Running a successful software as a service (SaaS) company requires a forward-thinking approach, not only in terms of product and service innovations, but also when it comes to revenue growth. Unlike traditional companies, which see an immediate return at time of purchase, most SaaS companies rely on a subscription-based model, in which earnings are spread out over a given period of time and recurring revenue is imperative.
It’s a challenging position to be in, one that forces SaaS companies to play the long game and SaaS business leaders to think more strategically than their traditional counterparts — and what better way to build an effective revenue strategy than with data-driven insights?
Of course, in order to generate such insights, you must first track SaaS metrics and key performance indicators (KPIs). By zeroing in on the things that matter, you’ll get a better sense of what works, what doesn’t, and where there’s room to improve. There are ways to measure the performance of everything from marketing campaigns to customer retention efforts to the sales lifecycle — with so many metrics to choose from, it can be challenging to determine which ones are the right ones.
Need some help figuring out which SaaS metrics and KPIs to track? Take a look at this comprehensive list to get started.
Table of Contents
- Average Monthly Revenue per User
- Monthly Recurring Revenue
- Annual Recurring Revenue
- Lifetime Value
- Customer Acquisition Cost
- Gross Profit Margin
- Months to Recover CAC
- LTV:CAC Ratio
- Customer Retention Rate
- Churn Rate
- Expansion Revenue
- Net Promoter Score
- Customer Engagement Score
- Customer Health Score
- Monthly Unique Visitors
- Qualified Marketing Traffic
- Number of Active Users
- Leads by Lifecycle Stage
- Lead-to-Customer Rate
- Lead Velocity Rate
- Lead Conversion Rate
- How to Track SaaS KPIs & Metrics
1. Average Revenue per User
Everything you need to know about what average revenue per user (ARPU) measures is right there in its name. You can calculate your ARPU by dividing your total revenue over a period of time by the number of paying users you had during that period of time.
For example, if you generated $5,000 in revenue over the course of a month and had 100 users during that time, your ARPU would be $50.
2. Monthly Recurring Revenue
Your monthly recurring revenue (MRR) refers to the total amount of recurring revenue generated by all customers in a given month. To calculate MRR, multiply your total number of paying users by your ARPU.
Drawing from the previous example, you’d simply flip the equation to calculate your MRR: If you have 100 paying users per month, and your ARPU is $50, your MRR would be $5,000.
3. Annual Recurring Revenue
Your annual recurring revenue (ARR) is the total amount of revenue you can expect to generate in a year. To calculate your ARR, simply multiply your MRR by 12.
For example, if your MRR is $5,000, your ARR would be $60,000. It’s important to track both your MRR and your ARR because they give you verifiable insight into whether you’re overvaluing or undervaluing your services, and whether your current business model is sustainable in the long term.
4. Lifetime Value
As its name implies, your lifetime value (LTV) represents how much money you can anticipate to make over the course of each customer’s lifetime. You can calculate your LTV by multiplying your ARPU by the average customer lifetime, which is typically expressed in months.
If your ARPU is $50 and your average customer lifetime was 3.5 years, or 42 months, your LTV would be $2,100.
5. Customer Acquisition Cost
Your customer acquisition cost (CAC) is the average amount of money spent per customer acquisition; this should include money spent on paid advertising, marketing campaigns, the salaries of employees in acquisition-focused roles, and so on. Calculate your CAC by dividing the amount of money you’ve spent acquiring new customers within the past year and divide it by the number of customers you successfully acquired.
For example, if you spent $5,000 on customer acquisition over the course of a year and successfully acquired 50 new customers as a result, your CAC would be $100.
There are a number of ways to reduce your CAC, such as:
- Building marketing campaigns around your ideal customer
- Performing A/B testing on all campaigns
- Cutting down on customer churn
- Investing in owned and earned media rather than paid advertising
- Optimizing your marketing funnel with quality content
- Automating your marketing efforts
6. Gross Profit Margin
Your gross profit margin refers to the amount of money left over from sales after deducting the cost of goods sold (COGS). Gross profit margin is most commonly expressed as a percentage. To calculate your gross profit margin, subtract the COGS from your net sales, then divide that sum by your net sales.
For example, if your net sales are $200,000 and your COGS is $100,000, your gross profit margin would be 50%.
7. Months to Recover CAC
In the SaaS industry, where capital is limited and precious, it’s vital that businesses recover their CAC in a short period of time. To determine how many months it will take to recover the funds spent on customer acquisition, divide your CAC by your ARPU times your gross profit margin.
So, if your CAC is $100, your ARPU is $50, and your gross profit margin is 50%, it would take you an average of four months to recover your CAC.
8. LTV:CAC Ratio
This SaaS metric is used to gauge your business’ growth and whether it is sustainable. Best practice dictates that your CAC should never exceed your LTV; the benchmark LTV:CAC ratio is 3:1. Anything lower reflects an unsustainable and unprofitable business model. To calculate your LTV:CAC ratio, divide your LTV by your CAC.
Using the information from our previous examples, if your LTV is $2,100 and your CAC is $100, your LTV:CAC ratio would be 21:1, which demonstrates a truly strong SaaS business model.
9. Customer Retention Rate
As its name implies, this SaaS KPI is used to determine the number of customers your company has retained over a given period of time. Your customer retention rate is the inverse of your churn rate, which we’ll explain in just a moment. By improving your customer retention rate, you can ensure future growth for your company.
Before you calculate your customer retention rate, you must first figure out the number of customers you churned in a given period. Once you have that number in mind, you can begin calculating your customer retention rate by subtracting the number of customers acquired within that same period from the number of customers you have at the end of it. Next, divide that sum by the number of customers you had at the beginning of that period, and multiply by 100.
For example, if you had 150 customers at the beginning of a quarter, gained 50 new customers, and had five customers churn, your customer retention rate would be 95%.
10. Churn Rate
For established SaaS companies with a sizable customer base, churn is a serious threat — when you have hundreds of thousands, or even millions, of subscribers on the line, even a relatively low churn rate can have a major effect on the health of your business. Add to that the fact that churn compounds over time, and you can easily see why churn rate is one of most important SaaS metrics to track — and the sooner, the better.
Churn rate can be divided into two categories: customer churn and revenue churn.
Customer Churn Rate: Customer churn measures the number of paying users you’ve lost at the end of a service period and is a strong indicator of the success or failure of your company’s customer retention strategy. To determine your churn rate, which is expressed as a percentage, divide the number of paying users you’ve lost during a given service period by the total number of users you had at the beginning of that service period. SaaS companies should aim for a monthly customer churn rate between 3–7%.
For example, if you had a total of 500 paying users during a given service period and, by the end of that had lost 75 of those users, you’d have a customer churn rate of 15% — well above the 3–7% benchmark.
Revenue Churn Rate: Similar to customer churn, revenue churn measures that amount of revenue lost at the end of a service period, either due to customers cancelling or downgrading their subscription. To calculate your revenue churn rate — also known as MRR churn rate — divide the amount of MRR lost over the course of that month by the MRR at the beginning of the month. Like customer churn rate, this number is expressed as a percentage and should ideally be between 3–7%.
This number will also be expressed as a percentage.
So, for example, if your MRR at the beginning of the month was $5,000 and the MRR churned over the course of that month was $300, you’d have a revenue churn rate of 6%, which falls into the acceptable range.
11. Expansion Revenue
Expansion revenue refers to the revenue gained when an existing user decides to upgrade to a more expensive subscription plan and is an effective way to offset churn. In fact, with sufficient expansion revenue, you could even negate your churn rate entirely. Compared to the other SaaS KPIs and SaaS metrics on this list, you don’t need a complicated equation to calculate your expansion revenue — simply add up the total new MRR resulting from up-sells and cross-sells.
12. Net Promoter Score
As far as SaaS metrics go, your Net Promoter Score (NPS) is unique because it isn’t a financial metric — instead, it’s an indication of how much value your customers derive from your product or service and speaks to the quality of your user experience. In order to calculate your NPS, you must first solicit feedback from users by asking them, based on a scale of 0–10 — with zero being highly unlikely and 10 being highly likely — how likely they would be to recommend your product or service to a friend or colleague.
Based on their feedback, you can sort users into the following categories:
- Promoters: Any user who offers a score of 9–10; these users are your bread and butter and can be reliably counted upon to reinvest in your product in the future, as well as potentially refer it to new users.
- Passives: Any user who offers a score of 7–8; these users are satisfied with your product but could be lured away by competitive offerings.
- Detractors: Any user who offers a score of 0–6; these users are dissatisfied with your product and pose an active risk, as they’re more likely to spread negative word-of-mouth.
Once you’ve determined the total number of Promoters, Passives, and Detractors in your user base, you can subtract the percentage of Detractors from the percentage of Promoters to determine your NPS. Your NPS can range anywhere from -100 to 100. An NPS of -100–0 is considered low, 0–30 is considered medium, and 30–100 is considered high.
So, if 65% of your user base were Promoters and 15% were Detractors (meaning the remaining 20% were Passives), your NPS would be 50, which falls on the high end of the spectrum.
13. Customer Engagement Score
Similar to your NPS, your customer engagement score is a means of determining how happy your users are based on how engaged they are. Compared to the other SaaS KPIs and SaaS metrics on this list, your customer engagement score is subjective to your company. There’s no neat formula to plug values into — instead, you need to define your own custom inputs and value assignments based on how your customers use your product.
To do so, refer to the results of your NPS survey for insights: How frequently do Promoters log into their accounts? How long do they typically stay logged in? Which core user actions do they perform most frequently? Based on these inputs and the value you assign to each one, you can gain a better understanding of how engaged your users are. This metric also relates to customer health (see below).
14. Customer Health Score
Speaking of customer health, your customer health score offers an unparalleled view into the strength of your customer relationships. Like your customer engagement score, your customer health score is entirely subjective. You can gauge customer health based on a number of factors:
- Product usage
- Customer satisfaction
- Customer sentiment
- Customer engagement
- Customer retention
- And so on
You can use data-driven insights generated by customer segmentation and predictive analytics to monitor the overall health of your customer base and to take proactive steps to work with customers who are at risk of churning.
15. Monthly Unique Visitors
Simply put, monthly unique visitors is a tally of the number of unique individuals who have visited your website over the course of a month and is one of the most common SaaS KPIs.
It’s important to note that when we say “unique visitor,” we’re referring to the actual number of people who have visited your website, not the number of times they’ve visited it. You can measure the number of unique visitors by tracking IP addresses: Every time someone with a new IP address visits your website, they’re recorded as a new visitor, and every additional page view from that IP address is recorded as an additional visit.
You can use this metric to gauge the size of your audience and to determine how effective your current marketing strategy is.
16. Qualified Marketing Traffic
By monitoring the number of monthly unique visitors, you can distinguish returning customers from qualified marketing traffic. Qualified marketing traffic refers to traffic from brand new visitors who have the potential to become prospects; like monthly unique visitors, it is a valuable way to measure the success of your marketing efforts.
To get an accurate reading on your qualified marketing traffic, try monitoring the average number of visits, average number of pages visited, average time spent on your site, and so on in addition to the number of monthly unique visitors.
17. Number of Active Users
This SaaS KPI indicates how many people are actively using your product or service. As you can likely imagine, the greater the number of active users, the stronger the product. Before you can track the number of active users, you must first define what “active” looks like to your company. For example, is a user “active” if they use a particular feature or combination of features? Does “active” refer to the frequency with which a customer uses your product, or perhaps the average length of time they spend using it?
Once you’ve decided how to define “active,” you can measure the number of daily active users, weekly active users, or monthly active users; whichever makes the most sense to you. Your number of active users is also a good way to gauge how sticky your product is — that is, how relevant it is to your users’ lives and how likely they are to return to it.
18. Leads by Lifecycle Stage
If you’ve spent any time working in sales or marketing, you might already be familiar with the different types of leads that can be qualified during the sales lifecycle.
They are as follows:
- Marketing-Qualified Lead (MQL): This refers to any prospect who has been converted to a lead on the basis of your SaaS company’s marketing efforts. You can determine whether a prospect is an MQL based on whether they’ve visited your website, downloaded premium content, and so on.
- Sales-Qualified Lead (SQL): This refers to any prospect who has been thoroughly researched and vetted by both your company’s marketing and sales teams prior to becoming a lead. SQLs are typically in the evaluation stage and are likely ready for a direct conversation with your sales team.
- Product-Qualified Lead (PQL): This refers to any prospect who becomes a lead after testing out your product — typically through a free trial — and deriving value from its use. PQL is a relatively new category of lead, one created to accommodate the increasingly popular SaaS freemium model and is said to be a replacement for MQL.
Leads by lifecycle stage is an important metric to track because having a clear idea of which of these categories each lead falls into can help your sales team understand what approach they need to take when nurturing that lead and converting them into an opportunity and, eventually, a customer.
19. Lead-to-Customer Rate
Your lead-to-customer rate is a strong indication of how well your company generates sales-ready leads, and whether your current sales process needs reworking.
To calculate your lead-to-customer rate, simply divide the total number of customers in a given month by the total number of leads generated within that month and multiply by 100. Your lead-to-customer rate should be expressed as a percentage.
For example, if you had 50 customers in a month and 1,000 leads, your lead-to-customer rate would be 5%.
20. Lead Velocity Rate
Your lead velocity rate (LVR) is a SaaS metric that represents the growth percentage of qualified leads month over month and is a strong indicator of future sales.
In order to calculate your LVR, start by subtracting the number of leads generated in the previous month from the number of leads generated in the current month. Once you’ve determined that figure, divide it by the number of qualified leads in the previous month and multiply by 100. Your LVR should be expressed as a percentage.
For example, if you generated 500 leads in the previous month and 600 in the current month, your LVR would be 20%.
21. Lead Conversion Rate
Similar to your lead-to-customer rate and LVR, your lead conversion rate is a way to gauge the efficacy of your current sales process — except, this time, you’re looking to see how well your company converts sales-ready leads into opportunities.
To calculate your lead conversion rate, divide the number of leads converted in a given month by the number of leads generated in that month and multiply by 100. Your lead conversion rate should be expressed as a percentage.
For example, if you had 1,000 leads in a month and managed to convert 10 of those leads into opportunities, your lead conversion rate would be 1%.
How to Track SaaS KPIs & Metrics
So, after combing through our exhaustive list, you’ve decided on which SaaS metrics and KPIs to track — now you need to figure out the best way to track them. Manual tracking is obviously out of the equation (after all, who has the time or margin of error for that?), so it comes down to automation.
Fortunately, Salesforce makes it easy to monitor SaaS KPIs and metrics using either declarative or programmatic automation. To clarify, declarative automation consists of workflows, flows, and process automation, whereas programmatic automation involves writing Apex code and triggers. It’s better to track certain metrics using the former, and others using the latter; a certified Salesforce consultant, such as those at VennScience, can advise you on which to use and when. Salesforce also has well-documented APIs, which would enable you to integrate your product with Salesforce and bring usage-based metrics directly into Salesforce for reporting purposes.
When automating performance metric monitoring, there are a few things to keep in mind:
- Start with the end in mind. Know which SaaS KPIs and metrics you want to track and work backwards to figure out how you intend to support them in order to create good business process mapping.
- Invest in quality reporting and analytics. Get your data house in order before presenting KPIs to stakeholders and executives by integrating your product with Salesforce to gain access to up-to-the-minute reporting.
- Implement practices that support good data hygiene. All of the metrics in the world aren’t any good to you unless they’re accurate. Take care to prevent dirty data from entering your Salesforce instance so that you can build a solid foundation for data-driven strategies. (For tips on how to do that, check out this blog post.)
- Keep an eye on scalability. Businesses need to be able to layer on new products and new revenue types to create a scalable model for the future. By partnering with a Salesforce consultancy, such as VennScience, you can build custom applications that enable your existing Salesforce instance to grow along with your business.
As you can see, there are a number of ways to optimize automation and simplify the process of tracking key SaaS KPIs and metrics — and working closely with a qualified Salesforce consultancy can help. At VennScience, we’re dedicated to helping our clients use Salesforce to make the most out of their data. We’re here to help you turn the insights you derive from tracking KPIs and metrics into results, so you can build a sustainable SaaS business model that drives long-term growth.
Contact us today to find out what VennScience can do for you. Or, if you’re not totally sold on whether we’re the right Salesforce consultancy for your company, put us to the test — we promise we won’t disappoint you.