Understanding the pivotal role of SaaS metrics is indispensable for any software-as-a-service (SaaS) business aiming to thrive and scale. These metrics provide a clear insight into your company’s performance, customer engagement, and overall financial health. In this guide, we delve into 17½ crucial SaaS metrics that every company should meticulously track and analyze.
Understanding SaaS Metrics
SaaS metrics are vital performance indicators that showcase the state of various aspects of a SaaS business. They range from customer acquisition cost (CAC) and customer lifetime value (CLTV) to monthly unique visitors and revenue churn. By closely monitoring these metrics, companies can make data-driven decisions, attract investors, and enhance their strategies in marketing, sales, product development, and customer success.Sales & Marketing Metrics
Sales and Marketing Metrics
Sales is the engine of growth for a SaaS company and it is important to track both where prospect are in your sales funner and how much it has cost to get them there.
1. Monthly Unique Visitors
Monthly Unique Visitors (MUV) tells you the number of individual users visiting your website in a given month.
Tracking MUV offers a clear perspective on the effectiveness of your marketing efforts, user acquisition strategies, and overall market presence. It is crucial for boosting software subscriptions and enhancing user engagement.
2. Leads by Sales Funnel Stage
This metric tracks the progression of potential customers through the sales funnel, helping to identify bottlenecks and areas for improvement. By understanding where leads are getting stuck or dropping off, you can optimize your strategies for better conversion rates.
This metric ultimately helps highlight areas for improvement. Every business different and each has its own conversion rates for each part of the sales pipeline but if a lot of leads are not converting to qualified leads then you should look at your targeting as maybe the wrong people are responding. Maybe the product does not suit their use case or maybe they simply will not make a profitable customer.
3. Customer Acquisition Cost
CAC measures the total cost involved in acquiring a new customer, encompassing all marketing and sales expenses.
A balanced CAC ensures that you are not overspending to acquire customers and that your marketing strategies are yielding profitable results.
Customer Success Metrics
Unlike traditional software the economics of SaaS dictate that normally the only way to cover the upfront costs of onboarding a new customer is to ensure that they stick around and that can only be done if the customer is successful with getting up and running using your solution.
4. Activation Velocity
Activation velocity measures how quickly new users are finding value and becoming active within your platform. The sooner they can find value then the more satisfied they will be.
This SaaS metric helps pinpoint bottlenecks in the onboarding process, enabling continuous improvement and faster user activation.
5. Average First Response Time
This metric is the average time it takes for a support team member to respond to a customer's initial inquiry or ticket submission. Great customer service can be a great competitive advantage and lead to customer satisfaction, just ask Zappos.
Tracking average first response time can help SaaS companies identify inefficiencies in their support process, like under staffing or poor ticket routing. Reducing this time can help ensure you have fewer annoyed customers waiting on hold to troubleshoot a glitch.
6. Average Resolution Time
Average resolution time tracks the efficiency of a company's customer support team in resolving customer inquiries. It refers to the average amount of time it takes for a support agent to resolve a customer's issue, from the initial help request to the final resolution.
Similar to average first response time, this metric can help highlight where your customer support team can improve. After all, nobody likes being transferred 10 times before they get any real help. Improve this metric, and you can increase customer satisfaction and loyalty, reduce churn, and improve your company's reputation.
7. Customer Health Score
Customer health score refers to the overall health and satisfaction of your customers. Each business will have it's own measures but it's usually based on a combination of quantitative and qualitative factors, like:
- Product Usage Frequency
- Feature Adoption
- Customer Support Interactions
- Customer Feedback
- Website Activity
- Marketing Engagement
- Community Participation
The formula for calculating customer health score varies depending on the specific factors used, but it typically involves assigning weights or scores to each factor and aggregating them into a single score or rating.
- Product Usage Frequency (25%)
- Feature Adoption (20%)
- Customer Support Interactions (10%)
- Customer Feedback (20%)
- Website Activity (10%)
- Marketing Engagement (10%)
- Community Participation (5%)
In the competitive SaaS space, it's crucial to stand out with top-notch customer service. The customer health score is an important metric for identifying customers who may be at risk of churning or for finding opportunities to improve customer satisfaction and loyalty. For example, if a customer has a low health score due to infrequent usage and limited feature adoption, you could provide additional support to help them get more value from your product.
8. Net Promoter Score
The Net Promoter Score is a paramount metric for gauging customer satisfaction and loyalty. It involves a simple survey asking customers to rate their likelihood of recommending your service on a scale of 0-10. Respondents are categorized as Detractors (0-6), Passives (7-8), or Promoters (9-10). A positive NPS (above 0) is good, but an NPS above 50 is excellent, indicating a strong base of satisfied and loyal customers.
9. New Customer Churn Rate
Customer churn is inevitable, but tracking the new customer churn rate can provide insights into how well your onboarding process is performing. It helps identify whether new users are finding immediate value in your product or service.
A high new user churn rate often indicates issues with the onboarding experience or product complexity. Identifying and addressing these issues is paramount for improving user retention.
10. Natural Rate of Growth (NRG)
NRG is a SaaS metric that measures organic growth, excluding the influence of external investments and active sales or marketing efforts.
For SaaS companies with a product-led approach, NRG is an essential metric to track as it reflects the product’s inherent ability to attract and retain users.
11. CAC Payback
This metric calculates the time it takes for your company to earn back the cost of acquiring a new customer, providing insights into the efficiency of your customer acquisition strategies. It is calculated as:
A shorter recovery time indicates a more efficient strategy, while a longer period may necessitate adjustments.
12. CAC to LTV Ratio
The CAC to LTV Ratio provides a comparative analysis of customer acquisition costs and the total revenue a customer generates over their lifetime.
A healthy ratio is around 3:1, signals a sustainable business model, whereas a 1:1 ratio or lower is a red flag as it means you are losing money and its time to look to improve your Sales and Marketing efficiency.
13. Net Dollar Retention
Net dollar retention measures the amount of revenue that you keep from your existing customer base and expand within your existing customer base.
14. Burn Multiple
Burn multiple offers insight into the sustainability of your growth, highlighting how your net cash burned relates to your net new annual recurring revenue (ARR).
A lower burn multiple indicates a more capital-efficient growth, whereas a higher burn multiple might suggest the need for strategic adjustments.
15. Expansion Revenue
Expansion revenue tracks additional Monthly Recurring Revenue generated from existing customers through up sells, cross-sells, and add-ons.
Optimizing for expansion revenue is cost-effective and strengthens customer relationships, contributing to long-term business stability.
16. Revenue Churn
Revenue churn provides insight into the revenue lost due to customer cancellations or downgrades.
Analyzing revenue churn helps in understanding customer behavior, predicting future revenue, and identifying areas for improvement in product offerings and customer service.
17. Customer Lifetime Value
Customer Lifetime Value (CLTV or LTV) calculates the total revenue a customer is expected to generate throughout their relationship with your company.
CLTV is a critical SaaS metric as it helps in understanding the long-term value of customers and guides investment decisions in customer acquisition and retention strategies.
The objective of every business it to succeed, that's why every business needs a North Star Metric.
17½. North Star Metric
Historically sailors used the North Star to help them navigate to their destination. The North Star Metric has a similar function. It tells a business if they are getting closer to their goal. It is different for every business, so there is no simple formula and each business has to figure out what it is. According to Sean Ellis
The North Star Metric is the single metric that best captures the core value that your product delivers to customers.
The more a customer does this activity then the more value they derive and the more value they get the more likely they will convert from a prospect to a customer and the more likely they will stay as a paying customer. Typical examples include:
|Company||North Star Metric|
|Intercom||Number of Customer Interactions|
|Salesforce||Average Records Created Per Account|
|Walmart||Purchases Per Customer Session|
|Zoom||Weekly Hosted Meetings|
|Medium||Total Time Spent Reading|
|Twilio||Total Messages Sent|
|DocuSign||Number Of Documents Signed|
|Spotify||Monthly Paid Subscribers|
|Uber||Number Of Trips|
|Daily Active People|
|Slack||Number of Paid Teams|
|DropBox||Teams Using Dropbox|
Tips for Measuring Key SaaS Metrics
Regardless of the metrics that you use to track the performance of a SaaS company, the following data-related best practices should remain top of mind.
You can't (and shouldn't) measure everything: What you measure should depend on your North Star goals, or the most mission-critical outcomes your business hopes to achieve.
You need to understand the "why" behind the data: Measuring the right SaaS metrics isn't enough. You also need to ask questions and get curious about the logic behind the numbers, so you can uncover root causes and drive action.
Remember that a solid SaaS foundation requires a solid data foundation: The most successful businesses take a data-driven approach to decision-making. A "crawl-walk-sprint" process for measuring SaaS metrics can help avoid data-related mistakes.
You (probably) won't get everything right on the first try, but that's the great thing about data—it's all about testing, iterating, and learning what works and what doesn't. Experiment more with data measurements with these sales performance metrics.
Measuring SaaS metrics requires a systematic approach and the right tools. Ensure accuracy in your data, be consistent in your calculations, and use reliable analytics tools. Additionally, always contextualize your metrics within your specific industry and business model to derive meaningful insights.
By tracking and optimizing these 17 key SaaS metrics, your company is well on its way to achieving sustainable growth and success. Remember, metrics are not just numbers; they are the guideposts that direct your business strategies and decisions towards achieving your goals.
For SaaS Metrics and Analytics, check out Subbiemetrics