9 Hottest SaaS Metrics Any SaaS Business Owner Should Know

Who is this article for?

• B2B SaaS companies looking to optimize sales territory segmentation and financial targets
• SaaS startups wanting to measure product-market fit and growth potential
• Established SaaS businesses needing to track key performance indicators (KPIs)
• Roles like:
  • Founders and CEOs
  • Sales and Revenue Operations
  • Finance and Accounting
  • Product Management

Understanding and tracking the right SaaS metrics is crucial for stakeholders across the organization to make data-driven decisions that enable the business to grow in a healthy, sustainable way. Metrics shine a light on what’s working and not working.

What are the most important SaaS metrics to track?

The SaaS business model has transformed how modern companies operate. The SaaS market is estimated to reach 21.2% growth until 2023 (Customerthink). With increasing competition, it’s critical for SaaS businesses to measure the right metrics to drive growth.

SaaS companies can’t rely solely on traditional accounting metrics like return on investment. Revenue comes from recurring subscriptions, often monthly or annually, over an extended customer lifetime. Long-term success requires both acquiring new customers and retaining them.

Here are the key SaaS metrics every company should track:

1. Monthly Recurring Revenue (MRR): The predictable revenue you can expect every 30 days from subscriptions.
2. Annual Recurring Revenue (ARR): The subscription revenue you can expect on an annual basis.
3. Churn Rate: The percentage of customers who cancel in a given time period. Churn directly impacts MRR/ARR.
4. Customer Lifetime Value (LTV): The average revenue you earn from a customer over their lifetime with your product. A high LTV means you can afford to spend more to acquire each customer.
   

   LTV should be at least 3 times greater than Customer Acquisition Cost for a viable business model (Iyer & Peravali, 2020).

5. Customer Acquisition Cost (CAC): How much you spend on average to gain a new paying customer, including sales and marketing.
6. CAC Payback Period: The number of months to break even on the cost of acquiring a customer.

How do you calculate SaaS growth rate?

Achieving a high rate of growth is essential for SaaS companies, especially in the early stages, to gain market share before competitors. Growth rate measures the speed at which your business is expanding.

To calculate growth rate, take the difference in MRR or ARR between two time periods, divide it by the MRR/ARR from the start period, and multiply by 100 to get the percentage.

For example, if your MRR was $100,000 on January 1 and grew to $130,000 by April 1, your growth rate is:

($130,000 – $100,000) / $100,000 = 0.30 x 100 = 30%

Analyzing your growth rate over different time frames (month-over-month, year-over-year) provides insights into the trajectory of the business. A study by SaaS Capital found that companies earning up to $10 million in ARR need to be growing at least 20% annually to avoid being in the bottom quartile of their peers.

What is negative churn and why is it important?

The ultimate goal for a SaaS business should be to achieve negative churn. This means the additional revenue you generate from existing customers through upsells and cross-sells exceeds the revenue lost from customers who churn.

Two ways to work towards negative churn:

1. Use value-based pricing that charges on a per-user or usage basis, so revenue increases as customers grow.
2. Focus on expanding revenue from existing customers by upgrading them to premium plans and add-ons.

Negative churn indicates strong product-market fit, high customer satisfaction, and a sticky product that becomes essential to users’ workflows. It’s a powerful growth lever because you don’t have to rely solely on acquiring new customers to increase revenue.

How can you predict churn before it happens?

While achieving negative churn should be the goal, some level of customer attrition is a reality for most SaaS businesses. The best companies proactively monitor churn risk factors so they can intervene before losing accounts.

One way to predict churn is to score customers based on their product usage. The fewer key features a customer uses, the higher their likelihood of churning. By tracking login activity and feature adoption, you can proactively reach out to at-risk customers.

Morozov et al. (2020) proposed applying game theory to model the interactions between SaaS providers, business owners, developers, and customers. This approach could yield insights into keeping stakeholders’ interests aligned to maximize retention.

Predictive analytics and machine learning also show promise for forecasting churn based on user behavior patterns and building customer health scores (Wang et al., 2018). Over time, algorithms can learn the leading indicators of churn unique to your business.

What metrics determine SaaS profitability?

Profitability is the end goal for SaaS companies. But in the early days, most operate at a loss as they invest heavily in product development and customer acquisition. At this stage, tracking the unit economics of each customer is critical.

LTV:CAC ratio measures the lifetime value of a customer compared to the cost to acquire them. Minimally, LTV should exceed CAC by 3x. If the ratio is lower, you’re likely spending too much and could run out of cash. 5x or greater indicates you may be underinvesting in growth.

CAC Payback Period is the number of months to recoup acquisition costs. Minimally, CAC should be recovered in under 12 months. The faster you breakeven on customers, the sooner you can reinvest profits into acquiring more.

SaaS expert David Skok recommends a “Quick Ratio” where the new MRR added for each quarter is at least 4x the MRR lost through downgrades and churn. This indicates efficient growth where bookings significantly outpace attrition.

What are the risks of ignoring key SaaS metrics?

• Continuing to invest in customer acquisition without understanding churn will lead to a “leaky bucket” where you’re pouring water in the top but it’s draining out the bottom.
• Lack of visibility into the key drivers of growth and leading indicators of churn until it’s too late to course correct.
• Wasted spend on sales and marketing channels that don’t yield high-quality customers likely to convert and stay long-term.
• Missed opportunities to intervene with at-risk customers and save accounts before they churn.
• Failure to benchmark your performance against industry standards for your stage to know whether you’re on track or falling behind.

The real-time status tracking in Tallyfy provides full visibility into your key SaaS metrics at a glance, across the entire customer journey from acquisition to retention. Easily see how customers are engaging with your product, spot at-risk accounts, and keep a pulse on the health of the business. Learn more.

In conclusion, SaaS metrics are essential to understanding and optimizing your entire business, from sales and marketing to product and customer success. By keeping a close eye on the right metrics, you can make data-driven decisions to acquire valuable customers, maximize retention, and ultimately, drive sustainable growth.

Ready to get a handle on your key SaaS metrics? Tallyfy makes it simple to track performance across the customer lifecycle in one intuitive dashboard. Structure data collection with trackable workflows, set if-this-then-that rules to spot red flags, and continually monitor the health of your business. See how it works.

What Are the Key Metrics for Measuring SaaS Success?

Software-as-a-Service (SaaS) has exploded in popularity in recent years, with more and more businesses turning to cloud-based solutions for their software needs. But with this rapid growth comes the challenge of effectively measuring and optimizing the success of SaaS offerings. What are the key metrics that SaaS companies should be tracking to ensure they are on the path to profitability and long-term viability?

At a high level, the most critical SaaS metrics fall into a few main buckets:

• Customer acquisition and growth metrics
• Retention and churn metrics
• Revenue and profitability metrics
• Engagement and usage metrics

Customer acquisition cost (CAC), lifetime value (LTV), monthly recurring revenue (MRR), and net revenue retention (NRR) are some of the north star metrics that SaaS businesses live and die by. But diving deeper, metrics like activation rate, product qualified leads (PQLs), expansion MRR, and net promoter score (NPS) can provide valuable insights into the health and trajectory of a SaaS business.

Choosing which specific metrics to prioritize depends on the stage and goals of the business. Early stage SaaS startups may be more focused on aggressive growth and willing to tolerate higher churn. More mature SaaS companies will often shift focus to profitability and retention. But across all stages, deeply understanding the unit economics and driving the right customer behaviors is key.

How Can SaaS Metrics Drive Smarter Decision Making?

The real power of tracking SaaS metrics comes not just from seeing the numbers, but from using them to make better strategic and tactical decisions. Should you invest more in sales and marketing or product development? Is a certain customer segment dragging down profitability? Are you spending too much to acquire low-value customers?

SaaS metrics can help answer these questions. For example, comparing CAC to LTV can show whether sales and marketing spend is sustainable and where to optimize customer acquisition strategies (Iyer & Peravali, 2020). Cohort analysis on retention can highlight customer segments to either double down on or move away from.

Ultimately, the goal is to create a metrics-driven culture where data is accessible and actionable for decision makers across the organization. Building dashboards, setting KPIs, and having a regular cadence to review metrics can help instill this culture.

What Does the Future Hold for SaaS Metrics?

As technology continues to evolve, so too will the way we think about measuring SaaS success. Machine learning and predictive analytics will likely play a bigger role in forecasting revenue and identifying at-risk customers (Morozov et al., 2020). And as the lines blur between SaaS and other “as-a-service” models like PaaS and IaaS, metrics may need to evolve to better capture the full picture.

We’re also seeing a shift towards more holistic frameworks for SaaS success that go beyond just financial metrics. Lincoln Murphy’s “Desired Outcome” framework emphasizes measuring success based on whether customers are achieving their goals with the product. The right metrics for one SaaS company may look quite different than the standard SaaS metrics we’re used to.

But regardless of how SaaS metrics evolve, one thing is clear – having a strong pulse on the numbers will remain critical for SaaS businesses that want to thrive in an increasingly competitive landscape. The SaaS companies that can turn metrics from an afterthought into a core competency will have a major advantage.

Tallyfy Tango – A cheerful and alternative take

Scene: Two friends, Sammy and Alex, are sitting at a coffee shop discussing their new SAAS startups.

Sammy: Hey Alex, how’s your new venture going? Still trying to figure out those pesky SAAS metrics?

Alex: (laughs) You know it! I feel like I’m drowning in acronyms – MRR, ARR, LTV, CAC… It’s like learning a whole new language.

Sammy: (grins) I hear you. But you know, once you crack the code, it’s like unlocking a treasure chest. Those metrics are the key to scaling your business!

Alex: Easy for you to say, Mr. SAAS Guru. I bet you dream in churn rates and customer acquisition costs.

Sammy: (chuckles) Guilty as charged! But seriously, it’s not as complicated as it seems. Think of it like baking a cake…

Alex: (raises an eyebrow) A cake? This should be good.

Sammy: Hear me out! Your MRR is the flour – it’s the foundation. Your customer acquisition cost is the eggs – they bind everything together. And your churn rate? That’s the oven temperature. Get it right, and you’ve got a delicious, profitable cake. Get it wrong, and, well…you’re left with a crumbly mess.

Alex: (laughs) Okay, okay, I see your point. So, what’s the secret ingredient in your recipe for SAAS success?

Sammy: (smiles) Passion, my friend. Passion and a healthy dose of humor. Because at the end of the day, if you’re not having fun while chasing those metrics, what’s the point?

Alex: (grins) Amen to that! Here’s to baking up a storm in the wild world of SAAS.

(They clink their coffee cups together and laugh)

Related Questions

What is SaaS metric?

SaaS metrics are numbers that help you understand how well your software-as-a-service business is performing. They give you insights into things like how many customers you’re attracting, how much money you’re making from each customer, and how likely customers are to stick around. Keeping a close eye on your SaaS metrics is like regularly checking your car’s dashboard to make sure everything is running smoothly.

What are the 5 C’s of SaaS?

The 5 C’s of SaaS are a handy way to remember the most important things to focus on for a successful SaaS business. They are: Churn (how many customers are leaving), CAC (how much it costs to get a new customer), CLTV (how much a customer is worth over their lifetime), Cash (how much money you have on hand), and Committed Monthly Recurring Revenue (how much predictable income you can count on each month). Mastering these 5 C’s is like having a secret recipe for SaaS success.

What is KPI in SaaS?

KPI stands for Key Performance Indicator. In the world of SaaS, KPIs are the most important metrics that show how well your business is doing in key areas. It’s like a highlight reel of your SaaS metrics. Some common SaaS KPIs include Monthly Recurring Revenue, Customer Churn Rate, and Customer Acquisition Cost. Tracking your KPIs is like keeping score in a game – it lets you know if you’re winning or need to up your game.

What is the rule of 40 in SaaS?

The rule of 40 is a quick way to gauge the health of a SaaS business. It says that your growth rate plus your profit margin should add up to 40% or more. So if you’re growing at 20% per year and have a 20% profit margin, you’re right on target. It’s like a simple math equation to check if your SaaS business is balanced and sustainable. If you’re hitting the rule of 40, you’re in a good position to scale and attract investors.

How to calculate b2b saas metrics?

Calculating B2B SaaS metrics involves diving into your company’s data and doing some number crunching. The key is to have clean, accurate data about your customers, revenue, and expenses. Some metrics, like Monthly Recurring Revenue, are straightforward – just add up all your subscription revenue for the month. Others, like Customer Acquisition Cost, require a bit more math – dividing your total sales and marketing spend by the number of new customers. There are plenty of online tools and templates to help you calculate your SaaS metrics. The most important thing is to be consistent in how you measure, so you can track your progress over time.

References and Editorial Perspectives

Iyer, V., & Peravali, R. (2020). A Guide Towards Building Effective, Metrics-Driven and Mathematical Sales Segmentation Models for an Enterprise B2B SaaS Business. Global journal of management and business research, null, 1 – 7. https://doi.org/10.34257/gjmbrevol20is5pg1

Summary of this study

This paper provides guidance for B2B SaaS companies on how to leverage firmographic data to build effective sales territory segmentation models. The authors propose an analytical model that helps sales, revenue operations, and sales departments understand the key drivers of territory disruption. The model aims to build balanced territory segments that ensure equitable financial targets for sales representatives.

Editor perspectives

At Tallyfy, we find this study highly relevant for SaaS businesses looking to optimize their sales processes. By leveraging data-driven segmentation models, companies can ensure fair and achievable targets for their sales teams, ultimately driving better performance and revenue growth.

Morozov, V., Mezentseva, O., & Proskurin, M. (2020). Application of Game Theory for Decisions Making on the Development of IT Products. Advances in intelligent systems and computing, null, 377 – 394. https://doi.org/10.1007/978-3-030-54215-3_24

Summary of this study

This study explores the application of game theory to improve the efficiency of customer interaction with SaaS companies. The authors propose a model that takes into account the mutual influence and interaction between business owners, developers, and customers. They suggest that the development of innovative IT products should satisfy the interests and needs of all key stakeholders. The paper offers a mathematical description of the model and a method for modeling these interactions using game theory.

Editor perspectives

We believe this research provides valuable insights for SaaS companies like Tallyfy. By understanding the complex dynamics between different stakeholders, we can develop products that better meet the needs of our customers while aligning with our business goals. Game theory offers a powerful framework for modeling and optimizing these interactions.

Durkee, D. (2010). Why Cloud Computing Will Never Be Free. Communications of the ACM, 53, 62 – 69. https://doi.org/10.1145/1735223.1735242

Summary of this study

This article discusses the misconception that competition among cloud providers will drive prices down to the point where cloud computing becomes free. The author argues that while prices may decrease, there are inherent costs associated with providing cloud services that prevent them from ever being truly free. The article explores the factors that contribute to these costs and the potential implications for the cloud computing industry.

Editor perspectives

At Tallyfy, we recognize that while cloud computing offers many benefits, it is not a free solution. As a SaaS provider, we must carefully consider the costs associated with delivering our services and ensure that our pricing models are sustainable and competitive. This article serves as a reminder that even as technology advances, there will always be costs to consider.

Glossary of terms

SaaS (Software as a Service)

SaaS refers to a software licensing and delivery model in which software is licensed on a subscription basis and centrally hosted by the provider. Users can access the software via the internet, typically through a web browser, without the need to install and maintain the software on their own computers.

Churn Rate

Churn rate is a key SaaS metric that measures the percentage of customers who cancel their subscription or fail to renew during a given time period. It is an important indicator of customer satisfaction and the overall health of a SaaS business. A high churn rate can signal issues with product quality, customer support, or pricing.

Monthly Recurring Revenue (MRR)

MRR is a key SaaS metric that represents the predictable and recurring revenue generated by a company’s subscribers each month. It is calculated by multiplying the number of active subscribers by the average revenue per user (ARPU). MRR provides insight into a SaaS company’s growth and financial stability.

Customer Acquisition Cost (CAC)

CAC is the total cost of acquiring a new customer, including marketing and sales expenses. It is an important SaaS metric for evaluating the efficiency and effectiveness of a company’s customer acquisition strategies. A high CAC relative to the lifetime value of a customer can indicate unsustainable growth.

Customer Lifetime Value (CLTV)

CLTV represents the total amount of revenue a customer is expected to generate over the course of their relationship with a SaaS company. It is calculated by multiplying the average revenue per user (ARPU) by the average customer lifetime, taking into account factors such as churn rate and gross margin. CLTV helps SaaS companies make informed decisions about customer acquisition and retention strategies.