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SaaS (Software-as-a-Service) market has recorded an exponential growth from USD 152 billion in 2021 to USD 208 billion in 2023. A recent report from SaaS Capital has revealed that a $2 million SaaS company has shown over 90% growth on a Y-o-Y basis. This data reveals the increasing importance of SaaS products. However, if you want to ensure that your company also grows at a similar pace, it is essential to track various SaaS metrics.
In this post, we will start by introducing SaaS metrics and mention the top ten of them from the perspective of a custom software development company .
SaaS metrics are preset standards or benchmarks to check and track the performance of SaaS products. These metrics enable companies or SaaS product owners to measure their success and plan for the future based on insights. Companies can also make adjustments in their planning as and when necessary.
Though SaaS metrics are based on business objectives, market trends, and other factors, some of the most common metrics include customer lifetime value and revenue churn. Let’s dig deep into a broader list of SaaS metrics every company should consider for measuring performance and ensuring business growth.
Software-as-a-service metrics play a vital role in every SaaS-based business. Be it a large-scale enterprise like Shopify or a micro-SaaS business like a finance tracking company, all businesses can leverage SaaS valuation metrics for tracking the business direction and measuring the overall performance.
It is one of the most important SaaS metrics to track revenue, as it provides you with a clear indicator of business growth. MRR indicates the total recurring revenue generated from monthly customer subscriptions.
How to Calculate it :
MRR = ∑i=1n ARPUi
Where ARPUi is the average revenue per user for each customer segment.
It is the percentage of revenue retained from existing customers in a given period. It is a good way to find out how successful the company is at keeping customers engaged and satisfied. It also indicates the overall performance and quality of SaaS products.
How to Calculate this :
Revenue Retention Rate = (MRR at the end of the month / MRR at the start of the month) × 100
It is the percentage of new subscribers who start using the product or service within a certain period of time. A high activation rate indicates that the product or service is easy to use and capable of meeting the customer's needs.
How to calculate this :-
Activation Rate = (Number of New Activations / Total Sign-ups) × 100
It is similar to the customer engagement score and helps customer success managers predict how healthy the customer relationship is for your company moving ahead. You can also find out whether this relationship is at risk using the customer health score.
It shows the average amount of revenue generated from each customer account in a specific period. It is a good measure of the profitability of your SaaS products. You can also get an idea about the product’s performance by having an average revenue.
How to calculate this :-
ARPA = Total MRR / Number of Accounts
The CAC: LTV ratio measures the necessary time for the company to recover the cost of acquiring a new customer. A ratio of less than 1 indicates that the company is profitable, while a ratio of greater than 1 indicates that the company is losing money on customer acquisition.
How to calculate this :-
CAC:LTV Ratio = CAC / LTV
It is the total value of all new contracts your company has gained in a specific time. It shows the health of the sales pipeline and is a good measure of how your sales team is performing to get new contracts.
How to calculate this :-
TCV = MRR × Contract Length
It is an important metric and shows the exact number of sales-ready leads over time. It overlines the average number of leads turned into customers. It is an indicator of how effective your sales process and lead nurturing methods are for gaining customers.
How to Calculate this :-
Lead to Customer Rate = (Number of Customers / Number of Leads) × 100
It is the total amount your business receives to date or expects to receive from a customer over the lifetime. It gives a more accurate view of revenue potential as compared to CAC. Companies can calculate CLV by dividing ARPA by the churn rate.
How to Calculate this :-
CLV = ARPU × (1 / Churn Rate)
It is the average amount that any company spends to acquire a new customer within a specific period. This metric also shows the efficiency of both sales and marketing teams. Customer acquisition cost can also give an idea of the marketing budget.
How to Calculate this :-
CAC = Sales and Marketing Expenses / Number of New Customers Acquired
NPS measures the likelihood of customers recommending your SaaS product or service to others. It serves as a reliable metric for customer satisfaction. A high NPS score indicates that customers are happy with your product or service and will remain loyal customers.
Months to recover shows the number of months your company takes to recover the cost of acquiring a new customer. It is a good measure of the efficiency and effort put in by the sales and marketing teams.
How to Calculate this :-
Months to Recover = CAC / Gross Margin Percentage
A number of customers who use the SaaS product or service on a regular basis are active users. It is useful in measuring customer engagement scores and indicating the popularity of your product or service.
These rates measure the percentage of customers who cancel their subscriptions and are of two types- Customer churn rate shows the percentage of customers who cancel their subscriptions and revenue churn rate shows the percentage of revenue lost because of cancellations. Other metrics include Annual Recurring Revenue (ARR), Actual Contract Value (ACV), trial conversion rate, and expansion revenue. Hope this exhausting list will help SaaS companies to measure performance and efficiency.
How to Calculate this :-
Churn Rate = (Number of Customers Lost / Total Customers at the Start of the Period) × 100
Tracking key metrics is crucial in the competitive world of the Software-as-a-Service domain. Companies can get valuable insights into customer behavior, product usage, and overall performance by analyzing these metrics. SaaS businesses will pave the way to success by effectively utilizing these metrics and making real-time decisions.
The SaaS metrics discussed in this blog post serve as a foundation for evaluating the overall health of a SaaS business. As the SaaS landscape continues to evolve, the importance of SaaS metrics will only grow among custom software development companies. Hope this list will be helpful to get valuable information about your company's performance.
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