SaaS Tracking Metrics
If you’re not tracking your SaaS KPIs metrics, you’re flying blind. But, even if you are tracking your metrics, are you confident that they accurately reflect the success of your business?
SaaS tracking can be data-dense, especially if you look into every byte of information going back and forth with your company. The good thing is that you don’t have to track all these metrics. You only have to choose the right SaaS KPIs that are crucial for your business needs and goals.
This guide will provide you with an overview of the key SaaS KPIs you should be closely tracking and how they can contribute to your business growth.
The importance of data for SaaS companies
SaaS businesses are continuously getting more competitive, with the industry increasing in size by around 500% over the past seven years. With every company wanting to climb on top, data is what will pump blood to your business so you can continue to function and grow.
Data provides all the vital information about your company – what marketing strategies are working, what methods need improvement, and how to improve these processes.
The acquisition and accurate interpretation of data are even more critical in Software-as-a-Service (SaaS) firms since most of them operate on a subscription-based model.
There are a lot of SaaS metrics to track, but even big SaaS corporations like Slack, Salesforce, Hubspot, and Netflix only focus on the ones that align with their business goals.
To continuously scale your business, you need to understand your current business patterns, health, performance, and trends. You then have to know how to track SaaS growth by identifying what metrics to track based on your company’s current standing.
Identifying your Key Performance Indicators (KPIs) is simply aligning your metrics with your business goals. For SaaS companies to achieve both the required levels of customer retention and new sign-ups, you need to know the following data:
- How effective marketing campaigns are
- What encourages existing customers to stick around
- How much revenue is being derived each month
- What competitors are doing
Using a curated list of SaaS KPIs, you can accelerate your business growth by saving time, resources, and workforce by only focusing on the metrics you identified necessary for your SaaS growth.
How to track SaaS growth
Because of a ton of metrics available, especially for SaaS companies, it can get overwhelming to figure out what SaaS metrics to track. As a result, some SaaS firms focus on too many metrics and KPIs, while others don’t monitor enough. They then end up going astray from business goals or with little and vague results.
One thing to remember is that not all metrics are KPIs. Therefore, to achieve and retain success in the competitive SaaS arena, closely monitor and respond only to your key growth metrics.
You can also save time by using various SaaS subscription analytics platforms like Baremetrics or ProfitWell to help you accurately measure, track, and analyze your data.
Additionally, we have listed what we think are the most crucial metrics for SaaS tracking and how they can help you track your SaaS company growth:
1. Customer acquisition cost
Customer Acquisition Cost (CAC) is simply how much it takes you to acquire new customers on average.
In general, you need to profit from your customer more than what you spend on converting them. Even if the cost and revenue only break even for a customer, you have to tweak your strategies to lower your CAC, so the ratio between the two improves.
Tracking your CAC is essential to help you determine if you’re investing in the right customer or if you can afford to upscale your business. As your CAC decreases, your revenue per customer will increase.
2. Customer retention rate
For some SaaS companies, Customer Retention Rate (CRR) is the most important metric to determine their success. After all, subscription-based model firms mainly rely on customer retention for continued and increasing cash flow.
A high CRR not only exhibits your customer’s satisfaction and the quality of service you deliver to them. It also helps you develop better and longer-term customer relationships, leading to a rise in profitability and revenue.
Tracking SaaS CRR will help you quantify the customers who continue to use your product over time. As a result, you will know if your product is providing consistent value to your customers. Conversely, you will also know if you’re not meeting your customer’s expectations, so you can strategize how to improve their experience.
A simplified example of retention rate calculation is dividing the number of customers at the end of a particular period by the total number of customers at that point in time.
For example, if you have 100 people who signed up for your service and 60 remain after three months, then your customer retention rate would be 60%.
3. Customer lifetime value
Customer Lifetime Value (CLV or CLTV) is another fundamental metric for SaaS tracking. This provides an estimate of the overall revenue you can get from a customer. A higher CLTV indicates good customer experience and how valuable each customer is to your business over time.
Based on this KPI, you can make data-informed decisions to change the trajectory of your marketing and sales strategy. For example, you can determine if you’re spending your budget with the right clients.
One way to know a customer’s CLTV is by multiplying the average revenue per customer by the average subscription length of that customer.
4. Total contract value (TCV)
Total Contract Value (TCV) is the total profit from a client during your contract (whether recurring or one-off). This includes the revenue itself, among other fees (service fees, etc.).
Total Contract Value differs from Customer Lifetime Value since the former measures the actual value while the latter is mainly an estimate of customer value.
Increasing your TCV will not only help you increase your company revenue but also justify your CAC for the customer.
5. Churn rate
Churn rate is an impactful metric most SaaS companies closely monitor. This is because it directly correlates to the profitability of your company. There are two different churn rates important for SaaS tracking: revenue churn rate and customer churn rate.
Customer churn rate refers to the rate at which a customer ceases a product or service subscription. On the other hand, the revenue churn rate measures revenue loss that results from factors including customer churning and downgrading subscriptions, among others.
Regardless of how successful your company is, churning is really unavoidable. Customers can cancel their subscriptions for a lot of different reasons, some out of your control. However, you can keep it at a stable rate.
One way to reduce your churn rate is by increasing your customer retention rate. Ask for customer feedback and renew your strategies based on their response.
Monitoring your churn rate will also keep you in the know about potential factors that will affect your company in the future. That way, you can improve the causes of churning. You can also mitigate potential churning by giving offers to customers bound to cancel to make them reconsider.
6. Monthly recurring revenue (MRR)
Monthly Recurring Revenue (MRR) is basically the expected revenue from your customers for your products or services within a month. Your net MRR includes your revenue from new customers, existing customers, and your upsells, minus all revenues you lost because of churning.
MRR is an important metric to predict your future revenue more accurately and perform financial planning accordingly. It also measures revenue growth and the potential to expand your business.
High MRR can be a result of effective sales and marketing strategies. Tie it together with related metrics like customer retention rate or churn rate to determine how and which of your products sell better and which needs adjustment.
7. Annual recurring revenue (ARR)
Annual Recurring Revenue (ARR) is the same as MRR, except your revenue is measured in a year. ARRs are good for measuring longer-term displays of your progress towards revenue targets, business strategy effectiveness, and overall performance.
A high ARR is a good indication of growth. However, you can also use ARR as a measure of your standing against competitors, and attract potential investors, too.
To improve or maintain your ARR, you can start by evaluating your monthly recurring revenues, assessing which factors cause the high or low rate, and incentivizing your loyal customers.
8. Average revenue per account (ARPA)
Average Revenue per Account (ARPA) is another revenue-related metric similar to ARR and MRR. However, the measurement is per account on a monthly or yearly basis.
ARPA helps you understand the trends that lead to sales or churning, increase the growth capability of your SaaS business, and strategize upsells or cross-sells to customers depending on the data.
If you have multiple price choices, you can use this metric to check which price point of your services your customers mostly purchase. Do your customers find your pricing fair? Does your service need pricing improvements? ARPA can answer these questions.
Be careful, however, of falling to false positives when tracking this metric. Since the average can be skewed by irregular accounts with unusually high or low revenue, we recommend that you keep track of this metric alongside other related metrics such as ARR or MRR.
9. Conversion rate
Conversion rate is the number of leads that visit your website and, in turn, purchase your product or service. This KPI is usually seen in companies prioritizing digital marketing strategies to drive revenue.
Conversion rate is essential in SaaS tracking, especially if you market your services on your website or other digital platforms, which is the case for most SaaS applications. In addition, it’s one of the most important indicators of the success of your digital marketing campaigns and return on investment.
You can measure the conversion rate by getting the ratio between the number of users who actually bought your product or services to the total number of visitors you had for the same period of time.
10. Monthly unique visitors
This metric refers to the number of unique visitors your website or online platforms receive in a month. Like conversion rate, it is more important for SaaS companies that rely on digital platforms to promote their products.
Since your clients can use different devices to visit your website, measuring this metric will help you differentiate your overall traffic from unique visitors. You can also use this to check for potential new customers and adjust your content to guide them down the sales funnel.
Third-party analytics tools like Google Analytics can provide helpful insights to measure your monthly unique visitors.
11. Signups
Measuring the number of sign-ups is essential for SaaS companies that offer freemium signups, and free trial versions, among other similar subscriptions. This metric can work hand in hand with customer retention rate and conversion rate in determining new and existing customers.
Ideally, more signups should mean more revenue. To drive signups, you can optimize your digital platforms to entice more customers to try out your product or service and eventually purchase a subscription.
12. Viral coefficient
Viral growth is the number of new users a current user invites to purchase your product or service. Therefore, your viral coefficient is mostly a direct result of your product itself.
If your customers are satisfied with the services or products you provide, they are more likely to recommend your brand to new customers.
The higher your viral coefficient is, the more new customers you will get without actively chasing after them. In turn, it helps bring down the overall customer acquisition cost for your company.
How do you increase your viral coefficient? Viral growth is a domino effect from the following:
- Improving the quality of your services
- Strengthening your customer relationships
- Giving quicker feedback to existing clients’ queries
- Providing good customer service
Get the experts to help with your SaaS Tracking
Execution is nothing without direction. Therefore, goal-oriented SaaS companies focus on tracking the right SaaS KPIs specific to their needs. By evaluating your business goals and consistently aligning your metrics to them, you can set the direction of your company toward growth.
If you want to drive your performance using key SaaS KPIs, Common Ground can help. Get in touch with us today and learn how we can help your company with result-driven digital marketing strategies.
