Every Metric That SaaS Founders Should Know, But Were Too Afraid to Ask
Trying to build a SaaS company without any data is like trying to fly an airplane blindfolded. You might get there okay, or you could end up crashing into a ditch.
Tracking key SaaS metrics might not help you get to where you want to go faster, but it does give you a compass to help guide you and spot potential problems early on.
In this post, we’re diving into all of the key SaaS metrics that founders should know.
SaaS Revenue Metrics
It can be overwhelming to know what metrics to track and how to apply insights from this data. However, these revenue metrics are the ones that every single founder should know.
• Monthly Recurring Revenue (MRR) - This stands for monthly recurring revenue, and it is the amount of money that current customers are paying you on a monthly basis for your product. Increasing your MRR can make your business more profitable and sustainable long-term.
• Annual Recurring Revenue (ARR) - This stands for annual recurring revenue and it is the amount of recurring money that customers are paying you for a yearly subscription.
• Customer Acquisition Cost (CAC) - It's the total cost your SaaS business incurs to acquire a new customer. This can include ad spend, partner commissions, sales and marketing team salaries, etc.
CAC = Cost of Sales + Marketing Expenses / Total number of customers acquired in a given time period
• Customer Lifetime Value (LTV) - This is the total amount of money a customer spends with your business over time.
LTV = Average Revenue Per Customer * Customer Lifetime.
• LTV to CAC Ratio: The LTV to CAC ratio is a foundational growth metric, since it measures the return on investment (ROI) of acquiring new customers and helps businesses understand the value of each customer over time. Simply put, it tells you how much you can afford to spend to profitably grow the business. For instance, most experts recommend keeping your LTV:CAC ratio to 3:1.
• Payback Period - This is the length of time it takes for your SaaS to break even on a new customer. Generally speaking, the shorter the payback period, the more options you have for acquiring new customers.
• Average Revenue per User (ARPU) - This is the average amount of revenue your SaaS generates per user over a given week, month, or year.
ARPU = MRR / Number of paying customers
• Average Revenue per Account (ARPA) - This is similar to ARPU, only you are measuring this by account instead of individual user/customer. ARPA tends to matter more if you are selling to enterprise companies.
• Annual Contract Value (ACV) - This is a sales metric that measures the total expected deal value from a specific account or customer.
• Expansion Revenue - Expansion Revenue, sometimes called Expansion MRR or Expansion ARR, is the revenue generated from existing customers, who upgrade or add more accounts. Focusing on expansion revenue is how you can get to the elusive net negative churn.
• Gross Revenue - This can be a vanity metric, especially if people are flaunting this around online, since it is total revenue generated by a SaaS before accounting for any expenses / costs.
• Net Revenue - Unlike gross revenue, net revenue is the metric you should actually care about. It's the revenue generated by a business after accounting for churn, downgrades, and all expenses.
• Cost of Goods Sold (COGS) - This is the direct, operational costs associated with producing and delivering your SaaS. For SaaS companies, the biggest operational cost under COGS will be employees. COGS doesn't include indirect costs like marketing expenses.
• Gross Margin - This is the difference between your SaaS’s revenue and the cost of goods sold (COGS). This can help you analyze how efficient your business is.
Gross margin = ((total revenue - COGS) / total revenue
• Burn Rate - This applies more to VC-based startups as well as early-stage companies. Your burn rate is the rate at which a business is spending its cash reserves each month to finance its growth and operations. For most bootstrapped or mostly bootstrapped companies, it goes without saying that you should try to get to the point where your SaaS is profitable and not burning money each month as quickly as possible.
Pro Tip: Looking to learn more about the foundational SaaS metrics? Watch this video.
SaaS Sales and Marketing Metrics
Here are some growth metrics you should track to keep your sales and marketing moving forward.
• Sales Conversion Rate - This is the percentage of new leads that convert into paying customers.
• Sales Velocity - Sometimes referred to as deal velocity, this is the rate that you are signing new customers and generating revenue from your sales efforts.
• Qualified Leads - Not all leads will be a great fit for your SaaS. Wasting time trying to close a sale on someone who isn’t ready to buy, won’t get enough value from your SaaS, or is likely to churn right away isn’t a great use of time. That’s why keeping an eye on the ratio of qualified leads vs. unqualified leads is important.
• Sales Qualified Leads (SQLs) - There are two main types of qualified leads. The first are sales qualified leads (SQLs), which typically have the highest likelihood of converting into customers.
• Marketing Qualified Leads (MQLs) - The second type of qualified leads are marketing qualified leads, which are leads that have been identified as potentially interested based on their behavior and demographics. MQLs typically require more lead nurturing before they are ready for a demo.
• Number of cold messages sent - If you do outbound sales, it is important to keep track of the number of messages sent, be it through email, Linkedin, cold calls, etc.
• Cold message reply rate - You’ll also want to keep track of the reply rate to your cold messages.
• Number of demos - You’ll also want to track the number of demos and purchases from your cold email campaigns. Once you know your reply rate, demo, and purchase numbers, you can reverse engineer how many messages you need to send each week or month to close XX deals.
• Unique website visitors/users - This is It's the number of unique visitors that land on your website in a given day, week, or month. By itself, this can be a vanity metric. However, when combined with other marketing metrics, like visitor to trial or trial to paid customer, it can tell you a lot about the effectiveness of your marketing campaigns.
• Visitor to Trial Rate - This is a gold standard metric that tells you the percentage of website visitors that convert into free trials or freemium users.
• Trial to Paid Customer Conversion Rate - As the name suggested, this is the number of trial users that convert into paying customers.
• Lead Velocity Rate (LVR) -This is the percentage of new leads generated in a given time period. Assuming you are bringing in qualified leads, the higher your LVR is, the faster your SaaS can grow.
• Time to Customer Acquisition - This is the length of time it takes to acquire a new customer once they enter your sales funnel.
Pro Tip: Want to dive into more sales and marketing metrics, watch this video.
SaaS Customer Retention Metrics
Running a healthy, sustainable SaaS business isn’t just about acquiring new customers. You also need to keep an eye on what your existing customers think about your product.
• Net Promoter Score (NPS) - This survey-based metric measures customer loyalty by asking customers how likely they are to recommend your business's product to others on a scale of 0-10. Your NPS score is calculated by subtracting the percentage of detractors (customers who rate the business 0-6) from the percentage of promoters (customers who rate the business 9-10).
• Customer Satisfaction Score (CSAT) - CSAT is another survey-based metric that you can use to measure how satisfied customers are with your product or a recent support interaction on a scale of 1-5 or 1-10.
• Customer Effort Score (CES) - This is a newer survey-based metric that measures how intuitive your product is to use. The CES survey asks customers to rate their level of effort using your product on a scale of 1-10.
• Churn Rate - This is the percentage of paying customers who cancel in a given month or quarter. This is a critical customer retention metric since the higher your churn is, the harder it will be to grow.
Churn Rate = Lost Customers / (Total Customers at the Start of Time Period) x 100.
• Customer Retention Rate - This is the percentage of paying customers your SaaS retains over a month or quarter. The more customers you retain each month, the faster your company can grow, especially when you factor in expansion revenue and referrals.
• Referrals - This is a harder metric to track, but it is the percentage of customers who refer their friends or colleagues to your product.
• Upsells - This is one piece of expansion revenue as it is the number of expansion customers who upgrade to a higher plan or add additional team members to their plan.
• Cross-sells - This is another piece of expansion revenue as the number of customers who purchase add-ons.
• Renewal Rate - Renewal rate is particularly important if you sell annual contracts or do enterprise sales. That’s because it measures the percentage of customers who renew their contract.
SaaS Product Usage Metrics
Finally, here are some product metrics you may want to keep an eye on to help you build and refine the features that your ideal customers get the most value from.
• Monthly Active Users (MAU) - This is the number of users who use your SaaSin a given month. Typically, the more someone uses your product, the more likely they will be to stick around and keep paying you.
• User Activation Rate - This is the percentage of new users who become active users of your SaaS over a specific period. This is an important customer onboarding metric.
• User Retention Rate - This measures the percentage of users who continue to use your product over time.
• Time Spent in App - This metric measures the amount of time users spend within your app. Depending on what your product does and your core value prop, this metric may or may not be relevant.
• Feature Adoption Rate - This measures the percentage of users who have adopted a new feature or functionality within your product.
• Feature Usage - This measures how frequently users are using a particular feature within your product. In addition to understanding if customers are using it, it is almost to see how deeply they use it.
***
In sum, it is easy to get overwhelmed with all of the SaaS metrics you could be tracking.
When you are a brand new SaaS, it helps to set a north star metric, like MRR, and then track maybe 5-10 additional metrics that directly correlate to it. For instance, if you are doing outbound sales, it might be cold emails sent, reply rate, SQLs, demos, trial to paid conversion rate, churn, and NPS. Then, as your business and team grow, you’ll likely want to add on more metrics to track.
