Being a software-as-a-service (SaaS) provider, your business is all about tracking data.
Whether that’s your MRR (Monthly Recurring Revenue), customer churn rate, or lifetime value (LTV) of a customer, understanding your KPIs for your SaaS Business is critical to success.
To help you select the right KPI metrics for your business, we’ve compiled a list of the most important ones, including SaaS KPI examples, to help you get started.
Why KPI metrics are important to SaaS businesses
Before we dive into which SaaS KPIs you should be tracking, let’s first take a step back and understand why KPIs are so important.
For instance, let’s say you want to know if your marketing campaigns are effectively generating new leads. In this case, your KPI could be the number of leads generated from each campaign.
The beauty of KPIs is that they help you quickly and easily understand whether or not you’re on track to reach your objectives. If a KPI is trending in the wrong direction, it’s a clear signal that something needs to be changed.
This is especially important for SaaS businesses, as the SaaS industry is incredibly competitive, and most products are of a technical nature. As a result, SaaS businesses need to be constantly iterating and improving their products if they really want to stay ahead of the curve.
Tracking, analysing, and optimising KPIs can help SaaS companies achieve the following:
- Improve product development initiatives
- Add desired features or capabilities
- Identify areas for improvement
- Increase customer satisfaction
- Generate new leads and customers
- Streamline business operations
- Reduce costs
- Inspire loyalty
- Motivate new investors
Without a doubt, tracking KPIs can make or break a SaaS business.
However, not every KPI will be relevant to you and your business goals. Therefore, the most challenging part of tracking KPIs isn’t the tracking itself – it’s pinpointing exactly which metrics actually matter to your business.
12 Important SaaS KPIs you need to track
To help you out, we’ve compiled a list of the 12 most important KPIs for SaaS businesses.
1. Churn rate
SaaS churn rate is the percentage of customers who cancel their subscription to your service within a given period of time.
Churn rate is crucial because it directly impacts your business’ revenue. The higher your churn rate, the lesser the revenue. Additionally, high churn rates can indicate that there are issues with your product or customer service.
To get your exact churn rate, take the number of cancellations and divide that by how many remaining subscriptions you have, then multiply the result by 100.
While your churn rate will never be zero – after all, you can’t please everyone – experts agree that a yearly churn rate of between 5% and 7% is acceptable.
Another important SaaS KPI to track is the number of customers signing up for your service. It’s simple: The more sign-ups you get, the more potential customers and revenue you’re bringing in.
This metric is especially important for self-service SaaS businesses since customers need to sign up for a free trial before they can start using the product.
Tracking sign-ups can help you see whether or not your marketing campaigns are effective – and it can also give you insight into how potential customers are interacting with your website.
3. Monthly recurring revenue (MRR)
Recurring revenue is essential as it provides a steadier stream of income that can be used to fund other aspects of the business. In addition, this important metric provides a measure of all the revenue received from paying customers.
Figure out your MRR by multiplying the number of paying customers you have by ARPU (Average Revenue per User).
Depending on the complexity of your business, you may need to track multiple MRRs to get an accurate picture of your company’s financial health.
For example, if you have different subscription tiers or offer one-time services in addition to your recurring services, you’ll need to calculate MRR for each individual product or service.
Alternatively, if you have customers in different geographical regions, you may need to track MRR separately for each region – it all depends on the nature of your SaaS business.
4. Revenue churn
For some, revenue churn is even more important to track than customer churn itself. That’s because this metric directly impacts your company’s current and future financial standing.
Revenue churn measures the loss of revenue due to customers cancelling their subscriptions. To calculate it, take your monthly recurring revenue and subtract the revenue from customers who have churned.
At a minimum, you should be tracking this on a quarterly basis. Anything less than that and you risk not having enough data to make informed decisions about your business.
5. Annual recurring revenue (ARR)
Another key metric for SaaS businesses is annual recurring revenue, which simply measures your monthly recurring revenue multiplied by twelve.
This number provides a good indication of the potential long-term value of your customer base. Additionally, it can be helpful to compare your ARR with your company’s annual growth rate – this will give you a better idea of how your business is performing.
6. Committed monthly recurring revenue (CMRR)
For businesses with a complex subscription model, committed monthly recurring revenue (CMRR) is a critical KPI. It’s a modified version of MRR that also factors in new sign-ups, downgrades, and cancellations.
So why is CMRR important? Well, it provides a more granular view of your recurring revenue, which can be helpful in forecasting future growth. Additionally, it can give you insights into which subscription plans are most popular with your customers and where you might be losing revenue.
7. Customer acquisition cost (CAC)
This SaaS KPI is all about understanding how much it costs to acquire new customers. Ideally, you want to spend as little as possible on customer acquisition while still acquiring high-quality customers.
To calculate your CAC, simply divide your total marketing and sales expenses by the number of new customers acquired.
If it’s taking you more to acquire customers than they’re worth to your business, then that’s a problem. You need to either find ways to reduce your customer acquisition costs or increase the lifetime value of your customers.
8. Customer lifetime value (LTV)
The customer lifetime value, or LTV, is one of the foundational SaaS KPIs any business should be tracking. It’s a measure of how much revenue you can generate from a single customer over the course of their relationship with your business.
There are a number of different ways to calculate LTV, but the most common is to take the average monthly recurring revenue (MRR) per account and multiply it by the customer lifetime.
Lifetime value is important because it provides insights into how profitable your customer relationships are. If your LTV is higher than your CAC, then you’re in good shape. But if it’s lower, there are red flags you may not be seeing.
For example, you may be acquiring customers who are less valuable to your business than you think. Are they quickly churning? Are they downgrading their subscription or never upgrading it? We recommend you find the answers ASAP and adjust your strategy.
9. Cash burn rate
his is an often-overlooked SaaS KPI that can seriously hurt your bottom line if you’re not paying attention to it.
Your cash burn rate is the rate at which you’re spending cash each month. It sounds simple, but it indicates how quickly you’re using up your cash reserves and how efficient you are at managing your cash reserves.
To calculate your cash burn rate, simply divide your monthly operating expenses by the amount of cash you have on hand.
10. Lead velocity rate (LVR)
This metric revolves around the number of leads that you’re generating on a monthly basis. Specifically, your LVR measures the real-time growth of your qualified leads.
Why do you need to know this? Because your LVR is a direct result of how well your sales and marketing strategy is going and also has an impact on your retention strategies.
11. Monthly unique visitors
This SaaS KPI measures the number of unique visitors that come to your website each month. It may not seem that important in light of “heavier” metrics like LTV or CAC. But it’s actually a really good indicator of growth (or lack thereof) because it shows you how your audience is trending over time.
12. Organic vs. paid traffic ROI
Finally, you should also be tracking the ROI of your organic and paid traffic acquisition efforts. This metric reveals which channels are most effective at acquiring customers and where you should be spending your marketing budget.
Organic traffic is traffic that you don’t have to pay for (i.e., it comes organically from search engines like Google). On the other hand, paid traffic is traffic that you acquire through paid channels like Google AdWords, Facebook Ads, etc.
Both types of traffic can be valuable, but not equal. For example, if you’re spending £100 on Facebook Ads and acquiring 10 customers, but you’re only generating £50 in revenue from those 10 customers, then that’s not a good return on investment.
On the other hand, if you’re generating 1,000 organic visitors from Google and 10 of those visitors become customers, then you may want to consider increasing your spending on SEO.
Tracking KPIs is not where this ends. By keeping track of the above 12 KPIs, you will be able to monitor all of the major areas of your business and how it is performing.
If you see an upward trend in performance, then you know what you are doing is having the desired effect. If performance is trending downward, then you know something has to change.
It is important to remember that these KPIs are important to track as they can help you make decisions to improve performance. You can make improvements to the products you are providing, you can make improvements to your marketing, you can make improvements to your business decisions and you can make improvements to the overall service you provide your customers. That is where the real value of tracking the above KPIs comes from.