7 Most Essential SaaS Marketing KPIs That You Need To Track
The SaaS space has become very crowded over the past few years. If the pandemic has taught us anything about business, it’s that we can do it online.
As a result, SaaS is no longer just for small to medium-sized businesses. Rather, almost all businesses now use SaaS products.
In fact, by the end of 2021, 99% of all organizations and businesses in the world will be using at least one SaaS solution.
But with the increasing demand also comes increasing supply. SaaS startups have been spawning left and right.
And because of this increase in SaaS businesses, the competition is getting fiercer and fiercer. It can be tough to differentiate your SaaS company from others out there who offer similar products or services.
But your SaaS business doesn’t have to be just a face in the crowd. You can craft your own strategies to stand out among your competition.
Our marketing blog offers a lot of strategies when it comes to growing your SaaS company and surpassing your competitors.
For this article, we are going to focus on marketing key performance indicators (KPIs).
What Is A SaaS Marketing KPI?
A SaaS marketing KPI is a metric that helps SaaS businesses track their marketing performance. Some KPIs depend on the actual revenue you generate, while some don’t.
But before we go into detail about the different SaaS marketing KPIs, let’s discuss their importance and how they are different from traditional marketing KPIs.
Traditional Marketing VS SaaS Marketing
SaaS products are very different from everyday consumer products.
Traditional products are tangible and usually involve a one-time payment. One sale can cover the costs of manufacturing or procuring the product sold.
As for the buyer’s journey, it’s usually linear and end-to-end. You market your product, generate leads, nurture those leads, and close the sale. That’s about it.
SaaS products, on the other hand, are intangible and involve recurring payments.
With SaaS products and SaaS marketing, there’s no such thing as one deal or making a single sale. SaaS business transactions happen on a monthly or yearly basis.
Ideally, your relationship with your SaaS customer is a continuous one. It doesn’t end when you close the deal. In fact, SaaS marketing still plays a huge role in customer retention.
Sometimes, the development costs of a SaaS product can only be covered by years of payments from numerous customers.
Don’t forget the free trials and freemium models. These customer acquisition strategies are becoming increasingly popular. And they don’t even bring it revenue.
Not yet, at least.
Importance Of Tracking SaaS Marketing KPIs
As a SaaS company, you measure what you value.
You can’t just guess why your marketing performance is the way it is. And if you make a habit of making marketing decisions based on a whim, it’s bound to fail.
On the flip side, having a culture of making data-driven decisions leads to good judgment calls. You’ll know the different factors that make your marketing strategy succeed or fail.
Which marketing channels generate the most leads for your SaaS business?
What type of content gets the highest level of engagement?
How efficient are your marketing efforts at bringing revenue?
These are just some of the questions you can answer with the right SaaS metrics.
Tracking your marketing KPIs also helps you improve your performance. If you know what channels or content are effective with your audience, you can focus on those factors. Or if you ever see bad results from data-driven decisions, you can further add that to the data and optimize your marketing processes.
Now let’s talk about some of the most important SaaS marketing KPIs you can use.
KPI #1: Unique And Returning Visitors
Unique visitors are new people who come across your SaaS website, landing pages, blog posts, and other pages.
Returning visitors on the other hand are unique visitors that engage with your website and pages more than once. They show interest in what your SaaS product is offering and return for future visits.
If you have a successful SaaS marketing strategy, you’ll see an increase in both types of traffic over time.
But how do you identify unique and returning visitors?
It’s actually pretty easy. You just need to track unique and returning visitors with tools like Google Analytics.
When you get a new visitor on your website, Google Analytics creates a unique number for them. This number, combined with the visitor’s first timestamp, makes up the User ID. This User ID enables you to distinguish each unique visitor.
If someone with the same User ID visits your website again, Google Analytics will flag them as a returning visitor.
What’s more important with this metric is knowing which marketing channels your visitors are coming from. Possible channels include:
- Organic search
- Paid search
- Social media
Don’t worry. Google Analytics also shows you the source of your traffic. This indicates which channels are working when it comes to attracting potential customers.
For example, if you’re getting a lot of unique visitors from social media sources, that might mean your posts are attractive to users.
And if you’re getting returning visitors, it means that the content you post doesn’t only attract their attention. It also maintains their interest.
With such data, you can know which marketing channels to focus on and which to improve.
KPI #2: Lead Velocity Rate
Lead Velocity Rate (LVR) measures how efficient you are at generating leads. It is the growth percentage of your qualified leads from month to month.
You can calculate it with this formula:
For example, last month you generated 100 qualified leads. This month, you made 150. That’s an LVR of 50%.
Now notice that we’re talking about qualified leads here. Not all leads are equal with one another.
Qualified SaaS leads are those who willingly provide their contact information because they want to engage with your SaaS solution.
Qualified leads can be further divided into two categories: marketing qualified leads (MQL) and sales qualified leads (SQL).
Marketing qualified leads: MQLs are SaaS leads that show interest in what you’re offering. Maybe they are returning visitors to your website. They could even have had previous interactions with you, like answering your survey or downloading your e-book.
However, these qualified leads are not ready to buy yet. They likely need more information before committing.
Sales qualified leads: SQLs, on the other hand, are SaaS leads who already know about your product and services and give you their contact information so you can pitch to them.
These leads probably have a particular pain point and they already know that your SaaS solution would be a good fit for it. You have a higher probability of converting these leads soon.
Be sure to include only these kinds of leads when you compute your LVR.
KPI #3: Signups And Activations
First, let’s talk about the difference between signups and activations.
Signups are the number of people who… well… signed up for your SaaS product. To some degree, it can be a good marketing KPI. After all, users signing up for a free trial or a free plan shows strong interest in your SaaS solution.
A high number of signups can indicate an effective marketing strategy. But it doesn’t tell the whole story. After all, it accounts for all signups regardless of whether or not they used your SaaS solution.
This is in contrast to activations, which is the number of times people have actually started using your product. It doesn’t have to be a paid version of your product.
Whether it’s a free trial, or a free plan, or a paid subscription, as long as the customer starts using your solution, it’s an activation.
The reason why it’s generally better to look at activations rather than signups is to monitor the number of users who are getting value from your product.
Users who actually start using your SaaS solution are more likely to be converted into paying customers. So these are the users that factor more to your ROI.
Because of that, you can again focus on the marketing channels that bring you more activations.
KPI #4: Retention Rate
Marketing and sales would be useless if they only brought in new customers who aren’t willing to stick around.
You should also be mindful of your customer retention. Its main KPI is the retention rate. You can calculate it with this formula:
The period for monitoring retention rate can be per month or per year.
It’s vital that SaaS marketers track their customer retention rate. This shows how well you can keep your existing customers with you in the long term.
This is important in SaaS businesses because customer retention directly affects your revenue. Even if you gain 1000 customers at the start of the month, if only ten remain at the end of it, you won’t have much revenue left.
But how does the retention rate reflect your marketing efforts?
Remember that SaaS marketing is not just focused on getting new customers, but on keeping them as well. Together with customer success, marketing plays a vital role in customer retention.
Those two departments will determine how loyal your existing customers are to your product and brand. Your customers’ loyalty, in turn, has a direct correlation with how much money they are willing to spend on your SaaS solution.
KPI #5: Churn Rate
“Churn” is probably the most feared word in any SaaS business. It refers to SaaS customers canceling their subscriptions.
And churn rate refers to the percentage of those customers who left you. It’s the total opposite of the retention rate. You can compute it with this formula:
Like retention rate, the period can be per month or per year.
For example, if you have 100 customers, and 7 of them cancel their subscriptions within the year, your annual churn rate is 7%.
The sad reality is that customer churn is inevitable in any SaaS business. Some customers shift their priorities. Some opt for your competitors instead. While some can no longer afford to pay for your SaaS product.
That said, there are several things you can do to lower your churn rate.
You can refine marketing efforts to target your ideal buyer persona. Or maybe your onboarding process needs a bit of a rework. Or maybe you need to build a more solid relationship with your users through the customer success team.
KPI #6: CLV:CAC Ratio
The CLV:CAC ratio measures your cash flow for each customer. It has two essential elements: customer acquisition cost (CAC), and customer lifetime value (CLV).
CAC and CLV are themselves marketing KPIs in their own right. But using them together gives you a more comprehensive SaaS metric for the effectiveness of your marketing and sales spending.
Let’s talk about them one by one.
Customer Acquisition Cost
CAC is the average amount of money you spend to acquire one new customer. That includes both your marketing and sales efforts.
To better visualize it, let’s look at this formula:
For example, let’s say you spend $10,000 on marketing and $20,000 on sales. Then you acquired 1000 customers. That would give you a CAC of $30.
Your CAC shouldn’t be too high since that would mean you’re spending too much on one customer. But a low CAC isn’t necessarily a good thing either. Keep in mind that a low CAC may also lead to low revenue.
The key here is to find the sweet spot where your SaaS company grows enough without having a huge investment.
That’s why it’s also important to look at how much revenue you make for each customer.
Customer Lifetime Value
The customer lifetime value is the overall revenue each customer brings into your business over the course of their subscription.
Calculating the CLV in itself can be a tricky task. You’ll need to find two other SaaS metrics:
- Average customer lifespan
- Average revenue per account (ARPA)
The average customer lifespan is pretty self-explanatory. Based on historical records, it is the average length of time a single customer subscribes to your product.
For a simple example, let’s say you have two customers. One of them canceled their subscription after 5 years, while the other one stayed with you for 15 years. By getting the mean of the two numbers, you can calculate an average customer lifespan of 10 years.
The ARPA is the average monthly or annual revenue that each customer is bringing to your business. You can calculate it by dividing your monthly recurring revenue (MRR) or annual recurring revenue (ARR) by the number of customers you have.
For example, let’s say you’re getting an ARR of $10 Million from 20,000 customers. That amounts to an ARPA of $500.
Now, the CLV is simply the average customer lifespan multiplied by the ARPA. So, in our example, you have an average customer lifespan of ten years and an ARPA of $500. That gives you a CLV of $5000.
Note that the average customer lifespan we just discussed is based on historical data.
So how about SaaS startups that don’t have this kind of previous data?
An alternative SaaS metric you can use is the customer lifetime rate. You can compute this by dividing 1 by your churn rate.
For example, you have a 7% churn rate per year. Divide 1 by it, and you get a customer lifetime rate of around 14.29. Multiply it by your $500 ARPA, and you get a CLV of more than $7100 per customer.
Remember that the CAC and LTV are only parts of a more comprehensive metric that we are trying to find. Now that you know how to calculate the two, you can find their ratio.
To find this KPI, you can divide your LTV with your CAC in order to equate the CAC into one.
The industry standard for SaaS businesses is a CLV:CAC ratio of 3:1. This means that you’re earning three times the amount you’re spending to secure each new customer.
If your CLV is getting closer, or worse, lower than your CAC, then it’s time to reevaluate your marketing and sales strategies.
KPI #7: Net Promoter Score
The Net Promoter Score (NPS) is a survey-based metric developed by marketing expert Frederick Reichheld. SaaS businesses can use it to measure the loyalty of their customers.
The NPS is based on the willingness of SaaS customers to recommend your product or service to friends and colleagues after a certain period of time. The survey usually looks something like this:
Respondents can be divided into three categories:
Promoters: These are respondents who gave a score of 9-10. These are your loyal customers who will stick to your SaaS product and recommend it to others. They can further drive your growth through referrals and positive word-of-mouth.
Passives: These are participants with a score of 7-8. They are somewhat satisfied with your product but unenthusiastic about it. If they see a better opportunity with your competitors, they will likely switch to them.
Detractors: These are respondents who gave a score of 0-6. They are straight-up disappointed. This type of customer can harm your brand through negative word-of-mouth.
To compute your NPS, subtract the percentage of your detractors from the percentage of your promoters.
The NPS can range from -100 (all are detractors) to 100 (all are promoters).
As a SaaS business, you should at least aim for an NPS of 0. Still, there is no reason you shouldn’t aim for an NPS of 20 or more than 50, which is considered excellent.
But here’s the thing: SaaS marketers shouldn’t get too caught up in the NPS survey. After all, the primary factor that affects NPS is the overall quality of your SaaS product.
So what can SaaS marketers do with their NPS score?
The main goal of SaaS marketing is to maximize customer satisfaction so they stay loyal to your brand. You want to keep them as long-term customers. And it’s crucial that these customers are willing to recommend you to others too.
Product quality may be the main consideration for the NPS. But it is still the marketing team’s job to improve the satisfaction of all the promoters, passives, and detractors.
To sum that up in a nutshell, SaaS businesses can improve the NPS by improving their SaaS product, customer support, and outreach efforts.
Final Thoughts About SaaS Marketing KPIs
SaaS businesses should always be on the lookout for what their marketing KPIs are telling them. These SaaS metrics can help you understand how different factors affect your marketing performance.
In turn, understanding how these various factors affect your business processes helps you make data-driven decisions. You will know what aspects to focus on and what to improve.
As you focus your efforts and resources on the right places, you will see a significant improvement in revenue and in growth.
And if you do it right, you can succeed in the cutthroat market that is SaaS and rise above your competitors.
Want more guides on SaaS marketing? Check out our blog here.