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What Are Good SaaS Metrics: The Full Rundown

What Are Good SaaS Metrics

 

If you look up the keyword phrase “SaaS metrics” on Google, you might end up a bit overwhelmed by the sheer volume of data points that can be tracked.

But what are good SaaS metrics to monitor for your SaaS company?

What you should track depends on what aspect of your SaaS business you are looking at.

If you ask your marketing director that question, they may focus on metrics like website visits, click-through rates, and conversion rates. If you ask your product team, they will likely be more interested in churn rate and feature usage statistics.

In this article, we will talk about key areas that contribute to the growth of your SaaS business and what metrics you should consider tracking in order to get the most value from your data.

 

SaaS Customer Acquisition Metrics

 

When it comes to acquiring new customers, you need to monitor how well your various customer acquisition channels are performing.

Here are some customer acquisition metrics you should be tracking:

 

Conversion Rate

 

The conversion rate measures the percentage of visitors to your website who take a desired action (such as signing up for a free trial or making a purchase).

 

Conversion rate formula

 

One great thing about this metric is that you can use it for various parts of the SaaS customer journey. As a result, there are a number of different conversion rates that you can track.

Let’s talk about some of them.

 

Visitor-To-Lead Conversion Rate

 

This metric measures the percentage of visitors to your website who become leads by filling out a contact form or signing up for a free trial.

This metric may indicate how well your website is capturing website visitors into leads. That could include various marketing and lead generation elements, such as your landing pages, lead magnets, and calls-to-action (CTAs).

 

Lead-To-Opportunity Conversion Rate

 

An opportunity is a lead that is deemed to have the potential for becoming a customer. This metric measures the percentage of leads who become opportunities.

This metric can tell you what stage of the customer journey your leads are getting stuck at. It can also help identify any weaknesses in your lead nurturing and sales processes.

 

Opportunity-To-Customer Conversion Rate

 

This metric measures the percentage of opportunities that become customers. This is a great indicator of how well your overall sales process is performing and what changes may need to be made in order to increase conversion rates.

 

Free Trial Conversion Rate

 

The majority of SaaS businesses today offer free trials as a way to entice potential customers to try out their SaaS solutions.

And the free trial conversion rate measures the percentage of visitors who sign up for the free trial and become paying customers.

It’s important to track this metric in order to determine whether your current free trial strategy works or not. With the right testing, it may also help you find out what changes are necessary in order to get more people signing up for your free trial and then becoming paying customers.

 

Freemium Conversion Rate

 

A lot of SaaS providers today also offer a freemium option, which allows users to use the basic features of their product for free.

The freemium conversion rate measures the percentage of users who sign up for the free plan and then upgrade to become paying customers. Tracking this will help you figure out what changes you need to make in order to increase conversions from freemium plans.

 

Activation Rate

 

For a lot of SaaS companies, the freemium model and free trials work as customer acquisition strategies because they allow you to deliver value to potential customers before they even pay for your product.

In other words, you’re giving your SaaS product a chance to sell itself. And that can only happen if the customer has experienced the value of using your SaaS product.

The activation rate is the percentage of customers who not only sign up for your SaaS solution but also take an action (or a set of actions) indicating they have had a full experience of it.

And this can vary for each SaaS product. For example, activation for a customer relationship management (CRM) system may be when a user adds their first contact. While for an accounting tool, it could be when they create their first invoice.

Tracking activation rates is important because it helps you identify how well your free trial, freemium, or onboarding strategies are at delivering value to your users.

 

Activation Rate Formula

 

SaaS Customer Engagement Metrics

 

Speaking of delivering value to your customers, you also need to ensure that they are actually engaging with your product.

So what customer engagement metrics should you track?

Let’s find out.

 

DAU/MAU Ratio

 

One of the most basic customer engagement metrics you can track is your daily active users (DAU) and monthly active users (MAU).

However, on their own, these two metrics don’t really provide a lot of insight into your customer engagement levels.

That’s why you need to compare them and look at the DAU/MAU ratio. This will give you a better idea of how engaged your users are with your SaaS product on a daily basis.

As you may guess, you can calculate your DAU/MAU ratio by dividing your DAU by your MAU.

For example, if you have 200 active users on a daily basis and 1,000 active users in the past 30 days, then your DAU/MAU ratio is 20%. That means only 20% of your monthly users are engaging with your product on a daily basis.

 

DAU MAU Ratio Formula

 

Customer Engagement Score

 

The customer engagement score is a versatile and holistic (albeit complex) SaaS metric that allows you to measure the overall engagement level of your users.

It takes into account various user actions and assigns a numerical value to user activity. This allows you to get a better sense of what features your customers are using most frequently and what areas they’re not engaging with so that you can make changes accordingly.

Here’s how you can measure your customer engagement score:

 

Identify Key Customer Engagement Events

 

The first step is to identify what activities you consider important in terms of customer engagement. For example, if you have an email marketing tool, then scheduling emails or creating a drip email campaign could be two key customer engagement events.

Of course, in the real world, there could be way more than two events that may indicate good customer engagement levels for your customer. So be sure to list out what those are and assess them accurately.

 

Assign A Weight Value To Each Event

 

Different customer engagement events will have different impacts on your existing customer’s overall experience with your SaaS solution.

So assign a weight value to each of the events you’ve identified.

For example, if creating a drip email campaign is more important than scheduling emails, then you should assign a higher weight value to that event.

So let’s say one instance of creating a drip campaign could be worth 15 points while one instance of scheduling a set of emails could be worth 5 points.

 

Calculate The Total Customer Engagement Score

 

To calculate your total engagement score, you would first need to multiply each engagement event’s weight value by the number of times it was performed by the customer.

Remember that each customer will also perform each engagement event at different frequencies. So what you need to do is multiply the weight value of each event by its frequency for each customer and add it all up.

 

customer engagement score 1

 

Let’s say that Customer A has created two drip email campaigns (worth 15 points each) and scheduled four emails (worth 5 points each).

In that case, drip email campaigns would contribute a total of 30 points, while scheduling emails would contribute a total of 20 points. And by getting the total customer engagement score, you would have an overall value of 50 points.

 

Create A Scale For Customer Engagement Score

 

The thing about the customer engagement score is that there is no one value that can indicate whether or not your customer is engaged.

So what you need to do is create a scale for customer engagement score.

This will help you compare engagement scores across all of your customers. With it, you can establish what scores can be considered good, average, or bad in terms of customer engagement.

For example, here’s how you could create a scale for customer engagement scores:

0 to 30: Low Engagement — Needs urgent attention and personalized help from the customer success manager.

31 to 60: Average Engagement —  No immediate action is needed. Keep tracking usage data and look out for trends in engagement.

61 to 90: High Engagement — Consider upselling opportunities.

91+: Exceptional Engagement — Look into expanding the customer base through referrals.

 

Customer Health Score

 

The customer health score is sort of similar to the customer engagement score in that it looks at different customer behavior and quantifies how it impacts the overall customer experience.

However, the customer health score doesn’t just look at the feature usage of your customers. It also looks at other interactions with your SaaS business, such as customer support conversations, survey responses, and more.

Let’s look at how you can measure each of your customers’ health scores.

 

Identify Customer Behavior That Impact Customer Health

 

As with the previous metric we discussed, you first need to identify what events or activities would have an impact on your customers’ health.

Not only would this include the engagement events we talked about above. It can also include outcomes of customer support conversations, customer feedback, and more.

 

Assign An Impact Score For Each Behavior

 

Similar to what we did with the customer engagement score, assign an impact score for each event you’ve identified. This time, you could also assign a negative value for certain events that would have a detrimental impact on your customer health.

For example, a customer support conversation that went badly could be worth -5 points while a successful one can be worth +5 points.

Or if a customer gave negative feedback, this could be worth -10 points while positive feedback would be worth +10 points.

 

Calculate The Total Customer Health Score

 

After assigning impact scores for each behavior, you need to multiply event values and with their corresponding frequencies. Then add up all of the values to get your customers’ total health score.

Just like with the engagement score, what you’ll have is an overall value that can give you an idea of what kind of health your customers are in.

 

Customer health score formula

 

For example, let’s say you’ve had 5 support conversations that went well and 1 where you could have done better. You also received three pieces of feedback and 2 out of them were positive while 1 was negative.

In that case, the total customer health score would be as follows:

 (5×5) + (-5×1) + (10×2) + (-10×1) = 30 points.

 

Create A Scale For Customer Health Score

 

Just like what you did for the customer engagement score, you need to create a scale for the customer health score.

For example, here’s how you can set it up:

Less Than 0: Critical Health — High probability of churning. The customer needs urgent attention from the customer support team.

0 to 30: Average Health — No immediate action is needed.

31 to 60: Good Health — High probability of staying loyal.

61+: Excellent Health — The customer may be an advocate who can bring in referrals.

These customer engagement metrics can help you get an idea of how much value your customers are getting with your SaaS product. With the right analysis, they can also help you prevent churn by improving what areas need improvement.

Speaking of preventing churn, let’s move on to our next type of SaaS metrics.

 

SaaS Customer Retention Metrics

 

What comes both as a boon and (sometimes) bane for a SaaS business is having long-term relationships with your customers.

Sure, this leads to recurring revenues which, when accumulated, could far surpass the cost of acquiring your customers.

However, this also comes with the condition that you manage to retain those customers for a long time. That’s why you need to measure customer retention and the different aspects that contribute to it.

Here are essential customer retention metrics you should track:

 

Customer Retention Rate

 

The customer retention rate measures how many of your customers are still using (and paying) for your SaaS product after a certain amount of time.

 

Customer Retention Rate Formula

 

For example, let’s say at the start of the month, you had 1,000 customers. Then at the end of the month, imagine that 950 of those customers are still using and paying for your product

Your customer retention rate would be (950/1,000) = 95%.

This metric will help you measure the overall effectiveness of your customer success strategy and what changes could be made in order to retain more customers.

 

Customer Churn Rate

 

The customer churn rate is just the opposite of the retention rate – it’s the percentage of customers who have stopped using your SaaS product after a certain amount of time.

 

Customer Churn Rate Formula

 

In our example above, your customer churn rate would be 5%, since 50 / 1,000 canceled their subscriptions.

Tracking this metric can help identify what stage in their customer journey your users may be dropping off at and what changes need to be made to keep them engaged.

 

Customer Satisfaction (CSAT) Score

 

Measuring customer satisfaction is key to understanding how happy your customers are with your SaaS product and what you can do to make it better.

Your CSAT score measures the overall customer sentiment which could be based on a survey that collects feedback from users or other customer interactions like support conversations.

The survey would ask them how satisfied they are with your SaaS product or the service they received.

They can answer based on a Likert scale, which is a numerical rating system. This scale usually ranges from 1 to 5 or 1 to 10, with the highest value being the best one.

And with a CSAT score survey, they can choose from the following choices:

5 – Very Satisfied

4 – Somewhat Satisfied

3 – Neither Satisfied Nor Disappointed

2 – Somewhat Disappointed

1 – Very Disappointed

As you go through the responses, you will only need to count those who answered with a 4 or 5, since they are the only ones who are satisfied.

To calculate your CSAT score, get the percentage of the total number of respondents who answered with a 4 or 5.

 

Sample customer satisfaction score survey and calculation

For example, let’s say you have 100 respondents and 70 of them answered with a 4 or 5.

Your CSAT score would be:

(70/100) = 70%.

The higher your CSAT score, the happier your customers are with your SaaS product, which can lead to more referrals and long-term revenue.

What’s more, you can also add follow-up questions to your survey to pinpoint what specific features or services your customers like and what areas need improvement.

This way, you can take the necessary steps to reduce churn and increase customer satisfaction and loyalty.

 

Net Promoter Score (NPS)

 

The Net Promoter Score (NPS) is another metric based on your customer’s responses to a survey.

But with this one, you’re not just asking how satisfied they are. You would ask them how likely they are to recommend your SaaS product to a friend or colleague.

Like the CSAT score, the answers would be on a Likert Scale. This time, though, it would range from 0 to 10.

You can group your respondents into three, depending on their answers:

  • Promoters: These are customers who answered with a 9 or 10. These are very happy customers who can become advocates and bring in referrals through recommendations and positive word of mouth.
  • Passives: These are customers who answered with a 7 or 8. They’re somewhat satisfied with your SaaS product. But they are not that enthusiastic about it either. What’s more, they may still decide to switch to another provider if they see a better deal.
  • Detractors: Customers who answered 0 to 6. They’re unhappy customers, and may negatively impact your brand through negative feedback. You need to reach out to them and find out what issues they have so that you can improve your SaaS product in order to keep them as customers.

To calculate your NPS score, get the percentage of Promoters minus the percentage of Detractors.

 

Sample net promoter score survey and calculation

 

For example, let’s say you have 100 respondents. Imagine that forty of those respondents were promoters while 20 were detractors.

Your NPS score would be:

(40% – 20%) = 20.

This metric can help you assess the overall sentiment of your customers towards your SaaS product. It can also help you pinpoint potential brand advocates and customers who are about to churn.

What’s more, with the right follow-up questions in place, you can also use this metric as a starting point to uncover what parts of your SaaS product needs improvement.

 

Customer Effort Score (CES)

 

The Customer Effort Score (CES) is a metric that measures how much effort your customers need to take in order to complete their desired tasks or activities.

This is again based on the responses of your customers to a survey, asking them to rate how easy it was for them to use your SaaS solution or deal with a particular issue with your support team.

For CES though, you can make your Likert Scale a bit more creative than the previous two surveys.

Here, you can also use emoticons or other visual elements to help them express how they feel about their customer experience.

 

Sample Customer Effort Score Survey

 

However, calculating your customer effort score would still require a quantifiable Likert Scale.

So if you do use visual elements, you can assign a number to each one so you can tally up your results.

For instance, let’s say you’re using emojis as your Likert Scale. You can assign a score of 1 to the frowning face, 3 to the neutral one, and 5 to the smiling one.

You can then calculate your customer effort score by taking the average of all your respondents’ ratings.

 

 

For example, imagine having 100 respondents. Let’s say that 30 gave you a 1 (frowning face) rating, 50 gave you a 3 (neutral), and 20 rated it 5 (smiling).

Your customer effort score would be calculated as follows:

(30×1 + 50×3 + 20×5) / 100 = 2.2

Again, you can also include follow-up questions, along with the survey, to find out which specific tools or features your customers found to be difficult to use.

With this information, you can identify what areas of your SaaS product need improvement in order to give your customers a better user experience.

 

SaaS Financial Metrics

 

Apart from the customer-facing metrics we discussed above, one of the most straightforward indicators of any type of company’s performance is its bottom line.

This means that you should also track SaaS financial metrics to see what areas you need to focus on in order to maximize your revenue.

So let’s look at some SaaS financial metrics you should consider tracking:

 

Monthly Recurring Revenue (MRR) 

 

MRR is the total amount of monthly recurring revenue your SaaS business earns from its subscriptions. If you have annual plans, you can divide your annual recurring revenue from those plans by 12 to get your MRR.

If you have multi-year deals, you will need to break it down further and divide the total amount of revenue by the number of months in the contract to get your monthly figure.

Tracking your MRR can help you assess your operational performance and plan out what strategies are working or what areas need improvement.

 

Annual Recurring Revenue (ARR)

 

Annual Recurring Revenue (ARR) is a metric that measures the amount of revenue your SaaS business will generate in a given year.

If you have monthly subscription plans, you can add your MRR to your ARR simply by multiplying it by 12. If you have multi-year contracts, you will need to divide the total contract value by the number of years in the contract.

Tracking your ARR can help you have a better idea of what to expect in terms of revenue for the coming year and what strategies or initiatives you need to focus on in order to maximize it.

ARR is also a key metric in SaaS company valuation. Potential investors and venture capitalists often use ARR to assess whether or not a SaaS business is worth investing in.

 

Annual Contract Value (ACV)

 

If you’re offering enterprise SaaS products and/or have multi-year contracts, you will need to track each customer’s annual contract value (ACV).

The ACV is the annualized revenue you get from a particular customer.

To calculate your ACV, take the customer’s total contract value (TCV) and divide it by the number of years in the agreement.

 

ACV Formula

 

For example, if you have a 3-year contract with a customer worth $30,000, then that customer’s ACV would be as follows:

($30,000 / 3 years) = $10,000 per year

Tracking your ACV can help you compare different customers. It enables you to see what types of customers bring more revenue to your business and what products (or plans) bring in the highest annual revenue.

Consequently, this information can help you prioritize which customers should focus on and what strategies to implement in order to maximize your revenue.

 

Gross Margin

 

Gross margin is a key metric that measures what percentage of your total revenue is left after covering the day-to-day costs of running your SaaS business.

These costs include your cost of goods sold (COGS).

 For a SaaS business the COGS may include the following expenses:

  • Hosting fees
  • Salaries, bonuses, and benefits for customer support and success teams
  • Subscription fees for customer support and success tools
  • DevOps Costs
  • Fees for outsourced professional services

To calculate your gross margin, subtract your total COGS from your total revenue and then divide the remaining amount (which is your gross profit) by the total revenue.

 

Gross Margin Formula

 

For example, let’s say your total revenue is $100,000, and your COGS amount to $30,000.

Your calculation for your gross margin would be as follows:

($100,000 – $30,000) / $100,000 = 70%

The gross margin (and gross profit) is an important financial metric as it helps you see how much of your revenue you can allot for growth, such as investing in marketing, product development, or hiring new talent.

What’s more, this metric should be included in your SaaS income statement so you have an up-to-date understanding of your cash flow.

 

Revenue Churn Rate

 

Earlier in this article, we talked about customer churn rate — calculating the percentage of customers who cancel their subscriptions within a certain period of time.

But it’s also important to measure how badly it affects your bottom line.

That’s where the revenue churn rate comes in.

Revenue churn is a metric that measures how much of your revenue you’re losing due to customer churn.

To calculate your revenue churn rate, take the total amount lost from canceled customer subscriptions and/or expired contracts within a given period (usually monthly) and divide it by the average MRR for that same period.

 

Revenue Churn Rate

 

For example, let’s say in July you had an average MRR of $50,000 and lost $2,000 from customers canceling their subscription plans.

Your calculation would be as follows:

$2,000 / $50,000 = 4%

 

Expansion Revenue

 

Even if you’ve successfully acquired a new customer, you shouldn’t be content with them just using the same subscription plan indefinitely.

You should always look to increase what they’re paying you and what products they’re using. This is what we call expansion revenue.

Expansion revenue is the additional amount of money you get from upselling existing customers or getting them to purchase more expensive plans, add-ons, etc.

To calculate your expansion revenue, take your total subscription revenue from successful upsells during a given period (monthly or annually) and subtract it from what customers would have paid with their original plan.

For example, let’s say you had $50,000 in subscription revenue for a given month, but after upgrading to higher-tier plans, the amount went up to $65,000.

Your calculation for your expansion MRR would be as follows:

$65,000 – $50,000 = $15,000

Your expansion revenue may indicate how effective your SaaS upselling efforts are. If you’re not seeing any improvement, it might be time to reevaluate what strategies you’re using.

 

Net Revenue Retention (NRR)

 

Your net revenue retention (NRR), also sometimes called Net Dollar Retention (NDR), is a metric that measures what percentage of your revenue from existing customers you retain month-over-month.

Now, remember that your MRR could be affected by churn, expansion revenue, or contraction (which happens when customers downgrade their subscriptions). So you would also need to consider the MRR added or deducted due to these factors.

To calculate your net revenue retention, add your starting MRR and expansion MRR, then subtract your churn MRR and contraction MRR from it. Then divide the resulting amount by your starting MRR.

 

Net revenue retention formula

 

For example, let’s say your MRR at the beginning of the month is $50,000. Then you earned an additional $10,000 in expansion MRR. But then you also lost $5,000 due to churn and another $3,000 due to downgrades

Your calculation would be as follows:

($50,000 + $10,000 – $5,000 – $3,000) / $50,000 = 104%

As much as possible, you should keep your NRR above 100%. This indicates that you’re successfully retaining your existing customers and bringing in more revenue every month.

However, for SaaS startups, an NRR as low as 90% can still be acceptable.

 

Average Revenue Per User (ARPU)

 

As its name suggests, the average revenue per user (ARPU) is the average revenue you generate for each customer you have.

To calculate your ARPU, take your total revenue on a given period (usually monthly or annually) and divide it by the number of active customers during that same period.

 

ARPU formula

 

For example, let’s say you had 400 active customers in a month with a total revenue of $40,000.

Your calculation for ARPU be as follows:

$40,000 per month / 400 users = $100 per user per month

ARPU is an important metric to track because it allows you to see what your customers spend on average.

What’s more, this metric can also help you compare different customer segments with one another. Of course, this would entail that you need to track your ARPU for each customer segment.

For example, if you see that small businesses in your customer base bring in a much higher ARPU than medium-sized businesses do, you can focus more resources and attention on that segment.

Or you may also start planning to double down on upselling to your customers in the medium-sized businesses segment.

 

Customer Lifetime Value (CLV)

 

The customer lifetime value (CLV) is the total amount of money a customer is projected to spend on your SaaS over their entire tenure as your customers.

To calculate your CLV, take your overall ARPU and multiply it with the average customer lifespan (which is the average number of months or years that a customer stays with you).

 

Customer lifetime value calculation with historical data

 

For example, let’s say that your annual ARPU is $1,000 per user per year, and the average customer lifespan is 5 years.

Your calculation for CLV be as follows:

$1,000 x 5 years = $5,000

If you don’t have enough historical data to establish an average customer lifespan, you can project your CLV by dividing your ARPU by your customer churn rate.

 

Customer lifetime value calculation without historical data

 

For example, let’s say you have a monthly ARPU of $100 per user per month and a monthly churn rate of 2%.

Your calculation for CLV would be as follows:

$100 per user per month / 0.02 per month = $5,000 per user

 

Customer Acquisition Cost (CAC)

 

Aside from the revenue you are earning from your customers, you should also measure how much you are spending to acquire them.

This is what the customer acquisition cost (CAC) metric does. It helps you assess how much money it takes to attract a new customer.

To calculate your CAC, take all of the marketing and sales expenses for a given period then divide it by the number of customers acquired during that same period.

 

CAC formula

 

For example, let’s say you spent $10,000 on marketing and sales in a month with 100 new customers acquired.

Your calculation for CAC would be as follows:

$10,000 per month / 100 customers = $1,000 per customer

On its own, your CAC doesn’t really tell you much. Sure, it makes you aware of how much you’re spending to acquire a single new customer.

But to really get more insight from it, you need to compare it to how much revenue you generate from each customer you acquire.

And that brings us to the final SaaS metric we will discuss here.

 

CLV/CAC Ratio

 

The CLV/CAC ratio is an important metric to track because it shows you how well your customer acquisition efforts are performing.

To calculate this SaaS financial metric, simply divide your CLV by your CAC.

 

CLV CAC Ratio Formula

 

For example, let’s say that you have an CLV of $5,000 and a CAC of $1,000.

Your calculation for CLV/CAC be as follows:

$5,000 per customer / $1,000 per customer = 5:1 (or 5x return on investment)

In the SaaS industry, the standard CLV/CAC ratio is within the 3:1 to 5:1 range.

A ratio higher than 3:1 indicates that you are getting a good return on your customer acquisition efforts. While a ratio lower than 3 means that you don’t have a wide enough margin to ensure sustainable growth.

A ratio higher than 5:1 isn’t always a good thing either. It may indicate that you’re missing out on potential growth opportunities by not investing enough in customer acquisition.

 

Final Thoughts: What Are Good SaaS Metrics?

 

To answer the question we posed at the introduction of this article, it really depends on what you’re looking at and what your goals are.

Are you focusing on customer acquisition? On retention? Or do you want to assess how profitable your SaaS business is?

Whatever it is, may this guide help you monitor the right metrics and eventually improve the various aspects that contribute to your SaaS company’s success.

Want more guides to help you grow your SaaS business? Visit our blog here.

 

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Ken Moo
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