SaaS Metrics You Should Care About In 2023

The SaaS industry enjoyed tremendous growth over the past few years, and the SaaS market is becoming competitive, with more solutions emerging yearly. SaaS businesses must ensure their product’s growth to stay ahead of the competition. And SaaS metrics are a great way to keep track of your business’s performance.

This article will dive deeper into SaaS metrics and their importance, choosing the right metrics for your business and the ten most important metrics every SaaS should know.

Related: What Is User Activation in SaaS And How To Improve It

What are SaaS metrics?

SaaS metrics are a set of performance metrics used to evaluate a SaaS business’s effectiveness and efficiency. These metrics can help a SaaS company track its growth, identify areas for improvement, and make data-driven decisions. They provide valuable insights into a SaaS business’s performance and help it succeed.

Why is data so important for SaaS companies?

Data is essential for SaaS companies for several reasons, as mentioned below.

• Data can help a SaaS company track its growth and understand the effectiveness of its business model.
• By analyzing this data, a SaaS company can identify trends and patterns that can help it to improve its performance.
• Additionally, data can identify opportunities for new products or services and better understand customer behavior and preferences.
• By using data effectively, SaaS companies can make more informed and data-driven decisions, which can help them to be more successful.

Choosing the right metrics for your SaaS business

Choosing the right metrics for your business is essential for tracking performance and making data-driven decisions. To do this, understand your business goals and then select metrics that are directly relevant to these goals.

The following five factors can help you make the right choice for your SaaS business.

1. Business goals

Choose the metrics that help you measure your business’s progress. It’s a great way to ensure your business is on track to achieve its goals.

For example, if your goal is to double your growth year-over-year, you might track metrics like monthly recurring revenue (MRR) and customer acquisition cost (CAC). On the other hand, your focus is on moving upmarket or expanding into new regions. In that case, you might track metrics like the number of new customers in those regions or the average transaction value of those customers.

Whatever your goals are, the right SaaS metrics can help you understand whether your efforts are successful or if you need to adjust your strategy.

2. Growth stage

The metrics a business tracks depend on its stage in the growth journey. For instance, a newly launched business might prioritize metrics related to customer acquisition and new revenue. In contrast, a more established company might focus on retention, churn metrics, and customer lifetime value.

It’s important to periodically evaluate and revisit the metrics a business is tracking to ensure that they are still relevant and provide actionable insights. In addition, since the needs and priorities of a business can change over time, it’s crucial to adapt the SaaS business metrics accordingly.

Related: What is the North Star Metric & How to Measure It?

3. Industry

The industry in which a SaaS business operates influences the most relevant and important metrics. Different industries have different business models, revenue streams, and customer needs. As a result, the most important metrics to track can vary.

For example, a SaaS business in the e-commerce industry might prioritize metrics like average order value (AOV) and conversion rate. In contrast, a SaaS business in the enterprise software industry might focus more on metrics like annual contract value (ACV) and customer lifetime value (CLV).

Businesses must consider their industry’s specific needs and characteristics when choosing SaaS metrics.

Businesses must consider their industry’s specific needs and characteristics when choosing SaaS metrics.

4. Customer base

The size and nature of a SaaS business’s customer base also influence the metrics it needs to track. For instance, a SaaS business with a large number of customers might prioritize metrics like customer retention and churn rate, as these can significantly impact the overall health and growth of the company.

On the other hand, a SaaS business with a smaller customer base might focus more on customer acquisition and expansion metrics. Companies need to consider the size and characteristics of their customer base when choosing which SaaS business metrics to track.

5. Billing model

In any SaaS business, the billing model can impact the choice of metrics used to measure its performance. If a company uses a subscription-based billing model, ARR may be a good metric to track. On the other hand, MRR or CAC may be more relevant if a pay-per-use model is used. Thus, choose the SaaS metrics that best suit your billing model.

The 10 SaaS metrics that matter most

There are many SaaS business metrics to track, but the most important ones are mentioned below. These metrics provide insights into the financial health of your business, customer satisfaction, and the efficiency of your sales & marketing efforts. By regularly tracking and analyzing these metrics, you can gain valuable insights into the growth and performance of your SaaS business.

1. Customer churn

Customer churn, or customer attrition, is a measure of the number of customers that discontinue their use of a product or service over a given period. In the context o
f a SaaS business, customer churn refers to the percentage of customers that cancel their subscriptions or fail to renew them.

This metric is important because it directly impacts the company’s overall growth and revenue. For example, high churn rates can signify dissatisfaction with the product or service or a lack of value being provided to the customer. On the other hand, low churn rates indicate that customers are happy with the product or service and are likely to continue using it.

SaaS businesses can track and analyze this metric regularly to minimize customer churn. It can identify the steps to address any issues or concerns that may be causing customers to churn. Efforts may include improving the product or service, offering better customer support, or implementing retention strategies such as loyalty programs or incentives.

2. Activation rate

The activation rate measures how successfully a company converts free trial users into paying customers. For a SaaS business, the activation rate refers to the percentage of users that complete a specific action or series of actions, such as signing up for a paid subscription or completing a particular task within the product in a specified time frame.

It helps businesses understand how well they convert free trial users into paying customers. It also provides insight into the effectiveness of their sales and marketing efforts. SaaS businesses can improve activation rates by optimizing their onboarding process and improving the user experience. It includes providing clear and concise instructions for using the product, offering personalized support, and highlighting the value and benefits of the product to potential customers.

By regularly tracking and analyzing activation rates, businesses can gain valuable insights into their product performance and identify improvement opportunities.

3. Conversion rate

In a SaaS business, the conversion rate is a critical metric to measure the effectiveness of sales and marketing efforts. It can be calculated by dividing the number of paying customers by the total number of leads or visitors. For example, if a SaaS company has 100 visitors and 10 become paying customers, the conversion rate would be 10%.

A high conversion rate indicates that the company effectively converts leads into paying customers, while a low conversion rate may show a problem with the sales or marketing process. A SaaS business may need to optimize its website, improve its products offering, or implement more effective sales and marketing strategies.

4. Burn rate

Burn rate is a crucial SaaS business metric that helps a company understand its financial health and determine how long it has before it raises additional capital or becomes profitable. It is calculated by dividing the amount of cash spent in a given period by the number of months (in that period).

For instance, if a SaaS company has $100,000 in capital and spends $25,000 per month, its burn rate would be $25,000. A high burn rate may suggest that the company is using its capital too quickly, while a low burn rate may indicate that it needs to invest more in growth. With a burn rate, a SaaS business can identify areas for improvement and make informed decisions about its financial strategy.

5. Customer Lifetime Value (CLV)

Customer lifetime value (CLV) is a key metric for SaaS. It is used to find the total value of a customer to a SaaS business throughout their relationship with the company. To find it, multiply the average revenue per user (ARPU) by the customer lifespan. It helps them understand the potential return on investment of acquiring a new customer and the value of retaining existing ones.

By understanding CLV, businesses can optimize their marketing and sales efforts to target high-value customers and focus on customer retention strategies that will maximize the value of each customer over their lifetime. CLV is also helpful in forecasting future revenue and informing business decisions such as pricing and resource allocation.

6. Customer Acquisition Cost (CAC)

CAC measures the cost of acquiring a new customer for a SaaS business. It is calculated by dividing the total cost of sales and marketing efforts over a specific period by the number of new customers acquired. With CAC, businesses can understand the efficiency of their customer acquisition efforts and the return on investment of their marketing and sales activities.

7. LTV/CAC ratio

LTV/CAC ratio measures the return on investment of acquiring a new customer for a SaaS business. You can calculate it by dividing the lifetime value LTV by the customer acquisition cost CAC.

A high LTV/CAC ratio indicates that the business is effectively acquiring and retaining customers. It also means the revenue generated from each customer over their lifetime is sufficient to cover the cost of acquiring them. A low LTV/CAC ratio may indicate that the business is struggling to acquire and retain customers or that the cost of acquiring new customers is too high relative to their revenue.

8. Monthly Recurring Revenue (MRR)

MRR is one of the key SaaS business metrics that measure the recurring revenue generated from subscriptions over a period, usually a month. It helps businesses understand their revenue growth and anticipate future revenue streams. To make healthy future business decisions MRR metric can help to provide a consistent and predictable measure of revenue. Businesses use MRR to identify and analyze their revenue streams.

9. Annual Recurring Revenue (ARR)

Annual Recurring Revenue is a commonly used financial metric in the SaaS industry. It measures the predictable, recurring revenue that a business generates yearly. To calculate the ARR multiply the number of customers by the average revenue per customer per year. ARR reflects the stability and predictability of its revenue streams.

10. Net Promoter Score (NPS)

Net Promoter Score is a customer satisfaction and loyalty metric used in the SaaS industry. It is calculated by asking customers to rate their likelihood of recommending a product or service. A high NPS score indicates customer satisfaction and loyalty.

Related: How to Choose the Right Customer Segmentation KPIs

How are SaaS metrics tracked?

SaaS companies use various tools and techniques to track their metrics, including analytics software, CRM software, data visualization tools, custom tracking, and reporting systems. These tools allow companies to track key metrics and analyze and understand their data about how to grow and improve their business.

What is the most important metric for SaaS?

There is no single “most important” metric for SaaS businesses, as the most critical metric will depend on the particular goals and objectives of the company. However, a few key metrics are commonly considered necessary for SaaS businesses to track. These include:

• Monthly recurring revenue (MRR)
• Customer acquisition cost (CAC)
• Customer lifetime value (CLV)
• Churn rate
• Net promoter score (NPS)

What is the rule of 40?

The SaaS industry often uses a guideline known as the rule of 40 to evaluate the growth and profitability of a company. The rule states that any company’s growth rate and profit margin should be equal to or greater than 40%. It is calculated by adding the gross margin percentage to the annual recurring revenue (ARR) growth rate.

The rule is based on the idea that a company with a strong growth rate and a healthy profit margin is likely to be successful and sustainable in the long term.

For example, a SaaS business with a gross margin of 60% and an ARR growth rate of -20% would have a combined value of 40% and be considered in a healthy position according to the rule of 40.

The rule of 40 has become quite famous over recent years. It was popularized in 2015 when two blog posts from Brad Feld and Fred Wilson came out. SaaS leaders worldwide use this key metric to find their company’s growth. In addition to SaaS leaders, investors use this rule of 40 to make investing decisions.

Related: Funnel Analysis: Improve Your Sales Processes Today

Monitoring key SaaS metrics and KPIs for sustainable business growth

With tons of data and dozens of metrics to track, extracting valuable insights can quickly get overwhelming. Moreover, only some of the data a business produces offer value; it requires careful consideration of what type of data to track. Usermaven makes the whole process seamless and stress-free so you can enjoy actionable insights for your SaaS growth.

With Usermaven, you can see your business growth in a SaaS metrics dashboard (single view). You can track metrics throughout the customer journey’s different stages (acquisition, onboarding, engagement, adoption, and retention). It offers great features like segmentation, 360 profile view, privacy compliance, collaboration, and company analytics. Try Usermaven for free and ace your data analytics data-backed growth decisions.

FAQs about SaaS metrics

1. How many SaaS metrics are there?

Many metrics can be used to measure the performance of a SaaS business. Some standard metrics include:

• Monthly recurring revenue (MRR)
• Customer acquisition cost (CAC)
• Lifetime value (LTV)
• Churn rate
• Net promoter score (NPS)
• Customer retention rate
• Gross margin
• Cost of goods sold (COGS)

2. What are SaaS performance metrics?

SaaS performance metrics measure a SaaS business’s performance and effectiveness. These metrics track the company’s progress, identify areas for improvement, and make informed decisions about the direction of the business.

3. What is the rule of 40 in SaaS?

The rule of 40 is a rule of thumb commonly used in the software as a service (SaaS) industry to determine a business’s overall health and growth. You can calculate it by adding the gross margin percentage to the annual recurring revenue (ARR) growth rate. The rule of 40 states that a SaaS business is healthy if the combined gross margin percentage and ARR growth rate are equal to or greater than 40%.