There are many KPIs that you can ultimately track but for SaaS businesses, the list below covers the more critical metrics:. For SaaS businesses, there is a significant upfront investment that needs to be made.
Before you can acquire customers, you need to build the product and spend money upfront before generating revenue. The goal of MRR is to help track how sustainable the business model really is. New business and expansion of existing customers will grow your recurring revenue base, while churn and existing customer contraction will reduce this recurring revenue base.
This tells you your recurring revenue run-rate on a forward basis. Churn rate is the rate at which you lose recurring revenue and is either calculated monthly or weekly. For any company to significantly grow, the growth rate for revenue and customers must be higher than the corresponding churn rate.
Quickly spotting a revenue churn rate that is increasing can trigger corrective actions that management can deploy to correct the trend. This metric is critical for ensuring consistent long-term growth of a SaaS business. If your churn rate is becoming a problem here are several actions that can be implemented to gain control of the problem:.
Cash Burn Rate is the monthly pace at which a SaaS business spends their cash. For most early-stage SaaS businesses with less revenue traction, this is a critical metric to monitor within a SaaS business. This problem can be somewhat alleviated by using longer term contracts with advance payments. Runway is a frequent term used to describe the number of months a business has before they run out of cash e.
Customer Acquisition Cost CAC measures the cash that a SaaS business burns to acquire new customers, and indicates how long it will take a company to recoup the initial investment used to capture those customers. Consequently, SaaS companies can use this metric to determine whether they can afford to boost sales and marketing spending, or whether they should be cutting back. To calculate CAC, you will want to look at the gross margin of annualized new revenue from a given quarter and divide it by the sales and marketing cost from the previous quarter less account management fees.
The rationale here is that new revenue from sales and marketing spending is not realized until approximately three months later due to the customer ramp-up period. One great way to measure the capital efficiency of your SaaS business is to examine how many months of revenue from a customer are required to recover your cost of acquiring that customer CAC.
For early and growth-stage SaaS businesses, where there are more hurdles and a higher burden of proof necessary to obtain capital, there is a much greater need to recover any spend in acquiring new customers as quickly as possible. The rule of thumb and benchmark for most SaaS businesses is to keep months to recover CAC under 12 months, although there are definitely exceptions here depending in what industry your business operates in and how expensive it is to acquire new customers.
By combining the average revenue per customer and the churn rate, we can figure out how much revenue we expect to receive in the future from our customers. Be careful not to confuse this with your average revenue per customer:.
Now, there are a bunch of different formulas for lifetime value out there. You can include your cost per acquisition, the cost to service your customers support and retention programsand profit margins. For a SaaS business, take your average subscription length and multiply it by your average monthly revenue per customer.
Grab the simple version first and evolve your formula over time.Start with your goals, then design activities and tasks and programs to reach those objectives. Transforming data into business insights is a matter of knowing which performance indicators matter most to your company. This list of metrics used by actual SaaS companies is segmented by department for easy skimming, and each metric is accompanied by a handy formula. To learn more about the companies who have found success with these and other SaaS performance metrics, check out this excellent and exhaustive article by Cobloom.
Tell us about it in the comments! Monthly Recurring Revenue MRR : Measures the predictable and recurring revenue components of your subscription business over the course of a month. Annualized Run Rate or Annual Recurring Revenue ARR : Measures the predictable and recurring revenue components of your subscription business over the course of a year.
Customer Churn : Measures the rate at which existing customers cancel their subscription.
For a given period tdivide the number of customers that cancelled their subscriptions in that period by the total number of customers at the start of the period. Revenue Churn : Measures the rate at which monthly recurring revenue as a result of customer churn.
Bookings : Measures the total value of all new subscriptions made during a given period. Sum the value all acquired deals during period tincluding future payments due per the agreement. Find the difference between the MRR for a given time t and the MRR for t-1dividing by the latter and multiplying by to get the percentage. To find this, add the revenue gained from new subscriptions for time t to the revenue gained as a result of successful upselling and cross-selling for the same period.
Subtract from that the churn MRR lost during that period. Burn Rate : Gross burn rate measures the rate of expenditure over time, and net burn rate measures revenue loss over time. Gross Margin : Measures the percentage of revenue remaining after the cost of service is subtracted.
For a SaaS company, cost of service might include support expenses, application hosting fees, and software licensing fees. Unique Website Visitors : The number of distinct people who visit a site in a given period. Email Subscribers : Number of individuals who have signed up to receive regularly scheduled emails or newsletters.
Core 6 SaaS Metrics and SaaS KPIs to be included in every SaaS Financial Model
Marketing Qualified Leads MQLs : The number of individuals or companies who have demonstrated an interest in the product and given identifying information. Sales Qualified Leads SQLs : The number of individuals or companies who have demonstrated an interest in the product and entered into the sales process, usually by requesting a demo or engaging in a sales conversation.
Opportunities : SQLs that have been vetted and found a good fit for the product. Paying Customers : The number of companies or divisions of a company that have signed subscription contracts.
Free Trials and Demo Requests : The number of individuals or companies requesting to either try the product first-hand or see it in use.
Conversion Rates : The number of individuals or companies who make it to the next stage in the sales funnel. In all cases, the conversion rate is the latter number the smaller number divided by the former, larger number.In a data-driven society, this means staying ahead of the curve when it comes to all metrics and key performance indicators.
Conversely, understanding specific SaaS KPIs, will give your company an edge on any company that is ignoring them. While there may be several metrics and KPIs that are universal to a wide variety of online startups, the following are specifically SaaS Metrics and SaaS KPIs that you should be giving your primary focus.
One of the most vital SaaS metrics to pay attention to is the net monthly recurring revenue MRR growth rate. For a SaaS company, this is the key metric that will tell you how quickly your company is growing. MRR is constantly changing in a SaaS business. New revenue is added through constant customer acquisition, but then any customer churn in the same time period would cancel out the acquisitions, leaving the difference in revenue your net MRR Growth rate.
On average, a healthy growth rate would be somewhere between x more customers acquired than lost in a given time period. Lower than this leaves you with little momentum. Gross MRR churn rate is the total percentage of revenue that has been lost. This rate needs to not only consider cancellations but also any downgrades from all existing customers. This company loss is in direct comparison to the Net MRR churn rate which is calculated by showing the losses when subtracting the expansion MRR rate.
SaaS Key Performance Indicators – KPIs Every SaaS Business Should Track
Inversely, the key metric that tracks the revenue from retaining customers would be considered the gross monthly recurring revenue retention rate.
Increasing the retention rate directly decreases the churn rate, which then helps improve the net MRR growth rate. So basically, the lower the churn your SaaS company has, the better it is doing. When measuring month to month revenue that is lost because of account downgrades or cancellations, and then factoring any upgrades, this is called your Net Monthly Recurring Revenue Churn Rate.
Net MRR churn rate basically shows any of the revenue churn subtracted by any added revenue that period. The key focus after acquiring new customers should be to get the MRR churn rate to be as low as it possibly can. This is especially true in very niche markets, where the quick growth but even quicker churn will leave you with an increasingly smaller number of potential future customers. Focus on customer acquisition, but be steadfast about customer retention and keep that MRR churn rate at or near zero.
The expansion monthly recurring revenue rate is any revenue that is from all of your existing customers, not newly acquired customers. This includes things like cross-sells, upsells, and any add-ons that an existing customer purchases. Expansion MRR rate is the key performance indicator that shows how much all of your existing customers value you. This metric is especially useful for SaaS businesses that have been around for awhile and already have a large chunk of the market share. At this later stage in a company, customer acquisition costs tend to be higher, and MRR expansion is an excellent way to continue growing revenue.
If your company is still at the early stages, it is still important to be thinking about expansion MRR rate, however, more focus should be on increasing the MRR growth rates and decreasing the MRR churn rates. More focus can be put on expansion after customer acquisition rates begin to plateau due to the market share you have already acquired.
For any early SaaS startup, and still somewhat important at later stages, an important metric to keep your eye on regularly is the lead velocity rate. The lead velocity rate is the measurement of the growing percentage of any leads, specifically qualified leads, from a month to month basis. This metric is essentially showing the pipeline you have in development.
It tracks the number of qualified prospective customers you are actively trying to convert into paying customers. The higher your rate of lead velocity, the better you can expect your MRR growth rates to be in the very near future. Because you have data of lead to customer conversion rates, you can reasonably predict what the new conversion rates and therefore MRR growth rates will be as the lead velocity rate increases.
A high lead velocity rate needs to be one of the primary focuses, especially in the early days of your SaaS company, to ensure a high MRR growth rate. A low lead velocity rate can be an indicator of unhealthy, low growth in the near future. Track lead velocity rate monthly, not quarterly, and be sure to hit the monthly targets you have set.
Similar to the MRR expansion rate, the ARPA becomes more vital of a metric to follow at later stage companies, after a significant market share has been acquired and retained.
If a company is pushing internal expansion with upsells and more, then increasing the ARPA should be the goal to hit. Keep in mind, that some businesses might have a structure where customers actually have multiple accounts. In those cases, this may cause your ARPA to vary slightly when comparing average revenues of customers.Payroll and staff management has a big impact on small businesses. Few areas quantify costs, effort, and sentiment better than key performance indicators KPIs.
Payroll KPIs, in particular, elevate in importance when you consider how they change decision-making in your business. Structured well, KPIs can make for good business insights that provide you with a gauge on how your business is tracking.
Here we talk about the cost of maintaining a workforce. In other words, these costs are directly related to the employment of your staff. Also known as the wages-to-turnover ratio, run this as a trend chart month by month. Alternatively, it could be compared annually, year by year.
This can be measured often, after each pay run is complete, as a quick checkpoint to indicate no unusually large payments were made. This is also known as revenue per employee.
Essentially, this metric helps measure the efficiency of the workforce over time. These metrics are perfect just for that. An increase in overtime can cost you.Top 3 KPIs for Project Managers
It can be seen as a sign of absenteeism but also inefficiency in your scheduling practices. You may be interested in reducing your administrative cost if you have a larger payroll.
You can track the metrics with software that tracks payroll and other important aspects. There are a few signs that can indicate a happy and healthy workplace. Similarly, you might track if your staff is taking PTO, as a way to gauge work-life balance. A happy employee is a productive member of your team. Absenteeism can be a big problem, especially for small businesses. Follow the number of sick days used within a period.
For this metric to make sense, measure over an extended period like a quarter or a year. Additionally, you can run surveys to gauge other cultural parameters such as satisfaction levels with employee benefits like healthcare, remote work policies, and flexible scheduling.
Identifying the importance of these will allow you to adapt your employment package. Tracking this metric as an aggregate can give you an idea if your team is getting the work-life balance right.
Just make sure to put this in the right context around busy seasons like the summer or Christmas. For instance, depending on the results of these KPIs, you may want to adjust policies. KPIs play an important role in your business, so the sooner you start measuring, the better. Build KPIs using any formula, then add them to any payroll report or run them as a trendline chart over time.
The best part: You can set a workflow to deliver KPI reports directly to your inbox. As an accountant, Mick has a long history of working with businesses and NGOs as a treasurer, board member, consultant, and advisor. Frustration with spreadsheets led him to develop Calxa, now the most widely used board reporting software in the nonprofit sector in Australia and New Zealand.
Her passion for the written word manifested during her time at Boise State University where she majored in many things including but not limited to Medieval literature and eventually graduated with a B.
More about Myranda. Making the pay run happen, and all the other associated employee management costs are not for the faint-hearted either. The silent contributor—company culture.Before you know it, you can easily be submersed in wave upon wave of metrics and corresponding acronyms—customer acquisition cost CACannual recurring revenue ARRannual contract value ACV and lifetime value LTVjust to name a few.
In the worst case, you get analysis paralysis, refusing to take action or make a decision without months and months of data. Or, as a result of the amount of data you must sift through to do anything, you start ignoring data altogether and running your business based on gut feel. So which of these metrics if any can entrepreneurs reliably turn to for the tell-tale signs of imminent failure or burgeoning success? Sounds simple enough, right? The problem is that there are dozens of metrics that can fall under the KPI umbrella.
And tracking them all is neither productive nor efficient. So, what are key performance indicators that really matter to SaaS companies? MRR churn is the most important version of churn, but you can also measure logo customer churn.
To calculate MRR churn, or the percentage of revenue that has churned, take MRR at the beginning of the month and divide that number by the MRR you lost that month from downgrades or customers leaving. Calculating your logo churn is simple: Take the number of customers you acquired one year, and see how many remain customers the next year.
At the end of the day, there is nothing more important to a SaaS company than its ability to retain existing customers while also acquiring new ones. ARR, and the annual growth of it, is another classic. Deduct all MRR from downgrades and churn. Keep in mind that while this metric says annual, it is best tracked on a monthly basis as accounts are added and subtracted monthly.
When you take ARR from last year, take January and compare it against Januarythe growth rate between those two numbers is your Annual Growth Rate. The intent of NRG is to peel back the layers of your business like paid marketing and sales to understand what the true impact of your product is for driving organic growth.
You can calculate your NRG by multiplying your annual growth rate by the percentage of product sign ups that are from organic channels. Finally, multiply that figure by the percentage of your ARR where the account started in your product i.
18 SaaS Metrics and KPIs Every Company Should Track
That means you have net-negative churn, and that your product is doing a great job expanding within existing accounts. This is inefficient growth, and ends up backfiring at some point.
Work across your team to understand your NDR. Cash burn rate measures the capital that the company burns on a monthly basis to keep the lights on.
Your cash burn depends on quite a number of factors, including your business location and your go to market motion sales-led vs product-led. At the end of the day, while growth is key, building an enduring business requires cash efficiency. As a founder, cash is king, and your burn should be front and center when reviewing your key performance metrics with the rest of your executive team. Customer acquisition cost CAC measures the cash that a SaaS business burns to acquire new customers, and indicates how long it will take a company to recoup the initial investment used to capture those customers.
Consequently, SaaS companies can use this metric to determine whether they can afford to boost sales and marketing spending, or whether they should be cutting back. To calculate CAC, take the gross margin of annualized new revenue from a given quarter and divide it by the sales and marketing cost from the previous quarter less account management fees.Most SaaS companies struggle to achieve predictable revenue growth, and even public SaaS companies struggle to achieve profitability.
You must make thoughtful, data-driven decisions when it comes to your marketing, sales, and customer success operations. In comparison to the enterprise software firms of yesteryear that could rely on large, upfront fees to get a quick payback, the SaaS business model relies on small amounts of recurring revenues. And unlike a services businesses where you can pay for your new equipment after the first few jobs—or a consulting business with no overhead that can close big upfront contracts from the get-go—revenue in a SaaS business is built one small sale at a time, paid in small increments.
SaaS marketing is difficult because you need to find ways to find and attract a high volume of quality leads, and then find ways to increase lead volume for years to come—all on a small budget. SaaS sales is also difficult.
You need to find ways to make your salespeople more efficient so they can close more deals more quickly. But every investment you make in productivity increases your payback period even further. Fortunately for all of us, a few successful SaaS pioneers have shared parts of their playbooks:.
Together, these companies, investors, and consultants have created and named a set of SaaS metrics and KPIs that every SaaS employee would be wise to understand—and every SaaS executive should monitor closely.
Monthly unique visitors is a count of the number of unique individuals who visited your website in a given month. Plus, by measuring the volume of unique visitors from each source, you can also measure the effects of marketing on different channels. These metrics will tell you about the quality of your traffic, which is just as important as quantity. Use tools like Google Analytics or Adobe Analytics to measure unique visitors.
Since Google Analytics is free, most SaaS companies start there. You can also grab the free Google Analytics Acquisition Snapshot dashboard below to quickly view how your marketing campaigns are performing across all of your target channels. Not every SaaS product offers a free trial or a self-service option.
Many force you to talk to a salesperson before trialing the software. But self-service is perhaps the best way to lower the cost of customer acquisition. HubSpot users can also grab the free HubSpot Sources Report dashboard below to track how your marketing efforts on every channel are contributing to each stage of your funnel.
It helps SaaS businesses pre-qualify potential customers based on their product usage. At Databox, PQLs are one of the most important metrics we track. Our free product allows users to connect three data sources for free, add up to three users, and access fewer features than our paid products. Our developers then run experiments to increase our PQL volume. We determine whether a user meets our PQL thresholds using Intercom.
Knowing your qualified-lead-to-customer conversion ratiowork backward from your revenue target to calculate the volume of leads needed.
Eoghan McCabe. Sara Yin. Dee Reddy. Zara Burke. Davin O'Dwyer. Des Traynor. Brian Scanlan. Jess Connor. Support 37 min listen. Marketing 26 min listen. LB Harvey. Main illustration: Sean Suchara.
There are many parts to a high-performing sales organization — the right people, processes and strategy, to start. But today, the underlying backbone of all of it is the right data as a foundation for customer acquisition. They often care about far more than just their sales quota.
As a sales leader, that means you have to be able to interpret and use data about your team and organization throughout the sales cycle. As a sales rep, you need to be comfortable understanding the data behind your pipeline.
The best way to gain this visibility is through clearly defined sales KPIs. Sales KPIs, or Key Performance Indicators, are a series of agreed-upon, quantitative measures used to assess the performance of a sales organization. KPIs help sales reps, managers and leaders track progress to targets, identify high-level trends and themes, and manage individual and team performance.
Some might argue that there are fine-grained distinctions to be made between KPIs and metrics.