It's the 21st century; we live in a digital era where data is the most precious thing for humans. Businesses can't survive long without it anymore. So, data analysis is the key to success, consistent growth, and scalability for businesses, regardless of business size, scope, and domain.
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Today businesses, especially SaaS (software as a service) companies, need to make data-driven decisions and business strategies for their consistent growth and scalability. Therefore, tracking the proper SaaS KPIs for designing data-centric business strategies is critical.
This blog post will let you delve into the top ten worth tracking KPIs for SaaS companies and SaaS products to help you evaluate your SaaS company & SaaS products' performance.
10 SaaS KPIs critical to your business growth and scalability
We have listed the ten most essential SaaS KPI metrics that SaaS companies should include in their KPIs checklist. These easy-to-track KPIs will assist you in analyzing SaaS products and company performance over time. You may follow these SaaS KPIs to design effective marketing and sales strategies for your SaaS company’s consistent growth and scalability.
1. Monthly unique visitors
It is one of the vital SaaS marketing KPIs that enable you to analyze your audience and campaigns' impact in refining the audience. For example, if someone is repeatedly visiting your site, they should be counted once as a unique visitor. Every month, you need to track the number of unique visitors to your site. It will give you valuable insight into all marketing channels' impact in refining the traffic quality.
Measuring the unique visitors from every marketing channel can let you individually analyze the performance of all the marketing channels. Multiple tools like Google Analytics and Adobe Analytics can assist you in tracking the monthly unique visitors on a site. The quality of leads is as significant as the quantity. However, tracking the number of unique visitors is not enough to analyze the quality of the audience. You need to track the following engagement metrics with monthly unique visitors to scrutinize the quality of traffic:
- The average number of pages visited by users
- Average time spent by users on your site/app
- The average number of sessions per day by repeated users
- Monthly email subscriptions
- Monthly number of comments
- How many times is a content file downloaded in a month?
These engagement metrics with monthly unique visitors SaaS marketing metrics can let you effectively analyze the performance of SaaS marketing strategies.
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2. Customer churn to customer retention ratio
Customer churn refers to the number of customers who have not resubscribed on your SaaS app or site after a defined period. It's normal for SaaS apps until it reaches an alarming level. Customer churn rate varies from industry to industry. In 2020, a 22% customer churn rate was recorded for online retail compared to 25% for financial businesses. You may keep tracking the customer-churn to customer-retention ratio to keep an eye on your SaaS product performance. It's one of the essential SaaS product KPIs to,
- Analyze the performance of SaaS product
- Analyze the quality of the audience in terms of targeting the right market.
- Predict the growth potential and profitability over a particular period.
If a SaaS company has a customer retention rate below 70% or a customer churn rate higher than 30%, something is wrong. It needs immediate attention to review the business structure, pricing plans, and restructuring of marketing strategies.
It's one of the must-follow B2B SaaS KPIs, as churn-rate to retention-rate ratio matters for most B2B SaaS companies, especially those working with low margins. Therefore, we suggest SaaS companies track the customers-churn to customers-retention ratio weekly or monthly.
It will enable you to look at the strength and weaknesses of your SaaS products, especially if you have multiple pricing plans and revenue from one customer can reach from $10 to $500. In addition, it will let you individually look at the pricing structure weaknesses to assist you in unearthing the reasons behind higher churn rates.
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The definition of a quality lead could vary from one SaaS company to another, however, its importance remains constant. Survival of most SaaS products relies on quality leads, making leads tracking a must-follow KPI.
How to track the leads precisely? You're on the wrong track if considering every new subscriber or visitor a quality lead. Subscribers to your newsletter or users subscribing for a gift like an eBook or a few-day trial are not quality leads.
It requires you to differentiate the SaaS leads KPIs as follows,
- Marketing Qualified Leads - MQL refers to the buying signals; an app or web visitor's activity indicating their interest to make a purchase comes under the MQL (Marketing Qualified Leads). For instance, users engaging with a product information guide or downloading the product specification guide come under MQL.
- Sales Accepted Leads - SAL refers to the marketing qualified leads that get approached by your sales team, and a phone call appointment is scheduled for further discussion, or a questionnaire has been forwarded.
- Sales Qualified Leads - SQL refers to mature leads seeking a formal quotation. Sales teams come into the picture to follow and seal such leads.
These are the generic SaaS leads KPIs; you have to follow the nearly similar leads KPIs for your SaaS company with a slight difference depending on the domain of your service.
Conversion tracking is a must-follow SaaS marketing KPI; it lets you analyze the impact of marketing campaigns. The ratio of conversions reflects the quality of traffic received through paid campaigns. Add conversions tracking into your SaaS business KPIs to know how your SaaS app turns the leads into a business opportunity.
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5. Customer acquisition cost
Customer acquisition cost (CAC) is a primary metric for SaaS firms. It enables SaaS companies to record the spending for acquiring a new customer. Tracking CAC is a good practice; it allows you to:
- Plan future budgeting
- Plans to gradually drive the CAC value down
- Decide to increase the marketing budget if CAC is low and getting incredible results.
You can get the CAC value of your SaaS company by the following formula,
CAC = Amount burned on marketing / Total no. of customers acquired
Differentiating the marketing costs from other run-of-mill expenses is crucial to get the precise CAC value. One needs to count all the spending which can get signups, subscriptions, or other sales-related leads. In general, SaaS companies burn money on the following marketing channels that ultimately have to be counted for getting the average CAC.
- Google Ads
- Social media marketing
- Content writing
- Email marketing
- Cold calling
- Promotional Giveaways
- Brand Ambassador
6. Lifetime value
Tracking the customer acquisition cost (CAC) is not enough to determine a SaaS company's profit ratio. We have already discussed the significance of quality leads. The quantity of customer subscriptions is crucial; however, quality is way more important than quantity.
Life Time Value (LTV) indicates the quality of a customer for a SaaS company. LTV refers to the total amount a customer pays for a SaaS product over its time with the company. For instance, if a user subscribed to a $30 monthly package on a SaaS app and canceled the subscription after five months, then the LTV of that user will be $150.
CAC and LTV are two incredible SaaS sales KPIs. Your SaaS company is on the right trail if its average LTV is three times higher than CAC. SaaS companies need to track these two KPIs monthly to analyze their spending-to-profit ratio.
7. Cost to service
Cost to service (CTS) refers to the expenses of a SaaS company to provide a particular service. CTS includes all the money burned to provide a service, including the cloud structure, onboarding, support, engineering investments, infrastructure, and cost of retaining existing customers. Therefore, it’s vital to track the CTS to analyze the spending-to-profit ratio and determine the performance of a particular service.
8. Monthly recurring revenue
Monthly recurring revenue (MRR) refers to the monthly income of a SaaS company. MRR is like a bloodline for a SaaS company; you can get MRR value straight from your SaaS billing system. MRR value lets you follow the market trends and focus on the present.
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9. Annual run rate
The annual run rate (ARR) is not a unique concept but a yearly version of MRR (monthly recurring revenue). It enables you to visualize a SaaS company's annual business forecast by assuming that the MRR is consistent with no addition of new customers and a 0% churn rate.
You can simply calculate the ARR by multiplying your SaaS company MRR by 12. For instance, if your company's MRR is $500, its ARR will be 500 x 12 = $6000. Although the ARR value is unrealistic, it assists SaaS companies in visualizing the size of their business at the end of the year. ARR is a helpful KPI for SaaS companies to predict their future business size and plan to achieve the target.
10. Number of active users
Tracking the number of active users is a crucial KPI to determine the health of a SaaS product. The more active users and the increase in average time spent on a SaaS app by active users hints at the good health of a SaaS product.
There is no thumb rule for the "number of active users" to consider a SaaS app healthy. This is because the definition of active users and the required active user ratio varies from business to business. However, you can use the enlisted formula to determine the stickiness ratio for a SaaS app.
Stickiness Ratio = Daily Active Users / Monthly Active Users
Top ten SaaS KPIs you need to know and track. Final words
Today businesses rely on data to stay ahead of their competitors and taste exceptional success. Following the proper KPIs is vital to use data and yielding results wisely. We discussed the top ten SaaS KPIs you may consider adding to your SaaS KPI benchmarks checklist.
However, KPIs vary from business to business – we have discussed the generic but must-follow SaaS KPIs. You can follow these ten KPIs with a slight difference, depending on the domain of your SaaS product.