Top SaaS Metrics and KPIsBy Femto15 Team - February 20, 2020
In the SaaS industry, it's all about rapid changes and how you manage it to do better in the future and understand the red signs. How are you doing? And why? Where are you going? And how? What should you do to be where you want to be?
To answer these questions, you need to track some metrics and collect some data.
KPIs and metrics aren't just numbers written in the dashboard; rather, they are your decision-makers. Data drives decisions, and decisions drive business. In this article, we discuss the most important metrics you need to track as a SaaS.
- Customer acquisition cost (CAC)
- Customer churn
- Customer retention rate
- Monthly recurring revenue (MRR)
- The average revenue per account (ARPA)
- Lifetime value
What to track?
The story may seem complicated as it doesn't only include acquiring customers but also keeping them and nurturing them while acquiring new ones.
First, you need to acquire new customers, so you have to track the cost of acquiring these customers. Because if the acquired customers don't give you enough revenue to cover their costs and generate profit, then there is a problem that you need to find and solve. Accordingly, you need to track the revenue created from each generated customer.
It's also clear that you need to know how much customers are leaving to know why do they leave and the things associated with their leave, like the period of time they spent before leaving, the plan they were at, and so on.
Then you need to keep those customers and make them upgrade their plans, you even want them to be your promoters. So, you should track the interactions they do with your online channels.
So many things up till now and we are just warming up. We just gave you a glance
Actually, most of the metrics are about two main things:
These two are the motor of any business.
Customer acquisition cost (CAC)
How much does it cost you to acquire a new customer? It can be the other side of LTV as its importance will only be revealed by comparing its value with LTV value at a specific period.
How can Customer acquisition cost help you?
- Find out whether or not your business is worth it.
- Evaluate acquisition techniques and modify them when needed.
The customer churn rate represents the percentage of customers who leave you during X time. It's the opposite of customer retention. Such metric shows how satisfied are your customers with your business.
The total number of customers should only include those who can leave you on the time period you calculate the percentage at. This means, if you measure churn every quarter, don't add those with an annual subscription to the total number of customers, as they can't really leave you (even if they want to) at the period you calculated the churn at.
How can the customer churn rate help you?
- It's essential when calculating customer lifetime value.
- Track the segments of customers who leave.
- Track the reasons that caused them to leave; which may be avoidable or unavoidable.
- Finally, prevent them from leaving after studying this data and take decisions according to it.
Customer retention rate
If customer churn shows you how much left, customer retention shows you how much stayed. The retention rate represents the number of customers who could have left you in X time but stayed instead.
rring revenue (MRR)
It can be the most important metric from revenue metrics. And for its importance, you will hear lots of terms around it like Net, Churn, New, or Add-on MRR. They are all types of MRR which can be taken into consideration when studying the future of your SaaS.
In a nutshell, MRR tracks monthly revenue to the business. This revenue may be caused by newly acquired customers or by existing customers and it can be affected by customer cancelation or downgrades. That's why these types of MRR exist to represent complicated revenue.
New and Add-on MRR represent the input revenue to the business. New MRR represents the value added by new customers, and add-on MRR is the value added by existing customers who may have upgraded their accounts.
Churn MRR represents any loss in the monthly revenue, which may be produced by canceled and downgraded accounts.
Finally, Net MRR represents only positive reve
Average revenue per account (ARPA)
ARPA is the avg revenue for each account or subscription at a specific period (monthly, annually, quarterly, etc.). For a given month, ARPA can be calculated by dividing MRR over the number of active customers on this month.
That represents the profit of each customer while they do business with you. First, you need to get the customer lifetime and then calculate its value.
Customer lifetime is the inverse of the customer churn rate, and customer lifetime value is the customer lifetime multiplied by ARPA.
As long as your LTV exceeds your CAC, your business is safe.