SaaS Metrics for Beginners

Know your MRR from your ARR: why are these SaaS metrics crucial to your business? We’ve got it covered!

Software companies naturally handle lots of data. Think about your CRM data, marketing campaign measures, and usage stats on your software platform.

With so much data, the biggest challenge can be keeping a bird’s eye view of what’s happening in your business.

A SaaS metrics dashboard allows you to:

  • meet your business goals
  • identify trends and monitor threats from the competition
  • act in real time, when it matters most
  • keep customers loyal
  • make your team more productive

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 you and your business.

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.

  • Umbrella KPIs – the bottom line impacted by all business areas, your team as a whole is invested in these.
  • Product Metrics – identify your dashboard’s superusers and stop those switching off (or at least find out why)
  • Marketing & Sales Metrics – learn not only who’s trialled 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 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 most important 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?

The revenue generated by your customers on a monthly and annual basis – note this doesn’t include profits – it’s purely turnover.

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 – 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 $14400. 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 $2000 on office rental, $4000 on server costs and $20000 on employee salaries, its gross burn rate therefore being $26000.

If the same start-up is also making monthly revenue of $20000, its net burn rate is $6000.

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

Product Metrics

SaaS metrics can help you to know your buyer persona and the challenges they face, you’ll be much more targeted in your marketing efforts, which will create more leads.

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

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

What is DAU? What is MAU?

Number of daily and monthly active users on your platform. This can mean far more than simply monitoring the number of log-ins, but tracking actions which add value and show real customer engagement:

  • Creating reports – and sharing them with colleagues?
  • Publishing a new event?
  • Testing a new app?

How to calculate DAU and MAU

As it sounds, daily active users are simply the number of unique users on a given day.

In the tech sector this is especially important. Based on user counts alone, company shares can either slump or surge in a single day.

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 business is growing or stagnating in a specific period of time.

For instance, if your MAU suddenly drops, does this coincide with product change, 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?

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.

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

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 and sales – are more likely to convert into paying customers. These SaaS metrics lead to a more efficient marketing and sales team.

How to calculate MQL, SQL and PQL

MQL – A marketing qualified lead is someone who fits your ideal customer profile, and has completed an action which you’ve defined as valuable. 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, becoming an SQL

PQL – For B2B SaaS companies, PQLs are the most important metric, these are people who have trialled the product for free and ready to convert.

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 campaigns to attract more QLs, 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 new opportunities which create more MQLs.

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 $20000 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 %

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 %, 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.

So whatever your data and SaaS metrics needs, we can help.

If you’re struggling with data, whether it’s marketing, product or customer-based (whichever will have at least some impact on the rest), we can walk you through.

If you’re wondering how best to present your data visually, is here to partner you.

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