What Are SaaS Sales Metrics? (And How to Use Them to Grow Your Business)
If you’re running a SaaS business, then you know that measuring your success is critical to your growth. But what marketing metrics should you be tracking? And how can you use them to improve your business?
This SaaS metrics guide will explore the most important key performance indicators (KPIs) and explain how to use them to drive growth. We’ll also provide tips for tracking every SaaS KPI effectively.
So if you’re looking for ways to grow your SaaS business, read on!
12 Key SaaS Sales Metrics
1. Qualified Opportunities in the Sales Pipeline (QO)
A qualified opportunity is an account that has expressed interest in your SaaS product and is ready to buy. They are typically at the top of your sales funnel before they’ve been sold to.
The first step in creating a strong pipeline of potential customers is knowing how many qualified opportunities you have at any given time. This will help you determine what percentage of leads are moving forward in the sales process. That information will also be useful for tracking how effective various tactics are at attracting new QOs compared to other methods (like cold calling).
To calculate your QO rate, simply take the number of new QOs divided by the total number of leads.
2. Sales Pipeline Velocity (SPV)
SPV measures how quickly your sales team is moving opportunities through the pipeline. A high sales velocity indicates that your sales leaders are efficient at selling, while a low sales velocity suggests that there may be bottlenecks in the sales process.
To calculate your SPV, divide the total number of deals closed in a period by the number of days in that period. Then, multiply the result by the number of days in the average sales cycle.
3. Customer Churn Rate
Churn rate is one of the most important metrics for any SaaS business. It measures how many customers cancel their subscriptions or fail to renew their contracts. A high churn rate indicates that your business is losing customers at a rapid pace, which can be detrimental to your bottom line.
To calculate your churn rate, simply take the number of customers who cancel their subscription in a period and divide it by the total number of customers at the beginning of that period.
4. Gross Margin
Gross margin is a measure of how much profit you make from each sale after accounting for the cost of goods sold. A high gross margin indicates that your SaaS product is highly profitable, while a low gross margin suggests that you need to either increase prices or reduce costs.
To calculate your gross margin, take your total revenue and subtract the cost of goods sold. Then, divide the result by total revenue.
5. Qualified Opportunities per SDR
You can measure the number of qualified opportunities per SDR in two ways: the total number of opportunities generated by all SDRs, or the total number of opportunities generated by a specific SDR. The former is useful for tracking overall performance, while the latter provides more insight into individual sales productivity.
There’s also a third way to view this metric: as a ratio between sales and marketing. In other words, how many qualified leads does it take for each salesperson?
If your business has an average quota of $20k/month and you have 100 salespeople working on 200 deals at any given time (and these are both conservative estimates), then each deal will require about $1 million in marketing spend before it reaches “qualified opportunity” status. If you’re running out of money from advertising campaigns too quickly, that means something needs to change!
To calculate this metric, take the total number of opportunities generated by all SDRs (or a specific SDR) and divide it by the total number of SDRs.
6. Average Deal Size (ADS)
Average Deal Size (ADS) is the average value of a contract or the total revenue generated by a customer over time. ADS can be expressed as a multiple of revenue or as an actual dollar amount. For example, if your existing customer pays $10 per month and signs up for 12 months, then your ADS would be $120 ($10 x 12).
You can also use this sales efficiency metric to compare deals at different stages in the sales cycle: maybe one deal has an ADS of $5 and another has an ADS of $15. If you close enough deals like these two, you’ll know where to focus your efforts when it comes time to follow up with prospects.
The key benefit of measuring ADS is that it helps you understand which types of customers are most profitable for your business-and why they’re so valuable. If all else were equal (and sometimes it isn’t), this would help inform how much effort goes into cultivating future relationships with those specific types of buyers. Accounts managers should then spend more time finding potential clients who fit those criteria rather than others.
To calculate your ADS, simply take the total revenue generated by a customer over time and divide it by the number of months (or years) in the customer’s contract.
7. Average Length of Sales Cycle (ALSC)
ALSC gives you a metric with which to compare yourself against competitors. You can use this data as evidence in pitches and proposals when making your case for why companies should work with you over another vendor.
With ALSC, look at what’s causing bottlenecks in your sales process (i.e., if every deal takes longer than average). This will help you focus on which areas need improvement. You may need to hire an outstanding sales rep or train your existing team on how to close deals faster.
To calculate your ALSC, choose a single deal or set of deals that you believe represent your typical client in terms of size, industry and stage. Calculate the average length of time it took for these clients to move through each stage of your sales process, from first contact through closing (including both negotiation and implementation). Finally, divide the total length of time by the number of deals in your sample.
8. Quota Achievement Rate per SDR
What is the quota achievement rate? It’s a simple sales metric that tracks how many of your sales leads convert into paying customers.
To calculate your quota achievement rate, take the total number of accounts you closed in a given time period and divide it by the total number of sales activities during that same period. So if you closed 10 deals in March and your SDR worked on 50 opportunities (leads) during that same month, then your quota achievement rate would be 20%.
A good quota achievement rate varies depending on what industry you’re in and even which stage in the buying process your leads are at when they speak with an account executive (AE).
For example, suppose someone gets introduced to an AE after they have already made up their mind but haven’t yet purchased anything yet (like just before closing). Then their likelihood of converting is going to be much lower versus someone who has been researching solutions for weeks before getting a call from one of the AEs but hasn’t yet decided what solution they want or which company they’re going to buy from (like right after opening).
So how do we improve your quota achievement rates? By focusing more resources on those opportunities where you can make the biggest impact-the ones where there’s still lots left for you to do before closing! If you had 100 opportunities at this point in time, maybe only 20 were qualified enough for an AE to even work on and of those, only 10 were in the sweet spot where they were interested but hadn’t decided yet.
9. Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is the average amount of money a customer spends over the course of their lifetime. You calculate it by adding up all the revenue you will make from a customer, and then dividing that number by how long they have been with your business.
If you were to sell to someone for $50 one time, your CLV would be $50. If you were to sell them 10 products over an 18-month period at different prices ($1 per product), then add up all those sales and divide them by 18 months, or roughly two years — that would also give you an idea of what your CLV is for that customer.
CLV is important because it helps you understand how much revenue you can generate from each existing customer, on average. It also helps you identify which customers are worth your time and resources, and which ones are not.
There are a few different ways to calculate CLV, but the most important thing is to use a method that is consistent and that you can understand. The best way to do this is to talk to your accountant or financial advisor and to use a tool like Excel or Google Sheets to help you track and calculate your CLV.
Once you have a good understanding of your CLV, you can start to think about ways to increase it. One way to do this is to focus on upselling or cross-selling to your existing customers. Another way is to focus on acquiring new customers who are likely to spend more money with your business over time.
10. Customer Acquisition Cost (CAC)
In the SaaS world, CAC is the cost of acquiring a new customer. It’s the sum of all marketing and sales costs divided by the number of new customers acquired.
CAC can be calculated as follows:
Cost to acquire a customer = Total Marketing/Sales Costs / Number of New Customers Acquired
For example, if your SaaS company spends $5,000 on marketing and sales in a month, and you acquire 10 new customers, your CAC would be $500.
CAC is important because it helps you understand how much it costs to acquire a new customer. This number can then be compared to the lifetime value of a customer (LTV) to determine whether or not the acquisition is profitable.
If your CAC is higher than your LTV, then you’re losing money on each new customer. This is not a sustainable business model and you will eventually go out of business.
If your CAC is lower than your LTV, then you’re making money on each new customer. This is a sustainable business model and you can scale your business by acquiring more customers.
To calculate your LTV, you need to know three things:
- The average revenue per customer
- The average customer lifetime
- The churn rate
Once you have these three numbers, you can plug them into the following formula:
LTV = ARPC x (1 / Churn Rate)
For example, if your ARPC is $100 and your churn rate is 5%, then your LTV would be $2,000.
This formula is a simplified version of the LTV formula, but it’s sufficient for our purposes.
Once you have your LTV and CAC numbers, you can start to think about ways to improve your business. If your CAC is higher than your LTV, then you need to either lower your CAC or increase your LTV.
11. Total Contract Value (TCV)
Total Contract Value (TCV) is the total value of a contract, including both one-time purchase price and monthly recurring revenue. The TCV is the amount of money a SaaS company expects to make from a customer over their lifetime.
For example: If your product costs $5,000 with an annual maintenance fee of $2,000 per year, you would have an annual TCV of $7,000. This doesn’t mean that you’ll get every dollar in this period-you could have early cancellation fees or other factors affecting whether or not they pay out-but it’s still useful because it gives you an idea of how much money your customers will bring in over time.
12. Net New Customer Adds Per Month
Net New Customer Adds Per Month (NCCAM) is the number of new customers you add each month. To calculate this metric, you’ll need to know:
- How many customers you added in the last 30 days.
- How many customers you added in the last 90 days (or whatever time period fits your business).
Once you have those two figures, simply divide them by 90 and then multiply by 100 to get NCCAM. The metric should be expressed as a percentage or an absolute figure; don’t use a ratio here unless it’s absolutely necessary to do so.
The best way to use this SaaS metric is by comparing it with previous months and years-however long it has been since your SaaS company was founded-so that you can see if there are any trends in customer acquisition rate over time. If there is a downward trend, go back through your data until you find where things started going downhill before changing anything about how your business operates and focusing on other SaaS metrics instead. Otherwise, some changes could be detrimental to future success!
There are a number of other important SaaS sales metrics that you should track, but these are some of the most essential. By monitoring these metrics, you can get a better understanding of your business’s performance and make more informed decisions about where to allocate resources.
To use SaaS metrics to grow your business, you need to know what you’re looking for. The key is finding the right KPIs. Once you have those, track them consistently so that you can spot any trends. Doing this will give you a better understanding of your SaaS company’s performance and help you make more informed decisions about where to allocate resources.
When you’re tracking SaaS sales metrics, it’s also important to keep in mind that not all of them will be relevant to your business at all times. As your SaaS company grows and changes, so too will the KPIs that you need to track.
Don’t be afraid to experiment with different KPIs and change things up as needed. The only way to find out what works best for your business is to try different things and see what happens.
For more SaaS revenue growth tips, don’t forget to read our blog. We have new posts every week!