word image 8712 1

Every business is unique. The growth is different, and the whole lifecycle is unique—so should the metrics. Have you ever wondered if a software company and a sweet shop would have the same metrics to track their growth?

Well, their business models are not the same, so why should the metrics be? However, there are dozens of attractive metric tools available to track business performance. From mean percentile ranking (MPR) to annual recurring revenue (ARR), customer acquisition cost (CAC), and customer lifetime value (LTV), it’s quite normal to get confused.

As a business, you must know your priorities. And if you’re in the SaaS market, well, you’re in for a rapid run. The market itself is projected to grow from $317.55 billion in 2024 to $1228.87 billion by 2032. That’s a massive 18.4% CAGR, which you would not wish to miss out on!

Disclosure: We earn a commission if you make a purchase at no additional cost to you. You can read our affiliate disclosure in our privacy policy.

North America SAAS Market Size 2019-2032 (USD Billions)
North America SAAS Market Size 2019-2032 (USD Billions)

So, let’s understand what SaaS marketing metrics are and which works best to boost your business growth.

What are SaaS Metrics?

SaaS are subscription-based services, like Shopify, MailChimp, and even HubSpot. The absolute beauty of this industry is the subscription part itself. If the product is great, customers stay connected for years, and here’s where metrics come into the picture.

Consumer-facing SaaS companies must know where their product is headed. And this is done through tracking. The need is quite straightforward: the business has to bring in more money. To achieve this, the least a company must focus on is LTV and MRR (monthly recurring revenue).

The customer lifetime value must be three times higher than the customer acquisition cost. And the MRR should be higher at all times.

Having said this, it’s important to note that most of the SaaS metrics correlate. Here are the seven essential SaaS marketing metrics to boost business revenue growth:

Important Metrics for Your Business

Churn Rate

So, here you have to look into two kinds of churn rates: customer churn and revenue churn. First, look into the number of customers who quit your services every month. Next, look into how much revenue customers leave every month, which adds up to your total revenue.

If you look into the steps, measuring revenue churn is much more beneficial than calculating customer churn. The reason is that revenue shows the health of the business.

When it comes to customer churn, it’s quite easier to find out how many customers have left your subscription when you only have 100. But if the numbers increase, SaaS startups will struggle to find or track them. However, it’s important because even if you have forty thousand customers and a few thousand opt out, the business faces a massive loss.

And here’s where they have to focus on retention. If you get the numbers and the details, then the next goal is to lower the churn rate by retaining. That’s why this metric is extremely important.

Activation Rate

Yet another important metric a SaaS enterprise must consider is the activation rate. Once the customer signs up for your services, the next ‘aha’ moment they have is when they open the first page. Here’s where the customer perceives and understands the value of your product.

However, the important point here is: which part of your product excites your customer? This metric can vary from product to product. This part gives you long-term success, and this can be done by user path mapping or behavioral analytics.

Once identified, optimize. Check out the critical points, work on them, and give more value to your customers in less time.

ARR and MRR

Monthly recurring revenue stands for the income customers bring to the business each month. ARR, on the other hand, gives information about how much income comes to the business annually. It’s also called the “run rate,” and it is calculated by multiplying MRR by 12 months.

Calculating ARR (%)
Calculating ARR (%)

Source

The calculation of MRR can be done manually, but it gets tedious if the numbers are large. The calculation of ARR goes like this:

ARR = [ (Total net profit/Number of years) ÷ (Initial cost)] × 100.

This is an important metric because SaaS businesses generate recurring revenue. With this metric, they can iterate their pricing plan to make the growth steady.

CAC

The customer acquisition cost of a SaaS company is the most important metric because this is all about how much the business spends on marketing and selling. The calculation goes by dividing the total amount spent on sales in a month by the number of clients obtained.

It’s a basic calculation that goes like this:

CAC = Sales and Marketing Cost ÷ Number of customer acquisitions.

Calculating Customer Acquisition Cost (CAC)
Calculating Customer Acquisition Cost (CAC) Source

Once we get a number through this calculation, we can further get more information about customer lifetime value. But it’s important to note that the profit margin must be higher than the acquisition cost for the business to be profitable.

LTV

Now that you have explored CAC, let’s get into LTV. The golden formula here is: LTV > (3 × CAC)

The lifetime value of customers wholly depends on how much they like the service of the business. In its simplest form, LTV can also be written as:

LTV = Revenue per client or customer lifetime—maintenance cost

OR

Calculating LTV
Calculating LTV Source

LTV = (Average purchase value / Average purchase frequency rate) × Average customer lifetime.

This metric, as compared to other ones on the list, provided a more long-term vision of customer engagement tactics. It helps businesses forecast how important a specific customer will be to the business and how much revenue they will bring in by staying.

Expansion Revenue

Expansion revenue is the most powerful one. When a customer upgrades to a more expensive plan from the basic one, they are not just getting additional services; they are also expanding your revenue.

Revenue expansion can be done by upselling clients to a more expensive plan. And it’s much easier on your pockets as compared to acquiring new customers. It’s 3x less costly.

Instead of developing a net new acquisition approach, expansion revenue helps businesses grow. Hence, altogether, this is a very important metric.

NPS

To the last comes the Net Promoter Score. This metric, or score, shows how much value customers are getting from the business’s offerings. With NPS, a business can determine how happy or unhappy the customers are with their product or service.

NPS
NPS Source

NPS can be calculated by asking simple questions, like “How likely are you going to recommend this product to your friend?” on a scale of 1 to 10, where 1 is the lowest and 10 is the highest.

Once found, the business can further enhance its offering accordingly. The comments obtained can help SaaS businesses improve their services in the early stages.

Wrapping Up!

As of today, you can know anything and everything about your business performance. And there are tens and hundreds of metrics available out there to help you with that. You can even leverage modern AI and analytics tools to understand your business data and get the measures for your success. However, by sticking to just these 7, you’ll play the smarter game. Know everything with little effort, but get back the most!

Author’s Bio :

Jigar Agrawal is a Digital Marketing Manager at eSparkBiz Technologies. He is passionate about anything related to Digital Marketing and Trending Technologies. Wants to unlock the world of technology and Social Media where every day there is a chance of new possibility as well as innovation.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *