14 Essential SaaS Sales KPIs Every SaaS
Business Should Track
The sales team has always been an essential part of most SaaS companies, especially those that operate in business-to-business (B2B) markets.
Not only does sales bring in more customers. But a strong SaaS sales team can also help to upsell and cross-sell current customers, which can have a significant impact on the company’s bottom line.
That’s why it’s important to track various SaaS sales KPIs (key performance indicators). By doing so, you can see how well your sales team is performing and identify areas that need improvement.
In this blog post, we are going to talk about the 14 most essential SaaS sales KPIs you need to track and how to calculate them.
1) Lead Velocity Rate (LVR)
The lead velocity rate (LVR) is a SaaS sales KPI that measures the speed at which your sales team is able to generate new qualified leads.
In more direct terms, it measures how good your lead generation efforts are.
Notice that we used the word “qualified” there.
You see, there are qualified leads and there are bad leads. A qualified lead is a potential customer who has been determined to be a good match for your product.
On the other hand, a bad lead is someone who is not interested in your product or who is not a good fit for it.
The LVR only tracks qualified leads. And that includes two kinds: marketing qualified leads (MQL) and sales qualified leads (SQL).
Marketing qualified leads: MQLs are leads that have been determined to be a good match for your product based on their engagement with your marketing campaigns.
They could be repeat visitors to your website, people who have downloaded one of your ebooks, or webinar attendees.
Sales qualified leads: SQLs are leads that are even more likely to buy your product since they already gave their contact information and have expressed an interest in talking to your sales team.
To compute the LVR, you need to take the number of new MQLs and SQLs generated in a given period of time and divide it by the total number of leads at the beginning of that period.
For example, let’s say that your SaaS company started off the month with 100 leads. And by the end of the month, they were able to generate 20 new MQLs and 30 new SQLs. This means that your LVR for that month would be 50%.
2) Sales Cycle Length
The sales cycle length measures the amount of time it takes your sales team to close a deal.
In other words, it’s a measure of how efficient your sales process is.
The shorter the sales cycle, the better. That’s because it means that your team is able to close deals faster and bring in revenue sooner. It also indicates that your team is good at qualifying leads and moving them through the funnel quickly.
To compute the sales cycle length, you need to take the total number of days from when a lead was first contacted until the deal was closed and then divide it by the total number of deals closed.
For example, let’s say that your SaaS company closed 10 deals in a span of 30 days. This means that your sales cycle length for that month would be 3 days.
When tracking your sales cycle length, you can use whichever measure of time best fits with how you track your sales and revenue.
For example, if you close your books every month, then you might want to measure your sales cycle length in months. Or if you close your books every quarter, then you might want to use quarters.
3) Conversion Rate
The conversion rate is a SaaS sales KPI that measures the percentage of leads that perform the desired action which brings them into the next stage of the SaaS sales funnel.
Does that sound vague? Well, that’s because you can track conversion rates anywhere in the customer journey.
For example, if you’re specifically tracking the MQL to SQL conversion rate, you would get the percentage of MQLs that have shown interest in talking to your sales team.
You can track various conversion rates for different transitions, such as the following:
- MQL to SQL conversion rate
- Lead to opportunity conversion rate
- Opportunity to customer conversion rate
To compute the conversion rate, you need to take the number of leads that performed the desired action and divide it by the total number of leads.
For example, let’s say that your SaaS company generated 100 MQLs last month and 20 of them showed interest in talking to your sales team. This means that your MQL to SQL conversion rate for that month would be 20%.
4) Customer Acquisition Cost (CAC)
The customer acquisition cost (CAC) measures how much it costs your company to acquire a new customer.
It is often used to measure how efficient your marketing and sales efforts are at generating new business.
To compute the CAC, you need to take the total marketing and sales expenses for a given period of time and divide it by the total number of new customers acquired during that period.
For example, let’s say that your SaaS company spent $10,000 on marketing and sales last month and acquired 50 new customers. This means that your customer acquisition cost for that month would be $200.
5) Annual Contract Value (ACV)
The annual contract value (ACV) is the average amount of money that your company receives from a customer over the course of a year.
This metric is often useful for SaaS companies that have annual or multi-year contracts. That’s because it can give you a good indication of the long-term value of a customer.
To compute the ACV, you need to take the total contract value and divide it by the number of years in the contract.
For example, imagine you just closed a deal, and your customer signs a 3-year contract for $300,000. This means that the ACV of this customer would be $100,000.
6) Monthly Recurring Revenue (MRR) &bAnnual Recurring Revenue (ARR)
The monthly recurring revenue (MRR) measures the amount of money that your company receives from customers on a monthly basis.
This metric is often used by SaaS companies because it’s a good indicator of future growth. That’s because as your MRR increases, so does your potential for future growth.
The annual recurring revenue (ARR) is the amount of money your SaaS business generates yearly.
Now, just to clear the air, ARR is very different from ACV.
ACV accounts for only one customer, while ARR accounts for all of them.
7) Average Revenue Per User (ARPU)
The average revenue per user (ARPU)measures the average amount of money that your company receives from each customer over a period of time, either monthly or yearly.
This metric is often used by SaaS companies because it’s a good indicator of the health of your business. That’s because it can give you insights into how much revenue you’re generating per customer and whether or not this number is increasing over time.
To compute the ARPU, you need to take your total recurring revenue (MRR or ARR) and divide it by your total number of customers.
For example, let’s say that your SaaS company has 100 customers and generates $10,000 in MRR each month. This means that your monthly ARPU would be $100.
8) Customer Retention Rate
When it comes to the SaaS business model, the success of your company isn’t all about winning more customers. It’s also about keeping the ones you have.
In fact, customer retention is more important than customer acquisition.
Not only because it costs more money to get new customers. But losing a lot of them could also reflect badly on your SaaS product’s or customer support’s reputation.
That’s why tracking your customer retention rate is important.
This KPI measures the percentage of customers that remain active and continue using your SaaS product over a given period of time.
To compute the customer retention rate, you need to take the number of customers at the beginning of a given period and divide it by the number of customers at the end of that period.
For example, let’s say that your SaaS company started the year with 1,000 customers and ended the year with 900 customers. This means that your customer retention rate for that year would be 90%.
9) Churn Rate
When a customer cancels their subscription to your SaaS product, that’s called churn.
Churn is inevitable for any SaaS business. But if you want your SaaS company to grow, you need to keep your customers from churning.
You can do this by offering them a great product, providing excellent customer support and customer success services, and offering competitive prices.
Now, when it comes to churn, there are two metrics that you need to monitor: customer churn rate and revenue churn rate.
Customer Churn Rate
This SaaS metric is the opposite of the customer retention rate.
It is the percentage of customers that cancel their subscription to your SaaS product over a given period of time.
To compute the customer churn rate, you need to take the number of customers that cancel their subscription during a given period by the number of customers at the beginning of that period.
For example, let’s say that your SaaS company started the year with 1,000 customers and had 50 customers cancel their subscriptions during that year. This means that your customer churn rate for that year would be 5%.
Generally speaking, the acceptable churn rate for SaaS businesses would be somewhere around 5% to 7%. But it can also vary depending on the nature of your customer base, your industry, and your company’s maturity.
Revenue Churn Rate
This SaaS metric measures the percentage of recurring revenue that is lost due to customers canceling their subscription
To compute the revenue churn rate, you need to take the MRR that is lost during a given period and divide it by the MRR at the beginning of that period.
For example, let’s say that your SaaS company started the year with $10,000 in MRR and had $1,000 in MRR canceled during that year. This means that your revenue churn rate for that year would be 10%.
10) Expansion MRR
Expansion MRR is the SaaS metric that measures the additional revenue that you’re generating from your existing customers.
It’s important to track this metric because it can give you insights into how well your SaaS product is doing and whether or not your customers are finding value in it.
There are two ways to generate expansion MRR: upselling and cross-selling.
Upselling is when you convince a customer to upgrade to a higher-priced subscription plan. For example, if they’re currently on your $10/month plan and you convince them to switch to your $20/month plan, that’s an upsell.
Cross-selling is when you convince a customer to buy an additional product or service. For example, if you sell a SaaS platform and also offer consulting services, and a customer buys both, that’s a cross-sell.
To compute expansion MRR, you need to take the additional MRR from upselling and cross-selling and add them together.
For example, let’s say that your SaaS company generated $5,000 from upselling and $3,000 from cross-selling in a given month. This means that your expansion MRR for that month would be $8,000.
11) SaaS Quick Ratio
The SaaS quick ratio measures your SaaS company’s ability to generate revenue despite churn.
Now, don’t get this SaaS metric mixed up with the quick ratio or the acid test ratio. That’s an entirely different metric that measures a company’s liquidity.
To find the SaaS quick ratio, you need to take four other metrics into consideration:
- New MRR: The recurring revenue you generate from new customers.
- Expansion MRR: The additional recurring revenue from upselling and cross-selling (as we have just discussed.
- Churn MRR: The recurring revenue you lose due to churn.
- Contraction MRR: The recurring revenue you lose due to subscription downgrades.
To calculate your SaaS quick ratio, you need to take the sum of new MRR and expansion MRR and divide it by the sum of the churn MRR and contraction MRR.
For example, let’s say that your SaaS company has the following metrics:
New MRR: $10,000
Expansion MRR: $5,000
Churn MRR: $2,000
Contraction MRR: $1,000
Your SaaS quick ratio would be $15,000 / $3,000 = 5. That means for every dollar you lose from churn and contraction, you’re making up for it by earning 5x times that.
If you have a SaaS quick ratio of less than 1, that’s obviously bad news. It means that you’re losing more revenue from churn and contraction than you’re making from new customers and expansion.
If it’s around the 1 to 4 range, you’re making up for your lost revenues. But it’s still a weak growth. You still need to lower your churn and contractions while increasing revenue through new customers and upselling.
Ideally, you want to have a SaaS quick ratio of more than 4. That means you’re growing quickly and efficiently.
12) Customer Lifetime Value (CLV)
The customer lifetime value (CLV) is the total amount of revenue that you can expect to receive from a customer over the entire duration of their subscription.
This is also sometimes called LTV or lifetime value.
To calculate your SaaS company’s CLV, you need to know two more SaaS metrics: the ARPU and the average customer lifespan.
The average customer lifespan is the average length of time that a customer remains subscribed to your SaaS product.
ARPU, as we discussed above, is the average revenue per user.
IMPORTANT NOTE: The time period has to be consistent with the average customer lifespan.
If you’re measuring customer lifespans in terms of years, you have to use your annual ARPU. If you’re measuring it in months, you need to use your monthly ARPU.
You can calculate your CLV by simply multiplying your ARPU with your average customer lifespan.
For example, let’s say that your SaaS company has an annual ARPU of $1000 and an average customer lifespan of 4 years. That gives you a CLV of $4000.
Customer lifetime value is important because it tells you (on average) how much revenue you can expect to generate from each customer.
This, in turn, helps you to make decisions about things like pricing, customer acquisition costs, and SaaS product development.
It also affects your SaaS company valuation. All else being equal, a SaaS company with a higher CLV will be worth more than one with a lower CLV.
13) CLV:CAC Ratio
The CLV:CAC is a measure of how much revenue you are generating in return for every dollar that you spend on customer acquisition.
To calculate this KPI, simply divide your CLV by your CAC.
For example, let’s say that your CLV is $4000 and your CAC is $1000. That gives you a CLV:CAC ratio of 4:1.
Ideally, your CLV:CAC ratio should be around 3:1. This means you’re generating $3 in revenue for every $1 that you spend on customer acquisition.
Anything below 1:1 is not ideal because it means you’re losing money on each new customer
A ratio of 2:1 or higher is good because it means you’re making a profit on each new customer
A ratio that is way above 3:1 isn’t necessarily a good thing to target.
Sure, it means you’re getting high returns for your investment. But it could also mean that you’re missing out on potential growth (which is a good problem anyway).
14) Net Promoter Score (NPS)
The net promoter score (NPS) measures customer satisfaction and brand loyalty.
It’s a metric that’s used by companies in all industries, not just SaaS. But it’s particularly important for SaaS companies because of the recurring revenue model.
If customers aren’t happy with your product, they’re not going to want to keep paying for it month after month. They’ll cancel their subscription and you’ll lose out on that revenue.
To measure your NPS, you start by sending a survey to your customers and asking them how likely they are to recommend your product to a friend or colleague on a scale of 0 to 10.
Then group your respondents into three, based on their answers:
- Promoters: Those who gave a score of 9 or 10. These are people who can help your brand through positive word-of-mouth.
- Passives: Those who gave a score of 7 or 8. They are satisfied, but may still opt for a competing product if they see a better deal.
- Detractors: Those who gave a score of 0 to 6. They can hurt your brand through negative word-of-mouth.
To calculate your NPS rating, take the percentage of promoters and subtract the percentage of detractors.
For example, let’s say that you surveyed 100 customers and 60% were promoters, 30% were passives, and 10% were detractors. Your SaaS NPS score would be 60% – 10% = 50.
Having an NPS rating below 0 would be alarming. That would mean that more people are talking about your company in a negative way than a positive one. You need to find out why these customers are unhappy with your SaaS product and fix it ASAP.
If your score is around 0 to 50, most of your customers are happy with your SaaS product. But it can still be improved.
If you get an NPS score of up to 80, then that means you’re providing a great SaaS product and superb customer success and support services. Your customers are very likely to recommend your product to their friends and colleagues.
Final Thoughts About SaaS Sales KPIs
When it comes to any part of your SaaS business, your KPIs are important not just to assess your performance. You also need them in order to make informed decisions.
Which processes do you need to work on? Which practices do you need to continue? Should you invest more in acquiring new customers?
These are the kind of decisions that must not be based on a hunch. SaaS is a data-driven industry, which means that you need to have data to back up your decisions.
And remember, your SaaS business is unique and so are your goals. So not all of these KPIs will be equally important for you.
Pick the ones that are most relevant to your business and start tracking them. Doing so will give you a better understanding of your SaaS company’s sales performance and help you make the right decisions.
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