By now, most business owners know that tracking analytics is an important part of growing any business. But after you've got your analytics software up and running and the data is streaming in, which metrics are the important ones to track? In this post, we'll tell you everything you need to know to begin growing your SaaS business using analytics.
What are KPIs?
KPI stands for key performance indicator. These are the business metrics that will give you the most vital information about how your business is performing. Some of these metrics are applicable to all forms of business, but there are many that are unique to SaaS and other subscription-based businesses. Analytics tools give you a large amount of data, often with way more metrics than your specific business needs to regularly track. By focusing on the KPIs for your industry, you can make more efficient use of your data.
The most important SaaS KPIs are:
- Churn rate
- ARR / MRR
- Revenue churn
- Customer LTV
- CAC:LTV Ratio
- Monthly unique visitors
- Conversion rate
- Lead velocity rate
- Customer satisfaction score
- Net Promoter Score
- Response time
- Resolution time
Later in the post, we'll take a look at each of them, breaking down what they mean and how to use them in your business decisions.
The 4 different areas that your SaaS KPIs need to cover
Successfully growing a business means tracking metrics across multiple areas. Some of these areas are more about giving you an overview of your progress, but others provide actionable insights that will allow you to make more informed decisions. For SaaS businesses, there are four major areas that you'll want to track:
Revenue & growth
Growth is most business's primary reason for tracking data. These KPIs will let you see how your revenue has changed over time. They will also allow you to identify trends. Should you worry that sales are down in a given month, or is it normal for that time of year? This information is important because it gives you a more complete picture of your company's revenue than a simple ledger entry could do.
You can't grow a business without effective marketing. But you also can't grow a business if you're spending more on marketing than you're bringing in. These metrics will let you know how effective your marketing strategy is and give you an idea of your return on investment for the different avenues you use so you can optimize your ad spend.
Understanding the dollar value associated with a customer and the costs of acquiring that customer is vital to optimizing your entire revenue stream. These metrics help you understand that data so you can measure the success of your sales team and make important decisions in other areas of the business.
Churn is the number one enemy of any SaaS business and unhappy customers are far more likely to churn than happy ones are. Therefore, customer success should be a priority for every SaaS company. When consumers are able to effectively use your software, they're more likely to be satisfied customers and stick around.
13 SaaS KPIs that will make or break your business
We originally presented these KPIs to you earlier. Now we are going to take a closer look at them and show you how to put them to use in your business.
These KPIs will cover the four areas mentioned above and give you a good overview of everything you need to grow your SaaS business.
1. Churn rate
When a customer cancels their subscription to your service, it is referred to as churn. Your churn rate is the percentage of your customers that leave in a given period of time. Churn rate is usually measured monthly.
SaaS businesses cannot exist without customers. Therefore, customers leaving is the biggest factor in the long-term success of your business. A thorough marketing push can always bring in new customers, but constantly relying on that to replace old ones is just spinning your wheels and halting any chance you have at growth.
Your annual recurring revenue (ARR) is the amount of money you make from subscriptions and other recurring income streams on a yearly basis.
The figures can be helpful when budgeting for future expenses, but are also the primary drivers used to measure the growth of your business.
Your monthly recurring revenue (MRR) is how much you make on a monthly basis.
Similar to ARR, MRR allows for revenue predictability so you’re able to plan and budget more efficiently.
4. Revenue churn
For most SaaS businesses, churn alone doesn't tell the whole story. This is because most businesses have products that are sold at different price points. Assuming the same rate in both instances, all your churn coming from the lowest tier in your catalog would be less of a problem than all of it coming from the higher tiers. Revenue churn makes up for this by measuring the actual revenue lost due to churn.
Revenue churn is also an important growth metric. If you are churning more revenue than you are bringing in, then you are going in the opposite direction you need to be going. This is a very quick warning sign that you need to find the cause of churn and address it quickly.
5. Customer LTV
A customer's lifetime value (LTV) is the amount of money they will bring in from the time they sign up for your service to the time they cancel their subscription. The average lifetime value of a customer is a very important metric for SaaS businesses. Because the metric ties in so closely with the next one on the list, we'll discuss both after that section.
Customer acquisition cost (CAC) refers to the amount of money you must spend on marketing and other sales-related activities in order to acquire a sale. This applies across all sales on your site, so organic traffic with little to no cost helps to lower the CAC. This metric and LTV are often combined to create a third metric, CAC:LTV ratio.
7. Net Promoter Score
Similar to the customer satisfaction score, the net promoter score is used to gauge how your customers value your product. This time, instead of being asked how satisfied they are with the product, they are asked how likely they are to recommend it to their friends or colleagues. This is a seemingly slight variation, but it's often illuminating to read the feedback given for both when there are discrepancies. It could be that they have learned the software and find it helpful, but also think it has a steep learning curve which prevents them from recommending it to others.
As you can see, both of these customer success scores are useful as standalone metrics, but become more powerful when combined with written feedback from users.
This metric compares the cost of acquiring a customer to the lifetime value of that customer. This is one of the most important metrics that your sales and marketing team will have at their disposal. If it costs you more to bring in a customer than that customer will likely spend on your software, then your sales and marketing team need to make serious improvements. In reality, CAC is almost never higher than LTV, but can be closer than it should be. The rule of thumb in the industry is to shoot for a lifetime value that is three times higher than the acquisition cost.
This metric can be improved by reducing churn or improving upsell performance to increase the LTV of a customer and by optimizing your ad spends, sales funnels, and organic site traffic to reduce the acquisition costs.
9. Lead velocity rate
While your revenue metrics are historical data, lead velocity rate can help you predict future revenue. This metric measures the number of qualified leads that you have in a given month relative to the number of leads you had in the previous month. So a positive lead velocity rate means that you have gained leads that month.
By combining this metric with conversion rate, discussed below, you can make an educated guess about what your sales figures will look like. When you track how it changes month-to-month, you can get a longer-term picture of the sustainability of your current growth.
10. Conversion rate
Your conversion rate is the number of qualified leads that go on to make a purchase. This is an important metric for your marketing and sales team because it will allow them to monitor the effects of changes they make. If you know your conversion rate, and you also know how many leads have come in recently from the lead velocity rate, you can predict how much revenue you'll be bringing in from those leads.
11. Response time
A major aspect of customer service is how quickly your customers can get help when they need it. By measuring the average amount of time it takes for your support staff to respond to inquiries, you can gauge how well they are doing at the job. Customers who are left waiting too long without a resolution to their concerns are more likely to churn.
12. Resolution time
The initial response to a customer support ticket isn't the end of the equation. Your customer is not likely to be satisfied until their issue is resolved and the ticket is closed out. Measuring resolution time allows you to see how good your staff are at quickly resolving issues for customers. Taken together, this metric and the previous one will give you insights into changes that may need to be made in your support infrastructure.
13. Monthly unique visitors
The number of unique visitors that come to your site every month is an important metric not only for SaaS businesses, but for any web-based business. It is important to understand what a unique visitor is. When measuring unique visitors, people who visit the site multiple times are only counted once.
The only way to grow your business is to get more people coming to your site, and hopefully convert them into customers. These unique visitors can come through organic traffic, or through explicit marketing efforts, but the goal should be to keep this number rising.
How to track your SaaS KPIs?
Almost all ecommerce software now has reporting and analytics functions built in. For most of the metrics presented here, it's possible to manually calculate the values using the reporting tools available across these disparate software products. The most efficient way, however, is to use a subscription e-commerce platform designed specifically for tracking analytics. Ideally, you want one that is designed with SaaS businesses in mind. That way you know you are getting the metrics you need to succeed. Our own ProfitWell Metrics product is a good choice. Best of all, it's free.
Solve for the most important KPI (churn) with ProfitWell Metrics & Retain
Once you've got ProfitWell Metrics up and running, you'll likely find that your churn rate is higher than you'd like it to be. Churn is one of the most important metrics to control if you want sustained growth in the SaaS business.
We can help with that too. ProfitWell Retain is designed to put the power of machine learning to work helping you cut down churn. Of course, you should also work on improving all the other KPIs mentioned in this post. This is especially true of your customer success KPIs, as they are often ignored and play a big role in keeping churn down.
SaaS KPI FAQs
What are SaaS KPIs?
SaaS KPIs are a set of important metrics, or key performance indicators, that are relevant to the growth and success of SaaS businesses. They are used to determine the general health of the business and to guide various business-related initiatives.
How do I track SaaS KPIs?
Although they can be tracked manually, or by combing through reports for a variety of disparate software programs, SaaS KPIs are best tracked using analytics software dedicated to tracking metrics of interest to SaaS businesses.