Businesses don’t grow just like that. They take time and effort. And when it comes to SaaS companies, the task becomes even more typical. As companies shy away from lesser than ever from making bigger investments, they still struggle to reach, sustain, or increase profitability. And since dear Mr. Drucker gave us the wisdom, it is only wise to believe that it is important to measure things in order to manage them.
The present-day SaaS businesses survive and aim to thrive on decent recurring amounts of revenue from clients. So, that doesn’t give them the advantage that the enterprise software firms used to have: the advantage of the upfront fees. So, it becomes incumbent on one team, that is sales, but other departments like marketing and customer success teams to ensure more leads, more closures, and better retention of clients. This is why, when you get to measure metrics in a SaaS business, there are more areas that you will need to see than in any other traditional businesses setups.
Marketing Metrics
Monthly Unique Visitors are a great metric too so how your digital marketing is paying off in terms of visitors. Also, track new signups each month.
A Product Qualified Lead (PQL) is a user who already used your product and qualified certain criteria that signal at the probability of them buying your product. Calculate this to pre-qualify your potential customers. This metric is very critical to set goals for how many you need each month to become profitable. This figure is your Lead Velocity Rate (LVR), a metric that will let you determine sales attainment for times to come.
Conversion Rate
It’s the percentage of PQLs that are closed at paying customers. A good conversion rate shows how well leads are being converted into customers.
Sales Metrics
Monthly Recurring Revenue (MRR) is a metric that needs to be monitored consistently, no matter what. It denotes the overall overall performance of the company as a whole, irrespective of the billing cycles and pricing plans. It is a measure of your normalized monthly revenue from subscriptions.
Depending on how complicated the business is, SaaS businesses may need to calculate a number of metrics within the MRR. To arrive at the Net MRR itself, SaaS businesses will need to measure Churned MRR as well as New MRR. Then, there is add-on MRR.
However, this metric alone cannot help you with absolute figures because of its dynamic nature. This is what makes a prediction on the basis of this metric pretty hard and unrealistic because variables like churn, upselling, contraction, etc., affect this figure.
Customer Acquisition Cost (CAC) of a SaaS business must be balanced out with the Lifetime Value of a Customer (LTV). A CAC that is higher than LTV is a bad indication. You must be aware of how much it costs your business to acquire new customers in order to determine the most profitable sales and marketing strategies and channels.
Measuring Average Revenue per Account (ARPA) for all users is an industry best practice. It is a measure of the revenue that each customer account generates each month. It will give you an insight into how new customers behave differently from the existing ones.
Customer Success Metrics
Track the Customer Churn Rate to know at what rate your customers are canceling their SaaS subscriptions. This can lead you to trends about why and when these cancellations happen.
Calculate MRR Retention Rate to see at what rate the MRR is renewed.
It is extremely important to track the Customer Retention Rate to see how often your customers renew their SaaS subscriptions.
The most popular metric to track is the Net Promoter Score (NPS). It is an indicator of customer satisfaction and loyalty that tells the probability of a customer to recommend a product/company to another on a scale of 1-10. Measure it especially after product updates to gauge what changes have caused positive responses and which ones are negative. The higher the NPS the better.
Conclusion
While all sorts of businesses must track some metrics of performance to gauge the direction in which they are headed, the case of SaaS seems to be an advanced one. With the subscription model bringing in multiple smaller monthly payments from customers and competition rising each day, some metrics can show you an accurate picture of where your business is headed.
