Introduction:
Software As A Service, or SaaS, is the go-to solution for organizations and businesses looking for flexibility, affordability, diversity, and accessibility of software solutions to scale their businesses. The SaaS industry is forecasted to grow to $1.24 trillion by 2027 at a Compound Annual Growth Rate (CAGR) of 18% annually.
SaaS businesses are usually data-rich, and the main problem is that all the data points in the world matter little if you don’t know the right metrics to evaluate them. SaaS business is different from product-led businesses. As such, the survival of a SaaS business depends mainly on understanding its performance.
Customer success and business growth are ultimately defined by how well communication and operations are integrated across the board. For example, engineers, customer success managers, customer service, and salespeople contribute to the entire customer experience, eventually leading to direct results on the bottom line. So, that’s why every department needs to keep an eye on all the SaaS metrics in a company’s dashboard: each unit can virtually influence every single one.
Importance of SaaS Metrics
Generally speaking, SaaS Metrics are the performance indicators that measure a Software as a Service business’ success. Metrics for SaaS often help to determine a product’s achievements, customer retention, customer satisfaction, and overall health of a business. Taking their key SaaS metrics into account, enterprises can trace a more accurate plan for the future, make the appropriate adjustments whenever needed, and gauge their success.
Benefits of using SaaS Metrics:
Below are a few advantages that we can achieve using SaaS Metrics:
- Effective Decision Making
- Getting data-driven insight into the customer’s behavior
- Optimize conversion rates
- Better financial planning
- Customer loyalty and retention
- Tracking the effectiveness of marketing channels
- Understanding the financial health of the business
- Identifying business growth trends
Now let’s talk about different SaaS Metrics for other departments.
SaaS Metrics to Track & Measure Customer Success
Below are the Metrics that to track & measure Customer Success:
- Net Promoter Score (NPS)
- Customer Engagement
- Customer Health
Net Promoter Score (NPS):
Net Promoter Score is a data-driven evaluation of customer satisfaction. It is based on how likely they are to recommend your SaaS product to others. NPS measures customer satisfaction on a scale between 0 (the most negative) and 10 (the most positive). Net Promoter Score helps to get a first-hand insight into your product and offering from your customers’ perspective. With this understanding of customer satisfaction and loyalty, you can identify customer patterns and make better decisions to retain and acquire new customers for your SaaS business. To track your NPS, take a survey on your website. Ask customers to rate their experience on a scale of 0-10. You can also ask them if they would recommend your product to their friends or family. Group the results from the survey as follows:
Promoters: These are enthusiastic customers who respond with a 9-10. They make up your loyal customer base and are most willing to recommend your product to others.
Passives: These are indifferent customers who respond with a score of 7-8. These sets of customers are most likely to switch to your competitors, especially when presented with a better offer.
Detractors: These set of customers are disloyal and give a score of 0-6. They are the most unlikely to recommend your product and are likelier to give negative reviews.
From the collected data, simply subtract the percentage of Detractors from the portion of Promoters. For example, if 75% of responses are Promoters, 15% passives, and 10% detractors, your NPS is 65. The average SaaS industry Net Promoter Score is benchmarked at above 36. A score above 36 is a positive NPS indicator. It means you have a good number of loyal customers.
Customer Engagement:
Customer engagement measures customer interaction and engagement across the parameters you set for your SaaS product, such as daily login or accomplished time milestones. It shows how active or passive your audience is. Customer Engagement helps you detect customer churn ahead of time, by giving you early warnings of customers at risk of leaving your business. If your customers are active, they are most unlikely to churn.
Customer Health:
Customer health is a metric that SaaS customer success teams use to score customers’ overall health and their likelihood to churn or re-subscribe.Tracking customers’ health helps your comprehensive customer retention strategies by identifying customers most likely to churn and the early signs of customer disengagement. The steps to measure customer health start with defining what customer means to the business, selecting metrics to evaluate customer health, creating a scoring system, analyzing the score, and finally, taking appropriate actions.
Metrics to track SaaS sales performance
- Marketing Qualified Lead (MQL)
- Sales Qualified Lead (SQL)
- Lead Velocity Rate (LVR)
- Recurring Monthly Revenue (MRR)
Marketing Qualified Lead (MQL):
A marketing-qualified lead is a lead that the marketing team has vetted. This lead has met predetermined requirements and ranks higher as a potential customer than a regular prospect or website visitor. Behaviors such as filling up a form or downloading a guide on your site can be triggers that identify marketing qualified leads. Marketing Qualified Lead is crucial to track because it helps your marketing team understand the quality of your leads.
You can follow your MQL monthly, quarterly, or yearly basis.
To calculate your monthly MQL, divide the total number of leads generated in a month by the total number of leads qualified by your marketing team. Multiply by 100 to get a percentage.
For example, if you got 1,000 leads in a month and 300 met the predetermined conditions set by your marketing team as qualified leads, your MQL for the month would be 30%.
Sales Qualified Lead (SQL):
A Sales Qualified Lead is a high-end lead. This lead has moved up the sales pipeline and is ready to purchase your product or service. All leads are not in the same category. Tracking your SQLs helps refine your sales process. So, you can channel your marketing strategies on premium clients intending to buy. This helps you save costs and act on time to close more deals.You can track your SQLs using tools like Salesforce. Another important metric you can track is your MQL to SQL conversion rates using the formula below.
MQL to SQL Conversion Rate = [(No. Of MQL)/(No. Of SQL)] X 100
For example, if you have 500 Marketing Qualified Leads and 75 are Sales Qualified. your MQL to SQL conversion is 15%.
Lead Velocity Rate (LVR) :
Lead Velocity Rate is designed to track the percentage change in qualified leads from one month to another. Lead Velocity Rate is concerned with qualified leads, not just any lead. Qualified leads are prospects with an intent to buy based on previous behaviors. Unlike product-led businesses, SaaS businesses depend on recurring revenue for sustainability; hence LVR helps forecast sales and long-term potential for growth.
LVR = [(Qualified Lead in the current month – Qualified leads in last month) / (Qualified leads in last month)] X 100
For instance, if you have 100 qualified leads from this month and 80 qualified leads the month before, your Lead Velocity Rate is 25%. Compared to LVR from month to month, an increase in LVR month-on-month is a positive indicator of your SaaS business growth.
Monthly Recurring Revenue (MRR):
Monthly recurring revenue (MRR) is the monthly payable income your SaaS company receives from customers for subscription-based services. MRR can help you forecast your recurring revenue more accurately. With this metric, you can make informed decisions around budgeting and scaling.
Marketing Recurring Revenue is calculated by multiplying the number of total subscribers in a given month by their average monthly revenue. For instance, if you have 5 subscribers with a $200 average monthly subscription revenue per customer, your MRR would be $1,000.
Metrics to track SaaS Finance and Revenue
- Revenue Churn
- Churn Rate
- Annual Contract Rate (ACR)
- Marketing Sourced Revenue (MSR)
Revenue Churn:
Revenue churn determines how much revenue your SaaS business losses due to customer cancellation or subscription downgrade. Businesses lose $1.6 trillion in revenue yearly due to customer churn. The lower your revenue churn, the better. Revenue churn provides valuable insight into customer loyalty and helps identify areas where improvements must be made.
Revenue churn = Churned ARR/total ARR at the beginning of the year x 100.
For example, say you had $10,000 MRR at the beginning of the year. If you lose $1,000 from cancellations and downgrades, your annual revenue churn will be 10%.
Churn Rate:
The churn rate in SaaS marketing revenue is the total percentage of customers who cancel or fail to renew their subscriptions. Lower churn rates indicate higher recurring revenue. Churn rate is a critical metric for SaaS marketing revenue, as It helps you understand how successful your marketing strategies are at retaining and keeping customers loyal.
If 200 people signed up for your product in March and 20 people stopped using it by April, your monthly Churn Rate would be 10%. The average churn rate is 5%-7%. Research shows that a 5% improvement in retention rate increases the profit from 25% to 95%. That’s why customer retention is crucial.
Annual Contract Rate (ACR):
Annual Contract Value is a SaaS marketing metric designed to show you the average revenue generated per year from one customer. It offers the average value of a customer’s contract within a year. It helps your SaaS business understand its revenue growth and forecast your expected income. In addition, ACV gives you data-driven insight into the financial health of your SaaS business.
If you sign a 4-year contract with a new client worth $10,000, the annual contract value would be $2,500/year.
Marketing Sourced Revenue (MSR):
Marketing-sourced revenue is the income generated from each marketing channel. It gives you insight into the revenue generated from your different marketing efforts, such as organic search, paid search, etc.
Every business wants to maximize marketing Return on Investment (ROI) by investing in the most effective marketing channel.
By tracking your MSR, you make informed decisions on the profitability of your different marketing channels.
MSR = Sales revenue from a channel – Marketing cost for that channel
Metrics to track SaaS Marketing Performance
- Unique Visitors
- Lead to Customer Rate
- Referral Traffic
- Lead Page Conversion Rate
- Time Spent on Site
- Bounce Rate
Unique Visitors:
This is the number of new visitors who arrive at your site over a given period. It’s necessary to note that Unique Visitors aren’t the same as Visits. A person visiting your site multiple times within a specific period will be counted as one visit under the unique visit metric. Unique visits are obtained from identifiers like cookies or IP (Internet Protocol) addresses. Using tools like Google Analytics gives you an idea of where your unique visitors are coming from (organic search, social media, paid search, etc.).
An increase in your unique visitors is a good sign that your marketing efforts are paying off. But, a drop in unique visitors can be your hint to return to the drawing board and revise your marketing campaigns.
Lead to Customer Rate:
This is also known as lead conversion rate; this SaaS marketing metric is designed to measure the total number of qualified leads that convert into paying customers. This is a crucial metric that shows how effective your sales funnel is in converting leads into paying customers. With this, you get data-driven insight into how much your SaaS business can afford to spend on acquiring new leads.
To calculate the Lead-to-Customer Rate, divide the number of new customers by the total number of leads. For example, if a marketing channel garners 300 leads and 30 convert into paying customers, your lead conversion rate would be 10%.
Referral Traffic:
This tracks the total number of people who come to your website through referred links from other sites rather than search. This is important because referral traffic increases your reach and builds your website authority faster.
We can track Referral Traffic using tools like Google Analytics.
Landing Page Conversion Rate:
The landing Page Conversion Rate shows you the total number of people who completed the call-to-action on your landing page. This is a great way to get more leads for your business. By tracking this metric, you get a deeper insight into the effectiveness of your landing page and how you can optimize it to attract more leads.
To calculate your Landing Page Conversion Rate, divide the number of total converts by the number of total visitors and multiply by 100. For example, if 200 people visit your landing page and 45 people convert by taking action, your conversion rate is 22.5%.
Time Spent on Site: This metric tracks a visitor or user’s time on your website. Following the time spent on the site helps you know if people find your content helpful or valuable or if they bounce. This can help you optimize your content strategy for better results.
The best way to track Time Spent on Site is by using tools like Google Analytics.
Bounce Rate:
The Bounce Rate is the percentage of visitors who leave your site immediately after arriving. A visitor leaving your site after 10 seconds without engaging (no clicks) is typically considered a bounce. We can use this Metric to track users’ engagement with the web pages. It may be time to tweak things if we have a consistently high Bounce Rate.
Summary
Conclusion
You can track the performance of your SaaS business with the proven marketing metrics we’ve explained in this blog post. These metrics help decision-makers understand SaaS business performance across various departments: marketing, sales, customer success, Finance, and others (if any). You can then make informed decisions to grow your SaaS business and increase revenue.
