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I’m a huge fan of metrics. Nothing makes me feel more secure in my business than knowing exactly where I’m at and where I’m headed.
Before I started tracking metrics, a lot of the decisions I was making felt like leaps of faith. While there are lots of areas in life where a little mystery is fun, building a business is not one of them.
Every business is going to have different metrics to follow depending on their goals, but there’s common ground between SaaS companies working to stay on top of market trends and needs.
I’m going to share some of the most vital metrics for your SaaS business to measure and thrive! Sound exciting? Let’s dive in.
What Are SaaS Metrics?
Metrics are specific points of data that a company can use to track their performance over time. While they are often seen as synonymous with KPIs, they are actually a lot more specific.
For example, If your goal is to run 100 kilometers in a month, your KPI would be how many kilometers you’ve run. Your metrics would break this down even more into
- Daily Kilometers
- Average Speed
- Time Spent Running
Knowing all these factors allows you to clock exactly what you can do to meet the goal and boost your KPI.
Of course, this gets a lot more complex when you’re applying it to a SaaS business, but the general idea stays the same.
The Benefits of SaaS Metrics
When you’re operating within an industry as fresh and evolving as software, there are lots of reasons to focus on different metrics. I’ve seen tremendous growth and focus come from keeping them clear, as well as
- Tracking Success - You won’t know what innovations and processes are working if you aren’t keeping a close eye on their results. This allows you to bring clear, understandable success stories to your clients and investors
- Future-Proofing - When you are clear about your strengths and weaknesses, you will know what to fall back on during hard times, as well as where you have room for improvement.
- Agile Adjustments - Keeping on top of your KPIs allows you to spot issues as they arise, meaning you can shift course and make improvements before it becomes too challenging
External goalposts may be in constant flux, so you’ll use these measurements as a north star to keep your business sailing towards its potential.
Key SaaS Metrics to Track
No matter what software your SaaS company is selling, there are several metrics that will be critical to keep an eye on. Because they’re so specific, it’s easier to picture these metrics when they’re split into groups.
Your entire team may not need every single metric, but every metric has its place within your operation. The key to successfully implementing these metrics is to know who needs them and when.
Financial Metrics
Most businesses will jump directly to financial metrics, and for good reason. The primary goal of any company is, after all, to make money.
These financial metrics extend beyond the simple act of making bank, however, and extend into the deeper operations of your company.
- Monthly Recurring Revenue (MRR) - This metric measures the predictable and recurring revenue generated by a SaaS company on a monthly basis
- Gross Margin -The profitability of a SaaS company. Found by calculating the difference between revenue and the direct costs associated with providing the product or service
- Operating Expenses Ratio - The proportion of a SaaS company's revenue that goes towards operating expenses such as salaries, marketing, research and development, and administrative costs
- Cash Flow - A measure of the money flowing in and out of a SaaS company during a specific period. Positive cash flow indicates that the company is generating more cash than it is spending, while negative cash flow suggests that the company is spending more than it is earning
- Annual Contract Value - Represents the average annual revenue generated per customer contract. It helps assess revenue generation and growth potential and is especially useful for SaaS companies that operate on a subscription or contract basis
By charting each of these metrics, your team will be able to see the signs of declining success far in advance, and make adjustments accordingly. You’ll also be able to see when you’re absolutely crushing it, and celebrate!
Customer Metrics
One of the core tenets of Software as a Service is, of course, service. Understanding what your clients are actually after and being able to provide it at the drop of a hat.
This makes the way customers interact with your company extremely important, and pushes customer metrics high on the priority list.
- Customer Lifetime Value - Calculates the total amount of revenue a customer is expected to generate throughout their lifetime as a paying customer
- Churn Rate - The percentage of customers who cancel their subscription or do not renew within a specific time period. It is a key metric in assessing customer satisfaction and the quality of your software
- Net Promoter Score - Measures customers' overall satisfaction and loyalty towards the SaaS product. In practice, it’s how likely people are to offer referrals and strong word-of-mouth marketing
- Customer Engagement Score - The level of interaction and involvement that customers have with your business and your software. Includes active participation, how often they visit, how long they stay engaged, and their willingness to provide feedback
- Product Adoption Rate - The rate at which customers start using and incorporating your product into their daily processes. This metric is particularly important for understanding the effectiveness of your onboarding and training processes
These metrics work together to give you the full picture of your customers’ attitudes toward your company. They are the ones who are driving business, so it’s always good to know what makes them tick.
Sales and Marketing Metrics
I may be a little biased as a marketer myself, but I think understanding how your marketing funnel is running is vital in successfully keeping your business afloat.
- Customer Acquisition Cost (CAC) - The average cost incurred by the company to acquire a new customer. It includes marketing expenses, sales costs, and other related expenses
- Lead-To-Customer Rate - Measures the effectiveness of a company's lead generation efforts in converting leads into paying customers. If lead generation is high, but customer conversions are low, it’s time to find some higher quality leads
- Months to Recover CAC - This metric tracks the time it takes for a company to recoup the investment it made to acquire a new customer
- Qualified Marketing Traffic - Determines how effective your marketing campaigns are in attracting potential customers who have a higher likelihood of converting into paying customers. The term "qualified" implies that the traffic meets certain criteria or characteristics that align with your target audience or ideal customer profile. It considers demographics and source of traffic
- Click-Through Rate (CTR) - Measures the percentage of clicks that a company’s ad receives divided by the number of times the ad is shown. A low CTR can indicate that you need to put more time into your ads
Seeing which channels are working and how your customers are crossing the finish line allows you to focus your efforts on the right things.
Operational Metrics
When investors and potential clients look at your SaaS company, the metrics they’re often interested in are the operational metrics. These show off how your software runs on the user’s end.
- Server Uptime - The amount of time your software remains operational and available to users without experiencing any unplanned or unexpected downtime. Ensures reliability, customer satisfaction, and overall service quality
- Ease of Use - How user-friendly and intuitive your software application is for its intended users. Involves collecting user feedback through surveys, interviews, or usability testing
- Bug Fixing Rate - How fast your team is able to identify and respond to any bugs or issues that users experience. This shows how attentive you are, and how you care for your product and clients
- Load and Response Time - The speed at which your software loads or responds to user actions. This metric is important for attracting and retaining customers who expect efficient and responsive service.
These metrics affect customer satisfaction and loyalty, as well as your ability to attract new clients. If your software is consistently down or difficult to use, customers will likely switch to a competitor.
The Bottom Line
Understanding how your SaaS business is running doesn’t only allow you to pinpoint any issues and celebrate success. It also helps your team get a clear picture of what needs to happen to reach your long-term goals.
A constant stream of data helps you make informed decisions, focus your efforts, and let all stakeholders know exactly what’s going on within the company.
By tracking your financials, customer engagement, sales, marketing, and operations, you can paint a full picture of your SaaS company’s past, present, and future. Only then will you be able to steer your team towards the ever-brightening future.
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