18 Key Enterprise SaaS Metrics You Need To Measure
Running an enterprise SaaS business is hard work. In the first place, enterprise SaaS solutions are significantly more complex and cover a larger scale of users than small and medium-sized business (SMB) solutions do.
This also makes enterprise data analysis more complex. That’s why understanding enterprise SaaS metrics is essential for successful enterprise SaaS operations.
And this complexity all the more makes it important to track your enterprise SaaS metrics. Knowing what to track and how to properly monitor them helps you to make better decisions, measure your performance, and understand where and how to focus your efforts.
In this article, we will talk a little bit about enterprise SaaS and then discuss the key enterprise SaaS metrics that you need to be tracking.
What Is Enterprise SaaS?
To understand what you should be measuring and how you should measure them, we need to know the similarities and differences between the usual SaaS solutions and enterprise-grade ones.
Here are some key characteristics that makes enterprise SaaS different from SMB SaaS:
Customized Features & Inclusions
Every enterprise is made up of a large group of people with all sorts of roles running complex workflows. These processes can be so intricate that tiered SMB SaaS subscriptions won’t be enough to cover them all.
Because of this, enterprise-grade SaaS solutions need to offer custom features and inclusions that must be tailored to the specific enterprise customer’s needs. And that also means customized pricing.
For a business to be considered as an enterprise, it should have more than 100 employees. Larger enterprises can even have multiple thousands of people under its wing.
That’s a lot of users.
Remember that there are also a number of departments and even locations that need to be taken into account when enterprise SaaS solutions are in play.
That’s why an enterprise SaaS product must not only be able to reliably handle many concurrent users, but must also be able to generate reports both in the small scale and in the large scale.
What’s more, you should be able to scale your SaaS solution up or down as needed by your customers.
Long Sales Cycles
The enterprise market usually requires enterprise SaaS solutions to go through a longer sales cycle.
According to HubSpot, SaaS deals worth at least $40,000 per year can take up to 84 days to close, while $100,000-per-year deals can take up to 170 days.
Because the inclusions and pricing are customized, there tends to be quite some back-and-forth between enterprise customers and your sales team.
Not to mention that enterprises usually have a lengthy decision-making process. This could include multiple meetings among stakeholders, internal reviews, and approval processes to name a few.
Long-Term, High-Value Contracts
The enterprise market is usually a long-term and high-value one.
This means enterprise SaaS customers require longer contracts that need to be closely monitored.
What’s more, enterprise SaaS solutions are usually billed annually. But most of the time, enterprise customers usually opt for multi-year contracts, especially if you sweeten the deal with discounts and other incentives.
Priority Support & Customer Success
Unlike SMB SaaS solutions, enterprise SaaS solutions need to provide priority support for enterprise customers.
Because of the customized solutions and complex processes, enterprise SaaS solutions need to be backed up with dedicated customer support that enterprise customers can rely on.
What’s more, remember that millions (and even probably billions) of their annual revenue is at stake, so enterprise customers expect their SaaS solutions to be working perfectly all the time.
Or at least when it’s not working perfectly, it should be easy to reach the support team so they can quickly fix it.
The same is true with the customer success services for enterprise SaaS customers. You must be able to provide them with customized onboarding, training, and other services that will help them make the most out of your enterprise SaaS solution.
Now that you know the differences between enterprise SaaS and SMB SaaS, let’s look at some of the key enterprise SaaS metrics you need to be tracking.
1) Conversion Rates
The conversion rate is a percentage of how many potential customers take a specific action in a specific marketing or sales activity you’re doing.
For example, let’s say you’re trying to convert freemium users into paying customers. Imagine that, out of 100 free plan users, you manage to get 30 of them to sign up for a paid plan.
That would give you a freemium-to-paid conversion rate of 30%.
In enterprise SaaS sales and marketing, knowing your conversion rates at different customer journey stages is crucial.
This metric can tell you how effective your customer acquisition processes are from prospecting to closing.
It would involve measuring various conversion rates all throughout the SaaS customer journey, such as:
- Visitor-to-lead conversion rate
- Lead-to-MQL conversion rate
- MQL-to-SQL conversion rate
- Lead-to-Opportunity conversion rate
- Opportunity-to-Close conversion rate
2) Annual Contract Value (ACV)
The Annual Contract Value (ACV) is a metric that measures how much revenue you are generating from a specific customer within a year.
To calculate it, divide your total contract value (TCV) with that customer by the number of years in the contract.
For example, you close a five-year deal worth a total of $10,000. That would give you an ACV of $2,000.
Knowing your ACV for each customer can help you compare them with each other.
For instance, let’s say you’re comparing two customers. Let’s call them Customer A and Customer B.
Imagine that Customer A has a $500,000 contract valid for 5 years, while Customer B has a $300,000 contract for 2 years.
If you only look at the money, it would seem like Customer A is more valuable. But if you look at the ACV, Customer B actually has a higher value of $100,000 per year compared to Customer A’s $150,000.
So this metric can also help you prioritize enterprise customers and create strategies to keep them happy and renew their contracts when they expire.
3) Gross Margin
Gross margin is a metric that measures your cash flow efficiency when you take your operational costs into consideration.
To calculate your gross margin, subtract your cost of goods sold (COGS) from your net revenue.
For a SaaS business, the COGS is any recurring cost associated with running the business.
This includes the following:
- Hosting costs
- License fees or subscription fees from the software you use
- Employee salaries
- Office utility costs
- Maintenance costs
Knowing your gross margin can help enterprise SaaS owners understand how much cash they have available for operations and investments in growth.
4) Monthly Recurring Revenue (MRR)
The Monthly Recurring Revenue (MRR) metric is used to measure the amount of revenue you generate within a month.
When you compute this metric, make sure to break down your annual and multi-year contracts into monthly payments in order to get an accurate picture.
MRR is a great way to measure the short-term growth of enterprise SaaS businesses. It also helps you determine how well your enterprise SaaS services are performing over time and compare them with competitors.
5) Annual Recurring Revenue (ARR)
The Annual Recurring Revenue (ARR) or the annual run rate (also ARR) is similar to MRR but it reflects the amount of revenue enterprise SaaS businesses generate over a year.
For monthly subscriptions and multi-year deals, make sure to get the annualized values of your revenue before adding them to your overall ARR.
This metric helps enterprise SaaS owners understand their long-term growth and can be a useful SaaS valuation metric.
6) Recurring Revenue Growth Rate
More than just tracking your MRR and ARR, you also need to understand their growth rates.
To calculate it, divide the difference between your current and previous MRR or ARR by the previous value.
For example, let’s say your ARR this year is $1.1 million and last year it was $1 million. That would give you a 10% growth rate.
Measuring the recurring revenue growth rate helps enterprise SaaS owners understand how their businesses are doing over time.
It also helps them adjust their strategies to accelerate growth in the future.
7) Expansion Revenue
Expansion revenue is a metric that measures the additional money enterprise SaaS businesses make by upselling or cross-selling their services.
For example, let’s say you close an enterprise deal worth $200,000 and they eventually decide to upgrade their plan within the year, increasing the deal value to $250,000. This additional $50K would be considered expansion revenue.
In the context of enterprise SaaS, upselling can be getting your existing customer to upgrade their subscriptions by adding more features or more user seats to their existing plan.
On the other hand, cross-selling can be getting them to buy another SaaS product under your brand.
For example, let’s say they already subscribed to your main product, which is a customer relationship management (CRM) platform.
If you manage to get them to add an integration to your social media management solution, that would be counted as cross-selling.
The additional revenue from their subscription to your social media management platform is considered expansion revenue
Measuring your expansion revenue can help you understand how successful your upselling and cross-selling campaigns are. It can also help you identify opportunities for further expansion in the future.
8) Customer Retention Rate
The customer retention rate is a metric that enterprise SaaS owners use to measure how many of their customers stick around.
You can calculate it through the following steps:
- Take the number of customers you had at the beginning of the period
- Subtract the number of customers that canceled their subscriptions
- Divide the difference by the number of customers you had at the beginning
For example, if you had 500 enterprise customers at the start and 20 of them canceled their subscriptions or didn’t renew, then your customer retention rate would be 96%.
This metric can help you understand how well you are keeping up with customer satisfaction and loyalty. It also allows you to identify areas where you need to improve in order to keep your enterprise customers happy and engaged.
9) Churn Rate
The churn rate is one of the most important SaaS metrics to measure.
Churn is extra painful when it’s your enterprise customers that are leaving. That’s because enterprise deals bring in much more value than regular subscriptions.
Now, there are two types of churn you need to monitor: customer churn and revenue churn.
Customer Churn Rate
Customer churn rate is the opposite of customer retention. It measures the portion of your enterprise SaaS customers that leave.
It’s calculated by dividing the number of customers who canceled their subscriptions during a period by the total number of customers that were active at the start of that same period.
For example, if you had 500 customers at the start of the month and 20 of them left during the period, then your churn rate would be 4%.
Revenue Churn Rate
Revenue churn rate measures the portion of the recurring revenue you lose as a result of customer churn.
It’s calculated by dividing the total recurring revenue lost during a period by the total recurring revenue at the start of that same period.
For example, if you had $500,000 MRR at the start and lost $20,000 of that MRR due to customer churn during the same period, then your revenue churn rate would be 4%.
Measuring both customer churn and revenue churn is the first step towards finding out why they are leaving and how to keep them from doing so.
10) SaaS Quick Ratio
The thing about churn is that it is inevitable. No matter how good your SaaS product and customer service are, there will always be customers who will leave.
But what you can do is to reduce churn and make up for it by increasing your recurring revenue.
And that’s what the SaaS quick ratio measures—how well you are making up for your losses due to churn and other factors that may affect your recurring revenue.
Just a quick note: don’t confuse the SaaS quick ratio with the financial metric quick ratio, which measures a company’s liquidity.
The SaaS quick ratio is an entirely different metric.
It considers the following additions and losses to your MRR:
- New MRR: The additional MRR you get from acquiring new customers.
- Expansion MRR: As we mentioned above, it is the additional MRR you get from upselling and cross-selling.
- Churn MRR: The MRR you lose due to churn.
- Contraction MRR: The MRR you lose due to customers downgrading their subscriptions.
To calculate your SaaS quick ratio, divide the sum of your new MRR and Expansion MRR by the sum of your churn MRR and contraction MRR.
For example, if you have $100,000 in new MRR, $50,000 in expansion MRR, lost $20,000 due to churn and lost another $10,000 from contraction.
Then your SaaS quick ratio would be (100k + 50k)/(20k + 10k) = 5.0
A high SaaS quick ratio (at least more than 1) means that you are doing a better job at making up for your losses with new enterprise customers and upgrades. On the other hand, a lower number may indicate that you need to improve customer retention, acquisition, and/or upselling.
11) Net Dollar Retention Rate
The net dollar retention rate, also called the net revenue retention rate, is also one of the most important SaaS metrics to track.
It measures the change in your recurring revenue from existing customers after taking into account everything that may add to or deduct from it.
It considers the following types of MRR:
- Starting MRR (your MRR at the beginning of the month)
- Expansion MRR
- Churn MRR
- Contraction MRR
To calculate your net dollar retention rate, take the sum of your starting MRR and expansion MRR then subtract your churn MRR and contraction MRR. Then divide the resulting number by your starting MRR.
For example, if you had $1 million MRR at the start of the month and gained $50,000 in expansion MRR, lost $20,000 due to churn and lost another $10,000 from contraction.
Your net dollar retention rate would be ($1 million + 50k – 20k – 10k)/1 million = 102%
A net dollar retention rate of 100% means you’ve managed to keep the same amount of MRR as before. Whatever losses you got from churn, you’ve managed to make up for it through upselling.
A higher number than 100% would indicate growth in your MRR.
And a lower number than that would indicate that your revenue from your existing customers is decreasing. You would need to take immediate action in reducing churn and/or increasing your expansion revenue.
12) Average Revenue Per User (ARPU)
The average revenue per user (ARPU), as its name suggests, measures the average amount of money you are generating per customer.
To compute it, take your overall recurring revenue and divide it by the number of customers you have. You may use MRR or ARR in computing your monthly or annual ARPU, respectively.
For example, let’s say you have an ARR of $2 million and a total of 2,000 customers, your annual ARPU would be $2 million/2000 = $1,000.
ARPU can be an important tool in comparing different customer segments with each other.
It can also reveal which segments are more profitable than others, allowing you to focus your efforts and resources on them.
For example, if you have enterprise customers generating higher ARPUs than other customer types, it might be worth investing in acquiring more enterprise customers.
ARPU is also useful in calculating another metric that can predict the total revenue you can generate from a single customer.
And that brings us to our next SaaS metric.
13) Customer Lifetime Value (CLV)
Customer lifetime value (CLV) is a key enterprise SaaS metric that you should be tracking.
It predicts how much money a single customer can contribute to your business over time.
To calculate your CLV, simply multiply your ARPU by the average number of years a customer stays with you.
For example, if you have an ARPU of $1,000 and an average customer lifespan of 3 years, your CLV would be 1,000 x 3 = $3,000.
CLV is an important metric to track because it can help you get an idea of how much money you can expect to make from a customer over the course of their entire relationship with your SaaS company.
14) Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) is another key SaaS metric that you should be tracking.
It measures the cost of acquiring a new customer, including any marketing and sales costs associated with it.
To calculate your CAC, simply take the total amount you’ve spent on sales and marketing for a given period and divide it by the number of customers acquired during that same period.
For example, if your total marketing and sales costs were $10,000 in one month and you acquired 100 customers during that same month, your CAC would be $10k/100 = $1,000.
It’s important to keep track of your CAC because it can give you an idea of how much you need to spend in order to acquire new customers. This can help you make better decisions on where and how much to invest in sales and marketing efforts.
15) CLV/CAC Ratio
The CLV/CAC ratio is a metric that more and more SaaS businesses are using today.
This metric helps you measure the efficiency of your customer acquisition strategy.
To calculate it, simply divide your CLV by your CAC.
Let’s use our earlier CLV and CAC examples. If you have a CLV of $3,000 and a CAC of $1,000, your CLV/CAC ratio would be 3:1.
This means that for every $1 in marketing or sales costs you spend on acquiring a new customer, you can expect to get back $3 in revenue from that same customer over their lifetime with your company
A good rule of thumb is to have a CLV/CAC ratio of around 3:1 to 5:1.
If it’s less than 1:1, it means you’re spending more to acquire a customer than you could ever make from them.
This could be an indication that the marketing and sales strategies you’re using aren’t working as well as they should be. Or that you’re focusing too much on customer acquisition and not enough on customer retention.
A CLV/CAC ratio of 1:1 to less than 3:1 may still not be a good thing either. Although you’re on the positive side, the margin may not be big enough to bring significant growth to your business.
If it’s more than 5:1, that may also not necessarily be a good thing for your SaaS company. Sure, you’re getting a lot of return from your marketing and sales investment. But it could also mean that you’re missing out on an opportunity to grow faster by investing more on customer acquisition.
16) Customer Engagement Score (CES)
The customer engagement score (CES) measures how engaged your customers are with your SaaS product.
It can be a good indicator of which features are most useful to them and can even show you when they’re ready to upgrade their subscriptions.
Now, getting your CES can get tricky. So be sure to follow these steps:
Identify Customer Engagement Events
Customer engagement events are any actions that a customer takes that may indicate that your product is delivering value to them.
For example, let’s say you have an email marketing platform. Your customer engagement events could include the following:
- Event 1: Scheduling an email.
- Event 2: Creating an email list segment.
- Event 3: Creating a drip email campaign.
Assign An Importance Value To Each Event
The next step is assigning a weighted importance value to each of your customer engagement events. This value should reflect how important each event is to your company’s success.
For instance, you may consider scheduling an email more important than creating a list segment, whereas creating a drip campaign might be the most important of all.
The above example events could have the following importance values:
- Event 1 (scheduling an email): 5
- Event 2 (creating an email list segment): 3
- Event 3 (Creating a drip email campaign): 10
Get The Total Of All Event Values
Now, within a customer’s use of your SaaS product, your chosen events will have different frequencies and timeframes. For example, the frequency of your customers scheduling emails may be significantly higher than their frequency of creating a drip email campaign.
You can use this data to get your customer engagement score by adding up all the values of the events that each customer has completed over a given period of time.
For example, your customer engagement events occurred with one customer over the course of one month with the following frequencies:
- Event 1 (scheduling an email): 6 times
- Event 2 (creating an email list segment): 15 times
- Event 3 (Creating a drip email campaign): 2 times
First, multiply each event’s importance value by the number of times it was repeated.
- Event 1: 5 x 6 = 30
- Event 2: 2 x 15 = 30
- Event 3: 10 x 2 = 20
Then add all of the event values.
In our example, the total CES would then be 80.
Since we’re not dealing with percentages here, you can use CES to compare different customers with each other. The higher the value, the more engaged they are with your product.
You can also use CES to track individual customers over time and see how their engagement evolves as they explore more features of your SaaS product. This could be a good indication of when they’re likely to upgrade or make other purchases from you.
And if you monitor what features they tend to use the most, you can create a highly personalized upsell or cross-sell strategy for each of your customers.
17) Customer Satisfaction (CSAT) Score
The customer satisfaction (CSAT) score is a measure that shows how satisfied your customers are with their experience of using your SaaS product.
It can be an invaluable tool for understanding user experiences and collecting feedback on what could be improved.
To calculate your CSAT score, you’ll need to ask your customers to rate their satisfaction on a scale of 1 to 5 with the following corresponding equivalents.
1 – Very Unsatisfied
2 – Somewhat Unsatisfied
3 – Neither Satisfied Nor Dissatisfied
4 – Somewhat Satisfied
5 – Very Satisfied
Once you have the ratings, get the total number of respondents who answered with a 4 or a 5. Those are customers who are truly satisfied with your SaaS product. Then divide the sum by the number of respondents.
For example, if you had 100 respondents, and a total of 80 of them gave a 4 or 5 rating, your CSAT score would be 8/10 or 80%.
If you want to find more specific answers about what your customers are happy about and what improvements they want, you can also ask them follow-up questions.
You can use the following questions as a starting point:
- How satisfied were you with our product?
- Was it easy to find the features you needed?
- Did our customer support team solve any problems you encountered quickly?
- What feature would you like to see added in the future?
By understanding the answers to these questions, you can make improvements to your SaaS product and provide a better user experience for customers. This can help boost satisfaction, loyalty, and even retention rates
18) Net Promoter Score (NPS)
The Net Promoter Score (NPS) is a metric that measures customer loyalty by measuring how likely customers are to recommend your SaaS product.
Have you ever encountered the question “On a scale of 1 to 10, how likely are you to recommend our product?” while using a SaaS solution?
That is the NPS question — it’s a simple but effective way to get an indication of customer loyalty. It’s also used by many enterprise SaaS companies to track their performance over time.
The respondents can then answer with a number from 1 to 10.
You can group your respondents into three groups:
- Promoters: Those who answer 9 or 10. These are loyal customers who can help your brand with favorable word-of-mouth.
- Passives: Those who answer 7 or 8. These customers are somewhat satisfied but can still switch to a competitor if they get a better offer.
- Detractors: Those who answer 1 to 6. These are unhappy customers who may hurt your brand through negative word of mouth.
To calculate your NPS score, you need to subtract the percentage of detractors from the percentage of promoters. So, for example, if you had 50% promoters and 10% detractors, your NPS score would be 40.
The higher the NPS score, the more likely customers are to recommend your enterprise SaaS product and become repeat customers.
This metric can help you quickly identify areas of improvement so that you can make changes and maximize customer loyalty. Like with the CSAT survey, you can also ask follow-up questions to get more valuable feedback from your customers.
Final Thoughts About Enterprise SaaS Metrics
Running an enterprise SaaS operation can be a very complex beast to manage.
So, it’s important to measure the right enterprise SaaS metrics and use them to make informed decisions that will maximize your customer satisfaction, loyalty, and even brand advocacy.
There are a lot of metrics you should track for each aspect of your SaaS business. But the ones we discussed in this article are some of the essential enterprise SaaS metrics every enterprise business should pay attention to.
By understanding these enterprise SaaS metrics, you can gain valuable insights into your business performance and your customers. This, in turn, will help you make improvements that will enable you to maximize your success.
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