No matter whatever be your business, when it comes to success it’s not just about the final outcome—it’s about understanding, improving and optimizing every aspect of a business. SaaS businesses are no exception to this. That’s where SaaS KPIs come into the picture.
SaaS KPIs let you track progress, make better decisions, and steer your business towards success. In this article, I’m going to talk about some of the most important SaaS KPIs you should track. Let’s dive in…
What Are SaaS KPIs?
SaaS KPIs are key performance indicators that help businesses monitor and analyze how their business is performing. It helps you understand the state of customer acquisition, retention, revenue generation and overall growth in your organization.
By tracking SaaS KPIs, organizations can make data-driven decisions to optimize their strategies, enhance customer satisfaction and drive sustainable growth. Let’s take a look at some of the important SaaS KPIs you must track.
Most Important SaaS KPIs You Need to Track
1. Total Number of Paid Customers
Total number of paid customers measures the number of customers who have purchased a product or service and are actively paying or paid for it within a given time period.
This metric helps assess revenue generation and customer satisfaction levels, guiding decisions related to sales tactics, product development, and customer service initiatives.
Total Number of Paid Customers = Number of customers who have purchased a product or service and completed payment within a specific period.
2. Total Number of Sign Ups
Total number of sign-ups measures the quantity of new users registering for a service, platform, or product over a specific period. It indicates the effectiveness of marketing efforts, user acquisition strategies, and overall product appeal.
By tracking this KPI, businesses can evaluate the success of their efforts in attracting new customers or users and identify areas for improvement in their conversion funnel.
Total number of sign-ups = Number of new users registered during the specified period
3. Conversions From Organic Search
Conversions from organic search equals the number of website visitors who make a decision like signing up, completing a contact form or purchasing your product through organic (unpaid) search.
It helps businesses gauge the effectiveness of their SEO and organic social media marketing efforts in attracting relevant traffic that leads to valuable actions, indicating the quality of their organic search presence.
Conversions from Organic Search = (Number of conversions by organic search / Total organic search traffic) x 100
4. Conversions From Paid Advertising
Unlike Conversions from Organic Search, this particular KPI measures the actions users take after clicking on an ad, such as making a purchase, signing up for a newsletter, or filling out a form.
This KPI helps businesses assess the return on investment (ROI) of their paid search campaigns, optimize ad targeting and messaging and refine strategies to maximize conversions and revenue.
Conversions from Paid Advertising = (Number of conversions attributed to paid search / Total Paid Search Traffic) x 100
5. Customer Acquisition Cost (CAC)
CAC, or Customer Acquisition Cost, represents the expenses incurred in acquiring a new customer. It’s determined by dividing the total sales and marketing expenditures dedicated to persuading a customer to make a purchase by the total count of new customers acquired within a specific timeframe.
Monitoring CAC helps assess the effectiveness of marketing strategies and ensures that customer acquisition costs align with the company’s revenue goals, ultimately aiding in maximizing profitability.
CAC = Total Acquisition Expenses / Number of New Customers
6. Customer Retention Rate (CRR)
Customer retention rate (CRR) quantifies the proportion of customers retained by a business within a defined timeframe. Expressed in percentage, the metric reflects the portion of the company’s current client strength that remains loyal throughout a designated period.
It indicates the effectiveness of a company’s efforts in keeping existing customers satisfied and engaged. A high retention rate suggests strong customer loyalty and indicates that the business is effectively meeting customer needs, fostering relationships, and minimizing churn.
CRR = [(E – N)/S] x 100,
Where,
E = number of customers at the end of time period.
N = number of customers gained within the time period.
S = number of customers at the start of time period.
For example, you have 150 customers at the start of the month. You gain 30 new customers and lose 10 customers till the end of the month. So, you now have 170 customers at the end of the month.
CRR = [170 – 30 / 150] x 100 = 93.33%
7. Customer Churn Rate
Customer Churn Rate measures the percentage of customers discontinuing a service within a defined timeframe. It indicates customer dissatisfaction or disengagement and is crucial for assessing customer retention efforts. The metric may be assessed on an annual, monthly, weekly or daily basis.
A high churn rate suggests potential issues in product/service quality, customer support, or competition. Lowering churn rate is essential for sustaining business growth and profitability.
Churn Rate = (No. of customers lost during a period / Total no. of customers at the beginning) x 100
8. Customer Lifetime Value (CLV or LTV)
CLV represents the approximate revenue that an average customer is projected to generate throughout their relationship with the business. It depends on the customer’s purchasing habits, frequency of purchases, and average order value.
Understanding CLV helps businesses determine how much they should invest in acquiring and retaining customers, guiding marketing strategies and customer engagement efforts for long-term profitability.
CLV = Average Customer Value x Average Customer Lifespan
9. Monthly Recurring Revenue (MRR)
MRR represents the recurring revenue generated from subscription-based services on a monthly basis. It encompasses charges from discounts, coupons, and recurring add-ons, excluding one-time fees.
MRR provides insight into the company’s financial health, growth trajectory, and customer retention. Monitoring MRR helps businesses gauge their performance and adjust strategies to maximize revenue stability and growth.
MRR = Total Number of Subscribers x Average Revenue per Subscriber per month
10. Annual Recurring Revenue (ARR)
ARR is the estimated annual revenue generated from subscriptions. It encompasses the recurring revenue of a business’s subscriptions normalized over a single calendar year.
It excludes one-time sales or variable revenue streams, focusing solely on the predictable income from ongoing subscriptions.
ARR = MRR x 12
11. Net Promoter Score (NPS)
NPS evaluates customer loyalty through a simple question: “How likely are you to recommend our product/service on a scale of 0-10?”. Promoters (9-10) are enthusiastic supporters, while Detractors (0-6) are dissatisfied customers. By subtracting Detractors from Promoters, NPS provides a measure of overall customer satisfaction and loyalty.
NPS = % of Promoters – % of Detractors
12. Customer Satisfaction Score (CSAT)
Customer satisfaction metric evaluates the degree of contentment customers derive from a product or service. Utilizing surveys, feedback, or ratings, it offers insights into customer perceptions, aiding businesses in enhancing satisfaction levels for improved customer loyalty and retention. A high score indicates happy customers, while a low score suggests areas for improvement.
To calculate the percentage of satisfied customers,
CSAT = Total no. of customers who are ‘very satisfied’ or ‘satisfied’ / Total no. of responses
Conclusion
SaaS KPIs are important tools in determining the growth and success of SaaS businesses. By providing actionable insights and real-time data, they empower companies to make improved decisions and identify areas for improvement.
Be it measuring customer retention, analyzing revenue streams, or enhancing product performance, SaaS KPIs guide businesses towards growth. Embracing these metrics is not a choice, but a necessity for staying competitive and relevant.
Also read about SaaS Metrics – 18 Important Metrics SaaS Companies Should Care About
