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25 Most Important SaaS Metrics Definitions You Need to Remember

SaaS Metrics Definitions

As a SaaS entrepreneur or marketer, you need to know the metrics that matter most. Knowing the right metrics can help you measure the success of your SaaS business and make informed decisions about product development, marketing campaigns, and more. In fact, one of the reasons why startups fail is due to not measuring the core metrics that matter in finding a profitable growth model.

 

What Are SaaS Metrics?

 

SaaS metrics are the quantifiable measurements used to track and assess the growth of SaaS companies. These metrics give an indication of how well a company is delivering its services, and can be used to inform decisions regarding marketing strategies, customer support actions and long term goals.

Different figures or data points must be gathered over a particular period of time to discover the effectiveness of the software product. Once analyzed, organizations can then use the results to make strategic decisions about expansion or other updates needed for their business operations.

 

25 Important SaaS Metrics and What They Mean

 

Below are the 25 most important metrics to measure and monitor the performance of your SaaS business.

 

1. Customer Churn

 

Customer Churn refers to the percentage of customers who cease using SaaS services over a given period of time.

By understanding customer churn, you can recognize trends in customer behavior and identify red flags that may be indicative of future problems. This can help you react quickly and take the necessary steps to reduce customer churn before negative impacts occur.

Furthermore, tracking customer churn enables better forecasting and improved budgeting. You can get an accurate idea of your future revenue and allocate resources accordingly.

Finally, understanding where customers are coming from, why they’re leaving, and which features they’re not using allows you to tailor your SaaS solution at each stage of the customer lifecycle, helping you develop more comprehensive user experiences in the long run.

To further understand why your customers are leaving, you can use surveys and questionnaires to gain feedback from customers who have discontinued service.

 

2. Revenue Churn

 

Revenue Churn measures the amount of your total revenue lost from canceled subscriptions in a given time period. High Revenue Churn rates can signify that your customers are unhappy with the service or price point, while low figures demonstrate customer satisfaction and loyalty.

SaaS churn is calculated by taking the difference between the monthly recurrent revenue at two different points in time; it is typically represented as a percentage of total revenue from that period. Knowing how to calculate SaaS revenue churn gives your SaaS businesses the information you need to make useful predictions about your performance in business over time, allowing you better decision-making and strategies for improvement.

 

3. Activation Rate

 

The activation rate measures user engagement with a SaaS tool. It is the first step in determining whether new users will eventually become long-term customers. It can also help identify any early onboarding steps that could potentially predict whether a user will churn or stay with the product for the long run.

Calculating activation rate entails measuring key data points that track user behavior over time, such as number of logins, total time spent using the product, and number of new features used.

Once these data points are established, you can use them to gauge user engagement and product value on an ongoing basis. This allows companies to better understand their customers and make changes based on customer feedback.

When analyzing an activation metric for long-term retention, it’s important to understand why certain actions are essential for retaining users. For example, if users are not signing up for newsletters or creating accounts within a certain timeframe, this could indicate that they do not find your product useful or engaging enough to stick around for the long haul.

Additionally, it’s important to determine how effectively your SaaS tool is being communicated to new users and make sure that they have all of the information they need to get started quickly and easily. Automated tools and analytic reports such as Google Analytics or MixPanel can help you measure your performance against goals so you can make adjustments as needed.

 

4. Conversion Rate

 

Conversion rate measures the number of web visitors that successfully converted into a customer.  It also includes people coming from free trial and finally availing a subscription, or someone from freemium upgrading to premium plans.

The conversion rate basically tells you how effective your marketing strategies have been in converting prospect leads into actual paying customers. High SaaS conversion rates can mean better performance and profitability for a business – and conversely, low rates can hint at problems such as weak pricing models or too high customer acquisition costs.

Companies aiming to optimize their SaaS conversion rates should assess multiple factors, from user interest in a product to marketing strategies used to attract and keep customers.

 

5. Burn Rate

 

Burn rate helps you to track the amount of cash you are burning through each month.

This is especially important for SaaS businesses that are growing rapidly and want to get a handle on your resources and expenditures. By knowing your burn rate, you can compare your expenditures to your revenue and identify areas where you can reduce costs or increase efficiency. It also provides invaluable insight into how you are managing your cash flow, giving you an indication of whether you need to make changes or adjust usage levels.

Calculating the burn rate involves subtracting expenses from capital over a given time period. It’s important to take into account fixed costs as well as variable expenses when figuring out the overall rate of spending.

 

6. Renewal Rate

 

The renewal rate indicates the percentage of your customers who choose to continue their subscription with your SaaS provider compared to those who decide not to renew.

A high renewal rate means that customers are satisfied with the services they receive from you and remain loyal, while a low SaaS renewal rate implies that you must take action to retain your customers.

The renewal rate can be determined by taking the number of clients that renew their subscriptions and dividing it by the total number of subscribers at the end of a period.

 

7. Customer Engagement Score

 

The Customer Engagement Score tracks how active a user is over a period of time, allowing you to measure customer loyalty and identify trends.

Understanding your customer engagement scores can help you identify areas for improvement or change in order to drive growth and acquire more customers.

Additionally, tracking customer engagement scores can also provide invaluable insight into sales leads and usage patterns that may be useful in optimizing SaaS models and products.

You should focus on two key elements when calculating the score: user activity, and sentiment analysis. User activity involves tracking how many users are using the software, as well as the time they spend using it, while sentiment analysis requires gauging feedback from your customer surveys and other forms of customer feedback.

All these data points can be combined to get a comprehensive view of customer engagement in SaaS products and determine if any improvement initiatives have been successful in inspiring your customers to use or remain engaged with the product.

 

8. Customer Lifetime Value (CLV)

 

Customer Lifetime Value (CLV) measures the total amount of revenue a particular customer is expected to generate for a SaaS organization over the span of their contract or relationship.

Monitoring CLV helps you better understand whether your current strategies are providing customers with the value you need from your software services and if you are getting a good return on investment. Moreover, it provides valuable insights that help in managing customer relationships and recognizing potential upselling opportunities. .

To calculate CLV, you must consider factors such as the average customer purchase amount over time, the cost of acquiring or servicing that customer, and the projected customer redundancy rate. You can then properly understand how long you will monetarily benefit from that particular customer, allowing you to plan appropriately for the future.

 

9. Customer Acquisition Cost (CAC)

 

CAC determines the cost of getting someone to make a purchase, whether that’s through traditional marketing tactics like billboard ads or digital channels like Google Ads and social media campaigns. It also provides you an insight into which channels are most successful at driving new customers, this way you can optimize your budgets for maximum effectiveness.

To calculate CAC, you first need to research and factor in all sales, marketing, and development costs associated with acquiring new customers. Then you must divide the total cost by the number of customers acquired over the same period of time.

 

10. Months to Recover CAC

 

Months to recover CAC measures how long it takes for the fees associated with acquiring a customer to be paid off by the revenue earned from that customer over the course of their subscription.  Typically, SaaS companies have much higher CACs than other types of businesses since SaaS products can require upfront investments in infrastructure, automation, and personnel.

By tracking both the cost incurred, you can acquire a new customer as well as the months required for recouping this investment through payments from these customers, you are able to more accurately anticipate your financial performance and make necessary changes to facilitate growth.

To calculate how many months it will take your SaaS businesses to recover your CAC, start by first gathering data related to CLV and CAC figures. Break down your CLV numbers into intervals such as annual revenue, churn rate, and gross margin percentage.

 

11. Quick Ratio 

 

The quick ratio measures a SaaS company’s ability to pay its short-term liabilities with its most liquid assets. By tracking it, you can get an insight into your cash flow and creditworthiness.

It also helps you measure how much cash you can acquire without having to wait on payment from your customers or other sources of slow income, giving you a more concrete sense of your solvency in the near future.

To calculate your quick ratio, you need to list all your current assets on one side, then subtract inventory and prepaid expenses before adding cash, investments, and accounts receivable to the total. The result is then divided by current liabilities, giving you an indication of how much you have available should you need it.

 

12. Qualified Marketing Traffic

 

Qualified marketing traffic is any potential customer that has come to your SaaS website as a result of an advertisement, referral, link, or another form of marketing.

This metric provides insight into the effectiveness of your marketing campaigns. It also helps you to gauge how well your advertising efforts are doing and whether you should invest more in certain types of marketing or make changes to outreach efforts that aren’t currently working.

Qualified marketing traffic can be tricky to figure out, but here’s a quick guide.

  • First, define the key actions you’d like to track as a metric for qualified traffic, such as such as time spent on the website, pages viewed, and products added to cart.
  • Once those goals have been identified, use Google Analytics to track various activities on your SaaS pages such as time spent on each page or sign-up rates.
  • Finally, pull all the data together into one comprehensive report which will give you an overview of your qualified marketing traffic and show you areas where you can make improvements or optimizations.

 

13. Customer Health Score

 

The SaaS customer health score is a powerful measure of customer engagement and loyalty. It measures the likelihood that your customers will stay with your SaaS business in the long term. It focuses on key drivers such as user login activity, usage frequency, feature utilization, user segmentation, and support inquiries.

Unlike traditional SaaS metrics like churn rate or trial conversion rate, which only measure one aspect of SaaS performance at a given time, customer health score provides an all-inclusive view of SaaS customers’ engagement with your service. This holistic approach to monitoring SaaS customer health helps you act proactively and make timely adjustments to maximize revenue and lifetime value.

To calculate a Customer Health Score, evaluate customer data points and then assign each one a value on an ascending grading scale depending on your health status. Once all data points are evaluated, add up all assigned values to create the CHS score and understand your overall goal attainment rate as it pertains to customers. Finally, you can send this score to relevant parts of your teams for further analysis.

 

14. LTV/CAC Ratio

 

The LTV/CAC ratio helps you measure the success of your products by taking into account CLV compared to the cost of acquiring customers. This valuable SaaS metric allows you to determine if they are spending too much or not enough on your customer acquisition efforts, as well as how long it takes for these investments to show returns.

Simply put, this metric shows how much money you are making or losing for each customer. If your CAC exceeds your LTV value then you are losing money on every customer and should reconsider your SaaS investment strategy. However, if your LTV to CAC ratio exceeds 1:1 then it’s likely you are on the right track.

To calculate LTV/CAC ratio, you must divide the LTV of a customer (LTV) by the cost associated with acquiring that customer (CAC).

 

15. Leads by Lifecycle Stage

 

Leads by Lifecycle Stage (LBL) tracks how SaaS users progress within their customer journey, taking into account factors like customer touches and marketing efforts. By comparison to CRM data, LBL can be used to identify areas that need improvement in order to keep customers engaged and move them further along the customer journey.

This metric also helps your teams understand how long it takes for any given lead to reach each stage and compare different leads moving through the sales cycle. Additionally, you can use this information to identify which sources generate the most conversions, reducing marketing costs and increasing sales efficiency.

SaaS Lead Lifecycle Stages may include

  • Qualified Lead: This stage entails gathering more information about potential customers that have expressed interest in your SaaS solution and set up a session for an online demonstration.
  • Opportunity: During this time, you will be working to close the deal with qualified leads by building proposals, negotiating terms and setting up contracts.
  • Demo/Trial:  At this stage, you must make sure to provide an engaging demo with a qualified customer that showed an interest in trying out your product along with helpful resources to further encourage them to subscribe.
  • Convert:  At this point, you must ensure your onboarding process is smooth and streamlined to provide your new subscribers with a seamless transition into becoming loyal customers.
  • Activate: During this time, you need to engage your customers further by providing additional resources, useful upgrades or discounts on additional services.
  • Retain/Expand:  At this point, you need to focus on providing additional customer service and support to make sure your recurring users remain satisfied with their purchases and explore ways to further expand their usage.

Your SaaS sales teams need to be able to quickly and accurately calculate Leads by Lifecycle Stage in order to maximize revenue.

The best way to calculate your Leads by Lifecycle Stage is through an automated system that will determine how many leads are at each stage across your SaaS business.

This information can then be used to help you to inform decisions about which leads you should target first, what type of messaging should be sent out, and how you can improve your customer experience.

 

16. Product-Qualified Leads (PQLs)

 

Product-Qualified Leads (PQLs) are defined as SaaS leads that have been nurtured through the sales process to a point where they have a real intent to purchase and possess the budget, authority, and need for a given product or service.

Understanding PQLs is essential because it provides you with an overview of entire customer journeys which can help you to ensure SaaS companies make informed decisions while tracking the effectiveness of your sales practices.

PQLs are calculated by taking the number of SaaS users within your target market who actively use your product (and meet other predetermined criteria) and dividing it by the total number of your SaaS leads that have reached out to you. You should also account for customer churn rate, as each SaaS customer might pass through different phases during your lifecycle and levels of engagement with your product.

 

17. Qualified Lead Velocity Rate (LVR)

 

LVR measures the number of qualified leads your business generates in a given time period. It takes into account the rate at which leads are generated and allows you to quickly assess how well your sales pipeline is performing.

Tracking LVR offers several advantages over other revenue metrics such as total revenue generated or customer lifetime value. For starters, it provides a more accurate representation of pipeline efficiency since it takes into account both lead quantity and quality.

Additionally, because it’s based on real-time measurements rather than guesswork, companies can use their LVR performance to plan future growth goals with fewer “what ifs” involved in the process.

Finally, analyzing LVR performance also allows companies to uncover new insights about customer needs which they can use to adjust their lead targeting strategies accordingly.

 

18. Monthly Recurring Revenue (MRR)

 

MRR measures the regular revenue being brought into the business from your recurring bills and subscriptions.

SaaS companies focus on MRR to help better predict cash flow over time and beyond, as it gives a sense of what revenue they can expect in the coming months.

Additionally, you must pay attention to changes in MRR because those changes often indicate success or failure with certain product offerings, pricing changes, or marketing campaigns that have been put in place.

To calculate MRR, start by totaling up all existing subscription-based plans for your customers that have been paid for in the given month, then add any new recurring revenue from either new customer sign ups or some kind of upsell that was acquired during that month. This resulting number represents your SaaS’ MRR number and can provide insight into how well the SaaS is doing financially.

 

19. Annual Recurring Revenue (ARR)

 

The ARR tells you how much you can expect in revenue year-over-year based on current subscriptions and renewals, allowing you to plan for resource allocation, product development, marketing strategies, and other needs.

Knowing such an important metric allows you to adjust your strategy over time to ensure the highest return possible from current subscription models.

Calculating ARR is fairly straightforward – all you need to do is add up the profits made from clients who have committed to pay for SaaS recurring services on an annual basis. However, analyzing the data it provides can be complex due to fluctuating customer sizes, trends in pricing models, and the ongoing changes your SaaS businesses evolve with.

 

20. Average Revenue Per User (ARPU)

 

ARPU indicates how much money you earn from each active customer, allowing you to efficiently allocate your resources and target certain groups of customers for further engagement.

ARPU can be used to track the performance of your SaaS solutions over time and identify any possible areas for expansion or improvement. It can also be employed to measure your progress in the market, better understand your user base and segment them accordingly, identify effective marketing campaigns that work best with each group, and help you survive competition from other players.

ARPU is calculated by dividing the total revenue of your SaaS business by the number of active users during a certain period. Pay careful attention to your financial records and be mindful of factors such as cancellations or unpaid invoices that could skew the results.

 

21. Expansion MRR

 

Expansion MRR describes the increase in revenue that you get from existing customers due to adding new feature subscriptions or expanding usage within an existing contract. As you largely rely on your clients continuing to pay for your services, it is vital to track how much revenue is coming from which sources.

Expansion MRR gives you a clear indication of how well you are doing. Keeping an eye on this metric helps you to assess trends in customer behavior and identify areas of growth or potential drop-off in order to modify and adjust pricing or features, ultimately leading to a healthier SaaS business overall.

Expansion MRR is calculated by taking the total SaaS revenue of a given period and subtracting out the customer churn, downgrades, cancellations, and any other transaction that could reduce SaaS revenue during the same time frame. Any SaaS expansion made during the period will then be recorded in the Expansion MRR calculation, where it is then compared to previous periods to track progress and understand your SaaS performance trends over time.

 

22. Contraction MRR

 

Contraction MRR provides a snapshot of your SaaS tool’s performance over time, revealing where there may be churn (declines in SaaS revenue). By studying these changes in monthly SaaS revenue, businesses are able to spot potential issues and take corrective action if the need arises.

When calculating Contraction MRR, there are a few steps to follow.

  • First, you need to identify the net changes in SaaS MRR associated with contractions. This includes subtracting any credits for downgrades or deltas for removed SaaS customers for the month, plus any top-ups for upgrades or added SaaS customers in the same period.
  • Then, these adjustments must be broken down into your individual customer-level changes and compared to your SaaS MRR baseline from the previous month.
  • After this comparison is made, you must add all of these individual customer-level delta numbers together to obtain Contraction MRR – the amount by which SaaS Customer Revenue decreased during that billing period.

 

23. Reactivation MRR

 

Reactivation MRR provides you with insights into customer loyalty and helps you identify any trends that can help you to improve retention. Additionally, it measures your success with recurring customers.

Calculating Reactivation MRR for SaaS businesses is fairly straightforward, although it can require a little bit of effort to get it right.

  • The first step is to define the exact period of time you want to track your reactivation MRR for – typically this is done over a quarterly or annual basis.
  • Next, you need to determine which customers reactivated their SaaS subscriptions during that period.
  • Finally, multiply the monthly fees from these subscriptions by the number of months that have been covered

 

24. MRR Growth Rate

 

The MRR Growth Rate measures the total revenue from your SaaS subscriptions over a certain period of time – usually one month or one quarter. You can use this data to accurately measure your success and compare it to past performance or industry benchmarks. This helps you evaluate the effectiveness of your operations and make improvements where necessary. By having access to this information, you are better equipped to set clear, achievable goals that align with your growth objectives.

To calculate the MRR growth rate you will need to find the total MRR for a previous period, and then subtract that number from the current period’s total MRR. This gives you the net change in revenue over that period. Taking this figure and dividing it by the previous period’s total MRR will give you SaaS MRR Growth Rate.

 

25.Net Promoter Score (NPS)

 

NPS is an assessment tool that you use to gauge customer loyalty and feedback. SaaS businesses are dependent on loyal customers and NPS gives insight into how likely they are to refer, recommend or reinvest in the SaaS company and its offerings.

NPS is calculated from a simple survey asking customers to rate their level of satisfaction with a scale from 0-10. After gathering the responses, the results are tallied into three categories: promoters, passives, and detractors.

Promoters are those who answered 9-10, passives are those who responded between 7-8 and detractors are those who responded 0-6.

 

Why SaaS Companies Report on Different Metrics

 

Because SaaS businesses are so different from traditional software sales, they report using different metrics to measure their success. You might choose to report on customer retention rates, as it is essential for you to maintain consistent customer usage. Reports on churn rate and customer lifetime value can also be particularly useful in showing SaaS performance over a longer period of time.

Additionally, SaaS businesses are often likely to disclose how many new users are acquired during certain periods of time and their ARPU. All of these specialized metrics allow you to gain insight into your performance and measure results differently compared to non-subscription software companies.

 

Final Thoughts

 

Understanding key SaaS metrics definitions can help you better manage your business by giving you clarity into your growth trajectory, budgeting needs, customer acquisition costs, etc., allowing you to maximize profits while ensuring customer satisfaction along the way.

Don’t forget – at the end of the day, what matters most is whether your customers are happy and you’re making enough money to sustain (and grow) your business. So while it’s important to be aware of all these different SaaS metrics definitions, don’t get too bogged down in the details. After all, the only thing that really matters is whether your business is thriving.

For more tips on growing your SaaS business, be sure to visit our blog.

 

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Ken Moo
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