SaaS Metrics for Beginners

Software as a Service (or SaaS) companies naturally handle lots of data. Just think about how many tools you have in your toolstack: your CRM, marketing stack, customer success tools, and of course, your own software platform also has a ton of data and usage statistics.

With so much data spread across your toolstack, the biggest challenge is to keep a bird’s eye view of what’s happening in your business.

A SaaS metrics dashboard allows you to:

  • identify trends and monitor threats in your business
  • act in real time, when it matters most
  • make your team more productive
  • and eventually, meet your business goals thanks to making data-driven decisions

If you follow good practices, and if you choose the right metrics, you’ll gain a comprehensive range of insights. This article will help select the right KPIs for your SaaS business and your different teams.

From all-important umbrella KPIs to team-specific metrics: product, marketing, sales and customer success, we’re here to help you find the measures that matter most for your business.

In this article, we’ll split up the most important KPIs into 4 different categories:

  • Umbrella KPIs – the bottom line impacted by all business areas, your team as a whole is invested in these.
  • Product Metrics – identify your platform’s super users and stop those switching off (or at least find out why they are)
  • Marketing & Sales Metrics – learn not only who’s tried your product or service, but how likely they are to convert to paid subscription
  • Customer Success Metrics – understand how well you retain your customers by knowing your gross revenue retention

Umbrella KPIs: Choose your most important metrics

As key SaaS metrics, umbrella KPIs (key performance indicators) help increase performance in line with your overall business goals.

They allow you to track, set targets and justify important decisions to the board in relation to all aspects of your business – marketing, IT, staffing, product development…

Most SaaS companies offer both monthly and annual contracts. For a growing SaaS business, revenue is likely the North Star Metric to which the whole company is aligned.

The whole team contributes to MRR and ARR – monthly and annual recurring revenue so let’s look at these two major KPIs:

Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR)

What is MRR? What is ARR?

ARR, or annual recurring revenue is the total revenue generated by your customers on an annual basis. Note this doesn’t include profits – it’s purely turnover. MRR, or monthly recurring revenue is the same, but on a monthly basis.

How to calculate MRR and ARR

MRR = average revenue per account (ARPA) * Total number of accounts that month

ARR = MRR * 12

MRR can be broken down further, allowing you to factor in areas like expansion MRR – from existing customers who upgrade – and churned MRR – revenue lost from customers who downgrade or cancel.

How will this help your business?

Knowing different price plans and contract lengths will help you to try to forecast and determine future growth.

For example, 8 existing customers might upgrade from $500 to $650 per month, resulting in an MRR increase of $1200 and an ARR of $14,400. Then another 8 might downgrade the same way, effectively cancelling out the expansion MRR.

You can keep track of this in a simple KPI dashboard together with other key metrics. Have a look at the example below for some inspiration.

Net Burn Rate vs Gross Burn Rate

What is net burn rate? What is gross burn rate?

Net burn rate is the total amount of money lost – essentially negative income. This happens when your operating costs are higher than your revenue. Gross burn rate measures the total operating costs and all expenses incurred monthly.

How to calculate net burn rate and gross burn rate

To measure net burn rate, take your cash balance from the end of the quarter (3-month period) and subtract it from the cash balance at the start of the quarter:

Starting cash balance-finishing cash balance ÷ Time Period

To calculate gross burn rate: Expenses ÷ Time Period

How will this help your business?

Knowing your burn rate will allow you to calculate revenue needed to have a positive income -i.e. profitable companies don’t have a burn rate.

For instance, a SaaS start-up might have monthly expenditures of $2,000 on office rental, $4,000 on server costs and $20,000 on employee salaries, its gross burn rate therefore being $26,000.

If the same start-up is also making monthly revenue of $20,000, its net burn rate is $6,000.

Product Metrics

As a SaaS company, knowing how users are navigating the platform is crucial. From the number of daily active users to actions per session; these measures can tell you a lot about your customers’ behavior.

SaaS product metrics can help you to know your buyer persona and the challenges they face, so you can eventually spot any product or UI challenges and solve them for a better user experience.

A better user experience means more happy customers, which translates into long-term loyal customers, and higher retention revenue.

Daily Active User (DAU) and Monthly Active User (MAU) Measures

What is DAU? What is MAU?

DAU and MAU reflect the number of daily and monthly active users on your platform. You can do far more than simply monitoring the number of log-ins, for example tracking actions which add value and show real customer engagement:

  • Average time spent per session on your platform
  • Tracking the specific features a customer uses
  • Tracking engagement with your team (e.g. number of chats initiated, number of bugs reported etc)

How to calculate DAU and MAU

As it sounds, daily active users are simply the number of unique users on a given day. You will need to have some mechanism or technology in place to track the amount of logins. Or if you want to go beyond this, tools like Pendo offer great in-product analytics to track usage statistics.

MAU is defined by the number of unique users over a 30-day period – not user actions performed within the app itself.

How will this help your business?

The MAU is a key metric as it measures over time – allowing you to dig deeper and find out why your platform usage is growing or stagnating in a specific period of time.

For instance, if your MAU suddenly drops, does this coincide with product changes, server issues, or even staffing factors?

Whilst DAU shouldn’t be used in isolation as a success measure, it can be a good indicator of effective PR and media coverage: has an influencer been praising your product on YouTube, or a blog post liked and shared on a SaaS forum? It might show through a sudden spike in usage!

Session metrics

What are session metrics?

Session metrics are the basic user stats around your product and give important customer insights into your services. This could be the duration of a session, the number of sessions per user, or the number of actions a user takes per session.

How to calculate session metrics

Every SaaS product can choose how they count a session. 30 minutes is a common session length used by many SaaS products, but you’re free to pick whatever fits your business model and your clients’ needs. You can choose to implement your own tracking or make use product analytics software tools.

How will this help your business?

During your monthly SaaS meeting, the number of actions per session metric may indicate which product features should get more attention based on customer usage.

Below is just an example of how an education SaaS platform is tracking usage per course inside their product.

Sales & Marketing Metrics

SaaS metrics can help you to understand your buyers and the buyer journey. What information are they looking for and where do they look for it, before they buy your product? Having a clear view on this, you’ll be much more targeted in your marketing efforts, which will create more leads.

Leads mean business & pipeline growth – both in the short and long term.

Marketing Qualified Leads (MQL), Product Qualified Leads (PQL) and Sales Qualified Leads (SQL)

What are MQL, PQL and SQL metrics?

Qualified Leads – whether marketing, product or sales – are individuals who have expressed a certain degree of interest in your product, thus more likely to convert into paying customers. Tracking these SaaS metrics lead to a more efficient marketing and sales team, allowing you to invest time & effort in the right prospects.

How to calculate MQL, SQL and PQL

MQL – A marketing qualified lead is someone who fits your ideal customer profile, and has completed a marketing action which you’ve defined as valuable. For example, whenever you offer a piece of content that is downloaded – from an e-book to an online calculator – in return for a visitor’s email address, this constitutes an MQL.

SQL – Once the MQL has been vetted and checked out by the sales team, they are ready for 1-1 attention with the sales team. Once the sales team has qualified the lead against multiple criteria (BANT is a very popular framework), the lead becomes a sales qualified lead and an active opportunity.

PQL – For B2B SaaS companies, product qualified leads are the most important metric, these are people who have for example started a free trial of your product, and are actively evaluating your product.

How will this help your business?

Knowing what differentiates your MQLs from your SQLs and your PQLs will better align your marketing and sales teams. Use these SaaS metrics to strategise.

For instance, if you have a high number of MQLs but are lacking SQLs, you might need to adapt your marketing campaign’s targeting to attract visitors that fit your ICP, or you might want to focus on initiatives that drive new leads through the funnel quicker.

If MQLs are in short supply, with the pipeline in danger of running dry, you may need to focus on driving more traffic and reaching a broader audience, which will create new MQL opportunities.

Customer Acquisition Cost (CAC)

What is customer acquisition cost?

CAC is the total cost of combined sales and marketing efforts needed to win a customer.

How to calculate customer acquisition cost

CAC = Total Cost of Sales and Marketing ÷ No. customers acquired

How will this help your business?

CAC really helps your SaaS to set realistic marketing budgets.

For example, if you’re spending $20,000 on winning 500 customers, your CAC is $40. This will help you with your planning to determine how long it will take your B2B SaaS to make a profit.

Imagine the meeting where you’re having to convince the board how viable your business model is: this is a key stat in justifying your answers.

Lead Velocity Rate (LVR)

What is lead velocity rate?

LVR is the real-time, cumulative growth of qualified monthly leads, and is measured as a percentage.

How to calculate lead velocity rate

LVR = Current month’s no. of qualified leads – Last month’s no. of qualified leads ÷ Last month’s no. of qualified leads * 100

How will this help your business?

LVR is often considered the best predictor of future revenue as it not affected by factors such as time of year or staff quality.

Customer Churn Rate

What is customer churn rate?

This is the rate at which SaaS customers cancel their subscription.

How to calculate customer churn rate

Monthly churn rate = Customer count start of month – Customer count end of month ÷ Customer count start of month

How will this help your business?

As a small SaaS company, you’re aiming for a churn rate of about 3-5% monthly. This is likely to be higher at the start but will soon reduce as you’re more confident with your product.

Customer Success Metrics

Net Promoter Score (NPS)

Click here to read Harvard Business Review’s article on B2B value elements and the direct link between NPS and business growth.

What is NPS?

NPS measures and quantifies customer satisfaction, usually as a percentage, and normally using a question along the lines of, ‘How likely are you to recommend this product to a friend?’. The answer being on a 0-10 scale.

How to calculate NPS

No. promoters (those who scored 9 or 10) – No. detractors (those scoring 6 and less than) ÷ No. respondents * 100

For example, if you received 100 responses:

  • 15 detractors (0-6)
  • 25 passives (7 or 8)
  • 60 promoters (9 or 10)

Your NPS would be +45 (according to Survey Monkey the average NPS is +32).

Below, you can get a glimpse of how that same education platform tracks satisfaction of their online course students.

How will this help your business?

As a SaaS start-up, it’s cheap and easy to use, you just need to send out one survey question. This way, customer satisfaction is easy to track, and you can measure it against product, tech and staffing changes.

By weighing the NPS against different variables – including price plans and any new product functions – you can really track the impact.

For maximum engagement and responses, embed the survey in your app, as well as emailing out.

Show off your successes with these SaaS metrics. Where necessary, follow up with the passives and the detractors, their responses may enlighten you.

Customer Lifetime Value (CLV)

What is customer lifetime value?

CLV is the total worth of a customer throughout their relationship with your SaaS business. The goal is to keep your customer loyal – and therefore, purchasing.

How to calculate customer lifetime value

To work out CLV, you need to know your ARPU first – average revenue per user.

To calculate ARPU: revenue in time period ÷ no. users in time period

Then the CLV = ARPU ÷ revenue or customer churn

How will this help your business?

For a SaaS, annual and monthly subscriptions are what brings in revenue.

To avoid operating at a loss, your company’s CLV must be greater than the cost of acquiring a customer (CAC) in the first place.

To be a sustainable SaaS, it’s thought that your CLV should be around 3 times greater than your CAC

Annual and Total Contract Value (ACV and TCV) Metrics

What is ACV? What is TCV?

ACV measures all subscription value (including TCV) from each contracted customer, averaged out across 1 or more years (whereas ARR mentioned earlier looks at a single point in time).

TCV looks out how much a contract is worth, it includes monthly recurring revenue (MRR) and one-off charges like onboarding fees, plus any other charges throughout the contract life.

How to calculate ACV and TCV

ACV = TCV (excl. one-off fees) ÷ total years in contract           

TCV = Monthly recurring revenue * contract term (months) + one-off fees

How will this help your business?

Like all SaaS metrics, ACV and TCV are better looked at with others, as part of the bigger picture.

For SaaS – and for context – a higher ACV normally means a higher CAC as more is spent on generating leads and converting them.

However, there is not necessarily a link between ACV value and overall growth.

What’s important is that there is a clear, consistent definition of ACV and TCV across your SaaS, and how they’re calculated.

Bring all your metrics to your SaaS teams with Cumul.io

Now that you have a solid guide to pick your most important KPIs, the next step is to visualize them in clear and interactive SaaS metrics dashboards.

The advantage of visualizing your SaaS metrics towards your internal teams are plently:

  • Help teams set better priorities, driven by data;
  • Take action much faster when changes occur;
  • Motivate team members by showing their impact on your business;
  • Making your team members more involved;

Assembling all of these reports in one place, and giving each team member access to the data he or she is allowed to see can feel like a daunting or time-intensive task. Cumul.io is here to partner with you.

With Cumul.io’s no-code reporting portal, you can easily create a reporting environment for your internal team members, and even open it up to clients or stakeholders as well.

Ready to start taking action on your SaaS data? Book a demo with our product experts today!

Add a Comment

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