Growth is vital to every SaaS business. How can you ensure you’re growing the right way? SaaS metrics measure key constructs of every part of the business, from customer acquisition to churn.
An organization’s inability to track the right SaaS metric is a recipe for failure. By using suitable metrics, a company can handle its shortcomings and attract more investors and customers.
“Customers won’t care about any particular technology unless it solves a particular problem in a superior way.”
Peter Thiel
SaaS business leaders should not use a metric for tracking’s sake. Instead, they should choose one that adequately reflects the health of the SaaS company. Every metric influences the decisions you make as a founder.
The SaaS metrics below are grouped into growth, marketing, customer success, and sales metrics. For every group, we will learn:
- Their definitions and their importance
- Advice from founders and investors
- How to calculate with examples where applicable
🚀 Growth SaaS Metrics
1. Monthly Recurring Revenue (MRR)
The monthly recurring revenue metric shows how much revenue the company generates from its customers in a month. It sets a baseline for the number of users you need to stay profitable every month. It is ideal for businesses that have a monthly subscription model.
The formula is simple and is arrived at by summing up the recurring revenue of each customer in that month (period t):
Related: Deep-Dive into Monthly Recurring Revenue for SaaS Businesses
2. Annual Recurring Revenue (ARR)
Annual recurring revenue is the recurring revenue that has been generated in a year. It is suitable for a SaaS business that offers annual subscriptions:
ARR = MRR x 12
3. Revenue Churn
Revenue churn (also known as MRR churn rate) is revenue loss due to customers unsubscribing or downgrading their subscriptions. Revenue churn should not be overlooked as companies concentrate on new subscribers.
Even a small amount of churn can cause impact key SaaS metrics over time, translating to a loss of cash flow.
However, revenue churn rate calculations can become complex depending on the cost of different packages offered.
Negative Churn — A negative churn is attained when there is an increase in revenue from the customer base. A company should strive to grow negative churn, and it can be done by having different packages with different prices for your customers.
When existing customers buy higher-priced packages, and the customer churn rate remains the same, the churn is negative. That means that there is an actual increase in revenue despite losing customers or not acquiring new customers.
4. Customer Churn
Monthly revenue for a subscription-based business model primarily depends on the number of new subscribers acquired plus retaining the customer base. Customer churn indicates the number of customers that terminated their subscriptions or did not renew them.
Businesses should track both monthly and annual customer churn rates. The monthly churn rate might seem too little to cause harm to the company’s revenue, but it can translate to a high number when summed up annually.
Related: Boost Account Retention With This One Feature
Bound Customers — In a company, a segment of existing customers cannot churn because they are subscribed to packages that require them to commit for a period of time. For example, a package renewable every month but with a minimum of a three-year commitment.
Bound customers should not be included in the final customer churn rate calculation.
Customer churn rate is measured to help companies answer the question of why customers are ‘churning’ and fix the problem.
“One oft-overlooked aspect of churn is that the churn rate, combined with the rate of new ARR adds, not only defines how fast you can grow the business, it also defines the maximum size the business can reach.”
Ron Gill, Netsuite
5. Bookings
Most companies have subscribers that pay monthly and others that pay for the whole year in advance. There’s no guarantee that there will be the same number of annual subscriptions every month.
Bookings are the total value of new customer acquisition over a period.
For example: if a customer purchased an annual subscription of $1200, the bookings figure for the month will be $1200. However, the MRR will be $100 ($1200 / 12).
Tracking bookings help measure cash flow but not revenue growth which MRR correctly measures.
6. Burn Rate
It refers to the rate a company uses its cash flow over a given period. There are two metrics, namely:
- Gross Burn Rate: It’s the total amount of money a company uses in a given period.
- Net Burn Rate: It is the gross burn rate minus revenue earned (Gross burn rate – Revenue). The value can be negative if the revenue earned is more than the gross burn rate.
Burn rate helps founders determine the best time to raise more funding if needed. For example, when a company has a burn rate of $10,000 per month and has $200,000 in the bank, the company has a cash cushion of 20 months.
The burn rate SaaS metric aggregates customer retention, lifetime value, and growth rate of the business as a whole.
7. Zero Cash Date (ZCD)
Having determined the burn rate of a SaaS company, it is easy to predict the day the company runs out of cash, assuming no new revenue is generated. That date is referred to as Zero Cash Date.
ZCD indicates when a company should source more funds. Also, once the SaaS business starts generating recurring revenue income, then the ZCD should move further into the future.
8. Cost of Services or Goods Sold (COGS)
COGS refers to the total cost of production and delivery of software and services. Costs include:
- Salaries for staff, such as developers, customer success, customer support, and product manager
- Infrastructure costs for the software
- Third-party software to support the SaaS product
COGS are essential in calculating the gross margin for your business:
COGS = Starting inventory + Purchases during the period – Ending inventory
9. Gross Margin
Gross margin indicates the percentage of the total sales minus the total costs of producing the product or service.
High gross margins indicate that your company has a high revenue that can be invested back to facilitate growth.
10. MRR Growth Rate
MRR Growth rate helps map the increase in revenue of the company over time.
“MRR Growth Rate is one of the top metrics SaaS companies should track because it answers the question ‘How fast is the company growing?”
Tomasz Tunguz, Redpoint Ventures.
11. Net New MRR
The Net-New MRR metric is used to report new revenue generated each month. It is calculated by summing up income gained from new subscriptions (New MRR) and revenue earned from subscribers who upgraded their subscription (expansion MRR) then subtracting Churned MRR.
💰 Sales SaaS Metrics
Growth for your SaaS Company will largely be determined by the efficacy of your sales processes and how you can satisfy your existing customers.
“If you’re not taking care of your customer, your competition will.”
Bob Hooey
12. Annual Contract Value (ACV)
ACV is the value of a subscriber’s contract over a year (12 months). For example, if a customer subscribes to a 36-month contract worth $30,000, that means the ACV is $10,000.
For a SaaS business, ensuring customer success translates into customer retention. In turn, this helps the business realize that forecasted revenue.
13. Average Revenue Per Account (ARPA)
ARPA is used to show how much a customer contributes to the company per month.
ARPA is useful in tracking growth and revenue generation per subscriber.
14. Pricing
Putting the right price on your products across different packages being offered has a considerable impact on the company’s revenue. Having a multiple-axis pricing structure generates more profit from your subscribers by appealing to their diverse needs and perceptions of value.
While negotiating monthly revenue, aim to grow the average revenue over time. Modest incentives for renewals will retain the customer base while generating more revenue.
15. Customer Acquisition Cost (CAC)
The customer acquisition cost is the money spent acquiring a new customer. It is calculated as:
The customer acquisition cost should be kept low—ideally, CAC should be less than the customer lifetime value (LTV).
16. Lifetime value (LTV)
Lifetime value considers the average revenue from a user over the lifetime of their account and guides how much you should spend to acquire them.
Examples of ways to increase LTV include reducing churn rate, maintaining a high net promoter score, customer satisfaction, and active users. It is an excellent SaaS metric to help you decide when the company can accelerate company growth.
17. LTV to CAC ratio (LTV:CAC)
Generally, LTV should be three times the size of CAC, and if it is not, you might be spending too much on user acquisition. Companies like Salesforce do better and have a bigger LTV: CAC ratio of up to five times (5X).
However, it’s more likely that a SaaS business won’t experience this type of growth for the first few months or years. That means the CAC ratio metric is valuable once the growth has become scalable and repeatable.
18. CAC Payback Period
A customer is deemed profitable when they generate more revenue than the cost of their acquisition. CAC’s payback period is the time it takes for a customer to be considered profitable.
It is calculated as:
The average payback period of most startups should be around 5 to 12 months. The faster the payback period, the more profitable the company becomes.
“Aim to recover your CAC in less than 12 months, otherwise your business will require too much capital to grow.”
David Skok, Matrix Partners.
19. Revenue per Lead
A lead is a potential user that has signed a contract for services or products offered in exchange for a free download or free subscription for a period of time. Revenue per lead is the average cost brought in by new leads.
This metric is essential in determining the efficiency of your customer acquisition process.
📣 Marketing SaaS Metrics
After launching a great product, marketing is essential to accelerate growth. The SaaS industry is fiercely competitive, and a company needs efficient marketing tools to meet its growth goals, acquire new customers, and keep the customer rate of churn minimal.
20. Email Subscribers
Email subscribers are potential customers that have signed up for the company’s newsletter or blog updates. The subscribers have not yet shown intent to buy but can be lured in by constant updates about the company’s products or services.
Subscriber health can be best summed by these key SaaS metrics:
- Quantity of subscribers — Are people providing their email voluntarily for content or sales-related content?
- Clickthrough rates — Who clicked on links in an email message?
- Click-to-open-rate (CTOR) — Of the number of people who opened, who clicked?
- Bounce and Spam rate — Are the email addresses active users and receptive to email messages?
21. Leads
A lead is different from an email subscriber because a lead goes further to fill a contract for services or products offered in exchange for a free download or free subscription for a period of time.
Be sure not to confuse leads with opportunities. Leads generally have a low conversion rate.
22. Marketing Qualified Leads (MQLs)
A lead that is likely to become a paying customer is referred to as MQL. They indicate interest in the company’s product, for example, by asking questions about the product or engaging with product-focused content offers.
“Qualified” is subjective. Generally, it’s when the person’s intent and firmographics (company size, revenue) closely resemble that of an existing customer.
23. Sales Qualified Leads (SQLs)
SQLs are MQLs that have been vetted by the sales team and have been accepted as potential customers. They have shown they’re ready to buy a product, for example, by downloading a free sample of the service.
Sales-qualified leads have likely demonstrated intent to purchase or at least fit into the ideal customer profile.
24. Paying Customers
It is mainly classified as a sales metric, but it is essential to determine how marketing-generated leads are converted into paying customers. Such information is vital to assess the overall performance of the business’s marketing strategy.
Freemium ($0) users generally lower the customer lifetime value averages. But it’s important that SaaS businesses have a product-led growth path to grow monthly revenue.
25. Free Trials and Demo Request
To introduce new products into the market, free trials and demos are essential in bringing in potential clients. It is from these leads that most companies convert to paying customers.
26. Visitor to Lead Conversion Rate
A visitor is a person that randomly lands on the company’s website. Tools like free downloads, pop-ups, and email subscriptions can be used to convert a visitor to a lead. Increasing the rate over time is essential in acquiring more customers.
It is calculated as:
27. Lead to Customer Conversion Rate
Poor marketing strategies will lead to a low lead-to-customer conversion rate.
Therefore, this SaaS metric is essential in tracking marketing strategies that are working for your company.
Related: Best Practices to Optimize Your Paid Search Landing Pages
28. Free Trial to Paid Customer
Some of the best SaaS products convert about 25% of free subscriptions and sign-ups into paying accounts.
To increase your conversion rate, make it simple to sign up and easy to purchase a product once the free-trial period has lapsed. Also, find out why free active users are not converting to paying customers.
❤️ Customer Success SaaS Metrics
A business needs to keep attracting more customers and retain existing ones over time for continued growth. Therefore, a company needs metrics that are customer-focused to understand customer behavior.
“It takes months to find a customer and seconds to lose one.”
Vince Lombardi
29. Net Promoter Score (NPS)
The Net Promoter Score measures a user’s satisfaction by how likely they are to recommend your product or company to others on a given 10-point scale.
NPS uses a simple survey question: “How likely are you to recommend our product to your friend or colleague.”
- Promoters: Responses with 9–10
- Passives: Responses with 7–8
- Detractors: Responses with 0–6
To calculate NPS:
Take the number of promoters minus the number of detractors. Now divide this number by the total number of responses.
A positive score suggests that customers are willing to recommend your product to others, meaning you are receiving a net promotion.
30. Customer Satisfaction Score (CSAT)
It is essential to know how happy your customers are with your product. The company can achieve a customer satisfaction score by conducting a survey asking customers to rate the product or service after an interaction.
Respondents rate the services on a scale of 1(very dissatisfied) to 5(very satisfied). The CSAT scores are calculated by averaging the responses. The company’s goal should always be to keep the user happy. A happy customer is a repeat customer.
31. Upsell and Cross-sell Rate
Upselling offers a customer a higher-level product, while cross-selling suggests more products that the customer could purchase. Upsell and cross-sell rates help you calculate the percentage of revenue derived from up-selling or cross-selling. They are calculated using the following formulas:
32. Referral Revenue
Referral revenue is the amount of revenue generated from successful customer referrals. Referral programs generate a high volume of leads.
Most marketers rate referrals as one of the highest sources of market leads. For example, Paypal’s referral program increased daily growth by 7% to 10% resulting in a user database of over 100 million.
Increasing referral revenue over time is essential as customer referrals are a cost-effective way of increasing growth in a company.
33. Referral Return on Investment (ROI)
The easiest way to think about the ROI of a referral program is to determine how much a company has spent on the program and the revenue generated as a result.
It is calculated by showing the lifetime value LTV generated by a customer for money spent in referral marketing.
34. Monthly Active Users (MAU)
MAU refers to the number of active customers that have interacted with your product within a month. It is a crucial indicator in measuring active user engagement. A high number of active users is an excellent metric to measure the company’s user growth. Plus, it is an indicator of the company’s ability to attract new customers and serve the existing customer base.
🎯 SaaS Leaders: Focus On What Matters
The volume of SaaS metrics can be overwhelming as they are numerous. Understand the different stages of growth of your company and focus on the needed metrics at each stage.
As the company grows, it will need additional SaaS metrics. Keep an eye on each KPI to spot patterns for quick action to boost revenue. The devil is in the details.
Over time, you’ll figure out the right metrics that measure the health of your SaaS company.
SaaS Metrics FAQs
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What is a SaaS metric?
A SaaS metric is a quantitative measure of a particular aspect of a SaaS business’s performance. It helps provide a picture of how the company is doing and can be used to measure the success and growth of the business. Top SaaS metrics include customer lifetime value, customer acquisition cost, and monthly recurring revenue.
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What are the most important SaaS metrics?
The most important SaaS metrics are customer lifetime value (CLV), customer acquisition cost (CAC), monthly recurring revenue (MRR), customer churn (Churn Rate), and customer satisfaction score (CSAT). These metrics can provide actionable insights into the health and growth of the business.
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How is SaaS success measured?
SaaS success is measured by tracking metrics that tell the story around customer growth and retention. These metrics provide valuable insights into the company’s performance, helping to inform decisions and strategy. Tracking and monitoring these metrics on an ongoing basis helps ensure the company’s long-term success.
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What is a healthy growth rate for SaaS?
A healthy growth rate for a SaaS company depends on the company, its industry, and its capital. Generally, a SaaS company should strive for an annual growth rate of at least 25%. SaaS metrics like customer lifetime value and customer acquisition cost help determine if a company’s growth is healthy or not.
