14 Metrics Every SaaS Company Should Care About

Download Now: Free Customer Service Metrics Calculator

If there's one important thing I've learned in my marketing career, it's that you have to constantly demonstrate your work.

You have to consistently track your efforts to understand how they contribute to your company's growth. Because without performance data, you can't attribute your campaigns to success.

Confused about which b2b SaaS product metrics you should track?

I've curated the 14 product metrics essential for tracking your SaaS company's progress. Let's get started.

Table of Contents

• What are SaaS Metrics?
• Most Important Saas Metrics
• SaaS Metrics
• Growth Metrics

What are SaaS Metrics?

SaaS (software as a service) metrics are benchmarks to check and track performance over a designated period. These metrics allow SaaS companies to gauge their progress, plan for the future, and make strategic adjustments when needed.

Most Important Saas Metrics

Let's break down the most important SaaS metrics and understand why you should track each of these metrics.

1. Customer Churn

Maintaining a long-term relationship with existing customers is as important as acquiring new ones. That's why you should monitor your churn rate.

Customer churn rate measures the number of customers you've lost within a certain time period. It tracks your business's day-to-day vitality and can help you better understand customer retention across specific dates or time periods.

As a best practice, I recommend evaluating the reason behind churn rather than simply tracking the churn rate.

You should identify the personas of these churned customers as well as the industries or any unique insight about why they failed to renew. Then, discuss this information across departments, including sales, marketing, and customer success.

We've created a free calculator for customer service metrics like churn rate, customer lifetime value, retention rate, and more. You can simply download the spreadsheet, add your data points, and get the value for each of these metrics.

Download the Customer Churn Rate Calculator

2. Revenue Churn

Revenue churn is one of the most critical B2B SaaS product metrics because it measures how customer churn impacts your bottom line.

You can track this metric to evaluate the impact some customers might have over others. Particularly if subscription price is variable depending on the number of seats or users a customer pays for, the customer churn rate might be vastly different than the revenue churn rate if some customers generate more revenue than others.

I collectively track customer and revenue churn to avoid any last-minute surprises or major discrepancies when reporting on the overall numbers.

Download the Revenue Churn Calculator

3. Customer Lifetime Value (CLV)

Customer lifetime value (CLV) is the average amount of money that your customers pay during their engagement with your company. The metric provides businesses with an accurate portrayal of their growth and can be explained in three steps:

Find your customer lifetime rate by dividing the number 1 by your customer churn rate. For example, if your monthly churn rate is 1%, your customer lifetime rate would be 100 (1/0.01 = 100).

Find your average revenue per account (ARPA) by dividing total revenue by the total number of customers. If your revenue was $100,000, divide it by 100 customers, and your ARPA would be $1,000 ($100,000/100 = $1,000).

Finally, find your CLV by multiplying customer lifetime by ARPA. In this example, your LTV would be $100,000 ($1,000 x 100 = $100,000).

Download the Customer Lifetime Value Calculator

CLV shows what your average customer is worth. For those still in startup mode, it can also display your company's value to investors.

Since most SaaS businesses operate with subscription-based models, each renewal yields another year of recurring revenue, ultimately increasing the lifetime value per customer.

4. Customer Acquisition Cost (CAC)

Customer acquisition cost (CAC) shows exactly how much it costs to acquire new customers and how much value they bring to your business. When combined with CLV, this metric helps companies guarantee that their business model is viable.

To calculate CAC, divide your total sales and marketing spend (including personnel) by the total number of new customers you add during a given time.

For example, if you spend $100,000 over a month and add 100 new customers, your CAC would be $1,000.

Download the Customer Acquisition Cost Calculator

I believe customer acquisition is a primary focus for new companies. That's why you should fully quantify your CAC value to accurately gauge the expenditure on your acquisition process and manage your growth.

5. Months to Recover CAC

Months to Recover CAC - also known as the CAC Payback Period - measures the number of months it takes to generate enough revenue to cover the cost of acquiring a customer.

In other words, it measures when you break even and a customer starts to generate ROI for your business.

To calculate this metric, divide CAC by the average monthly recurring revenue (MRR) multiplied by your gross margin (GM).

Say you spend $4,000 to acquire a new customer, for example, and you bill them at the rate of $400 per month. Let's say the gross margin is 90%. In that case, it will take a little over 11 months for you to begin seeing a positive cash flow.

• Months to Recover CAC = 4,000 / (400 x .90)
• Months to Recover CAC = 4,000 / 360
• Months to Recover CAC = 11.1

As your business grows, you'd want to see this number get smaller - but it will take time.

From my experience, I can tell you that you'll have to focus on acquiring more customers first. This will result in a cash flow trough before you see a profit. Reducing the complexity of your sales process can reduce the months to recover CAC and, therefore, see a profit faster.

6. CAC-to-LTV Ratio

CAC-to-LTV shows your customers' lifetime value and the total amount you spend to acquire them. This metric displays the health of your marketing program and enables data-backed decision-making to invest specifically in programs producing a good ROI.

We rely heavily on this metric to ensure we don't overspend on our sales and marketing efforts. This metric also helps us set a realistic budget for these expenses to acquire new customers.

To find your CAC-to-LTV is easy. You have to simply compare your CLV and CAC.

Generally, a healthy business should have a CLV that is at least three times greater than its CAC. Any lower (say, a 1:1 ratio), and you're spending too much money. If you get any higher (a 5:1 ratio), you're spending too little and probably missing out on business.

7. Customer Engagement Score

A customer engagement score tells you how well a customer is interacting with your brand. It monitors user activity, such as how often they log in, what they use your software for, and other contributing metrics that indicate the likelihood they will churn.

Think about it this way - if a customer uses your software daily or multiple times a day, it's unlikely that they want to cancel the subscription.

Each SaaS company's customer engagement score scale will differ depending on how a typical customer or user uses your software.

To create your own customer engagement score, I recommend building a list of inputs that predict a customer's happiness and longevity.

Start by looking at your happiest, longest-standing customers. Do they log into the service every day? Do they reach usage milestones within a certain period of time?

Once you have a list of inputs, assign a value to each input based on how critical it is to customer stickiness. Then, calculate an engagement score across the board for your customers to evaluate their engagement.

For example, HubSpot presents a scorecard to analyze customer engagement. From there, you can rank clients from low to high engagement.

• Low engagement: score of 0-3
• Medium engagement: score of 4-6
• High engagement: score of 7-10

Image Source

8. Qualified Marketing Traffic

Qualified marketing traffic refers to people who will likely turn into paid customers in the future. This metric differentiates your usual site traffic from the high-intent traffic generated through marketing initiatives.

Here are a few ways to identify qualified traffic versus returning customers.

• Event tracking: Use event tracking to count each time a visitor reaches a log-in screen or clicks a CTA button on the navigation bar. This indicates the visitor's intent to sign up or learn more about your business.
• In-app analytics: Another way is to use in-app analytics to identify log-ins and usage per month. This will show you the users who will potentially convert into paying customers.

Remember to track these two data points separately to accurately assess your traffic growth each month. It will help you identify qualified marketing visitors as opposed to returning customers.

9. Leads by Lifecycle Stage

You've probably come across several different definitions of a lead. That's because the definition depends on where the prospect is in the customer lifecycle or buying process.

If you define a lead as a prospect who started their research, then two subcategories later in the lifecycle might be:

• Marketing qualified lead (MQL): A prospect who has taken additional research steps, such as downloading ebooks and returning to your website.
• Sales qualified lead (SQL): A prospect who has moved beyond the initial research phase, is most likely evaluating vendors, and is worth a direct sales follow-up.

Here's a look at the lifecycle stages tracked in HubSpot.

Image Source

The buying process for software products can range anywhere from a few days to a year. That's why you need to clearly define and track your leads across the entire lifecycle. This will help identify if and where leads get stuck in the funnel.

This metric will also give you insight into lead nurturing opportunities and guide sales follow-ups effectively.

10. Lead-to-Customer Ratio

The lead-to-customer ratio shows exactly how well you're generating sales-ready leads - and improving over time.

This metric calculates the average number of leads that turn into paying customers. In other words, it shows whether your sales process and lead nurturing methods are working.

To calculate the lead-to-customer ratio, take your total number of customers for any given month, divide it by the total number of leads, and multiply that number by 100.

For example, five customers in a month with 500 leads would result in a 1% lead-to-customer rate.

Collect these data points and calculate this metric using a closed-loop reporting framework. Then, leverage your CRM platform, like HubSpot, to track the number of leads and customers gained in a given period.

Having a clear view of how different customers close will provide unique data into which campaigns were most successful and into common behavior across all customers. This will also shape new marketing campaigns throughout the year.

11. Customer Health Score

The customer health score predicts each customer's relationship with your business. It allows frontline customer success executives to assess if any customer is at risk of churn.

Usually, when a customer tells you they want to cancel their subscription, it's already too late to retain them. If you wish to prevent this churn, you need to use the health score data to proactively identify unhappy customers and offer support.

Similar to customer engagement scoring, customer health scoring assigns different values to different signals of customer loyalty or customer churn. It gives you a bird's-eye view of each customer.

With this data, you can reach out to customers at risk of churning with educational resources and additional support before you actually lose them.

Let's take a look at how Upscope calculates this metric based on one core factor: usage. Upscope factors in several inputs, all related to usage. These include:

• Total number of seconds the customer used Upscope in the last month
• Number of people they screen share with and total number of agents using it
• Amount of time the top 20% of the company's agents use it per month
• How much of the total usage is made by the bottom 50% of agents
• How much of the total usage is made by every employee but the top agent

Each factor is assigned a weighted value based on its perceived importance. These values are summed together and put on a scale between 0 and 100, with 100 being the top 5% of customers. Below is a snapshot of some of Upscope's customers' health scores.

Image Source

As you can see, several nuances must be considered when reporting on key marketing and sales data for SaaS organizations. These metrics can be applied across all industries and company types and should be monitored regularly.

However, it's important to create necessary reports and set benchmarks for each.

A good starting point is to evaluate last year's or quarter's data and set a baseline for each metric. You can use this baseline to evaluate whether you're growing-or stagnating-in the coming months.

In the section above, I discussed most of the important B2B SaaS product metrics that every SaaS business should pay attention to. Now, let's look at three growth metrics to accurately monitor your company's progress in terms of revenue and customer satisfaction.

1. Recurring Revenue

Recurring revenue measures how much all of your customers spend on your products on a continuous basis.

This metric is particularly important for subscription-based SaaS businesses. In a subscription model, users can pay more for premium features and are charged extra each month. Knowing how much a business can expect its customers to spend each year helps predict its growth over time.

Recurring revenue is typically analyzed in two ways:

• Monthly recurring revenue (MRR): measures the amount of money that your customers will generate within a given month.
• Annual recurring revenue (ARR): measures the amount of money that your customers will spend in a given year.

While recurring revenue is great for analyzing the performance of your entire company, it's also useful for mapping your growth curve.

For example, analyze individual customers' MRR and ARR to identify the highest spenders. This naturally indicates that they're happy with your SaaS product.

You can enroll these customers into a loyalty or referral program. Encourage them to spread the word about your business and bring in more leads. This way, you can steadily increase recurring revenue and actively leverage this metric to drive further growth.

2. Expansion Revenue

The most loyal customers spend the most with a brand.

Part of the reason for this increase in spending is that 58% of customers are more likely to pay more money for a good customer experience.

Expansion revenue can let you know if your company is creating this added value for your customers by analyzing the additional revenue you generate from your existing customers.

You can calculate expansion revenue by simply adding together all of the extra purchases that are made by your existing customers. Extra purchases include:

• Upsells and cross-sells: When customers buy more or upgrade their current products.
• Add-ons like widgets: These can be purchased and installed in the product or service.

By analyzing expansion revenue over time, you can see whether your sales, marketing, and customer service teams are attracting new leads and adding more value for your existing customers.

Attracting new leads is great, but you want to get the most from the customers who really depend on your products. If you feel like your added offers are falling short, you should be able to confirm this trend using monthly and annual expansion revenue.

3. Net Promoter Score

Net Promoter Score, or NPS®, is a quantitative and qualitative report on customer satisfaction at your company.

An NPS survey asks customers to evaluate their experience with your company on a numerical scale and provide a brief synopsis of why they chose the value that they did. This allows companies to rank and organize customer reviews and ensure the feedback they are collecting is put to its best use.

SaaS companies can use NPS to determine how the company has grown in terms of customer satisfaction. Since customers are ranking their experiences on a scale, businesses can store historical values for these scores and see how they have improved over time.

If the scores go up, the company will know that customers are happy with the product or service you're providing. If they go down, you can use the customer's specific feedback in the survey to pinpoint why your customers are unhappy.

Download the Net Promoter Score Calculator

Measuring SaaS Growth Is a Breeze with These Metrics

Building and growing a SaaS business is no mean feat. Amid so many moving parts, tracking your progress can often take a backseat.

However, I've compiled the 14 most crucial B2B SaaS product metrics to accurately monitor performance and strategize for success. I've learned that some of the most important metrics for my business are things like churn, CLV, and CAC, but of course, your priorities will be unique to your business.

You can set up your analytics platform to regularly audit these metrics and support your decision-making process - and from there, measuring growth will be a breeze.

Editor's note: This article was originally published in April 2018 and has since been updated for comprehensiveness.

Topics: SaaS

Don't forget to share this post!