helping give you an overall view of what makes for effective support. Keep track monthly and watch as the numbers get better with every satisfied customer!
The formula is quite simple, but one set of data you really want to drill down is the cost of your operating expense for support. This includes support employee salaries, training, supplies, technology and telecommunications, etc. For the dollar amount you want to take the total amount of tickets for a period such as a month and divide that by the total costs of your support operating expenses for that same period.
- Average resolution time (ART) - the average amount of time it takes your support team to conduct and close a support request whether it's chat, phone or email with an effective resolution. This metric helps you understand how well support does and to keep accounts satisfied so they continue being retained.
Find the total number of tickets resolved for a period of time and divide that by total resolution time for all tickets solved.
- Net promoter score (NPS) - want to know how satisfied your customers really are? NPS can help you get the inside scoop! Just survey them on a scale from 0-10 - it's that easy. With this data in hand, you'll be able to make smart improvements and take your business further than ever before...and leave the competition way behind!
To calculate NPS organize responses into 3 categories: detractors (who rate from 0-6), passives (who rate from 7-8), and promoters (who rate from 9-10). Then, subtract the number percentage of detractors from the percentage of promoters to determine your overall NPS. To get the percentages of each get the total number of those promoter scores and divide by the total number of respondents then multiply that by 100.
Tracking key performance indicators is essential for any SaaS company looking to gain insights into their operations and stay competitive in the market. Knowing which metrics to track and how to calculate them allows businesses to make better informed decisions that can help drive growth and success. With this knowledge in hand, owners, CMOs, co-founders, marketing managers—everyone involved with the business—will be able to use metrics more effectively for decision making purposes. By regularly tracking these key performance indicators (KPIs) so you can stay one step ahead when it comes to growing your business!