Top 10 KPIs every SaaS should monitor
How does a doctor know you’re “healthy”? It’s a bit of a blanket term. Do they take one glance at you and subjectively decide? Of course not. That would result in a lot of lawsuits. They go through and check a list of set indicators that make up the qualification of “healthy”. In the same way, how do you know your SaaS business is “successful”? General words like “growing” and “improving” in different areas of your business don’t tell you much. No one cares that “revenue is growing” or “productivity is improving”; they want to see actual metrics and KPIs. That’s why measuring the actual, tangible milestones of growth is so important.
When you’re able to actually see the points of success and struggle over time, it’s easier to work out the kinks and make sure your business is running like a healthy, well oiled machine as well as avoid big problems ahead of time.
Here are the top KPIs every SaaS company should monitor:
1. Churn rate:
This is the average rate your customers leave or cancel their subscription. Users can churn for different reasons: they can’t afford it, your product has no value to them, bad customer service, or switching to a competitor. Of course, it’s much worse if they don’t see the value of your product than because they can’t pay. For SaaS companies, this is understably a big focus for ensuring long term success and it is. It’s cheaper to keep customers and reduce churn than to acquire new ones. Ultimately churn rate depends on how invested in your product your customers are. Many customers churn after the first month when churn rate is high. An improved onboarding process can help reduce churn and get your users invested right away. Read more on how you can reduce your churn rate.
2. Customer acquisition cost:
Your CAC is how much is the total cost of converting a customer. The process from getting a customer to recognize their problem, see your product as the solution, and go through with implementing it into their existing processes is not an easy feat and it usually is not instantaneous. The vast majority of this process happens online. There’s a well known theory that it takes a customers seven times running into your ad/brand to investigate and eventually make a purchase. This can get expensive. Good ways to reduce CAC are getting customer information or data when they first interact with your brand so you can retarget them through email or ads. This way you aren’t paying for ads that will result in one impression and nothing more.
3. Monthly recurring revenue:
Your MRR is your occurring revenue normalized into a monthly amount. As mentioned with “churn rate”, the potential for exponential growth and profit for SaaS companies lies in the ability to ensure and build upon recurring revenue each month. Keeping this metric healthy means not having to worry about one-off sales and constantly replacing lost customers; new customers are expensive. You can retain customers by improving their engagement with your product and making sure you are answering their needs with updates and new features.
4. Average Revenue Per User:
Your average revenue per user is fairly self explanatory. It’s essentially what you make on each user per month. It really allows you to take a look at your margin growth and come up with ways to increase this metric to boost revenue. Some ways SaaS companies increase ARPU is through upgrades, premium features, cross selling, etc. Increasing this can help you boost revenue while avoiding the high costs of acquiring new users.
5. Customer lifetime value:
CLV is essentially a prediction of the net revenue from the lifetime of a relationship with a customer. It gives your team a good idea of what your limits are in terms of customer acquisition cost. You don’t want to be spending more on what you will ever make from a customer. It can also give you a perspective to help you start thinking of ways to increase the customer lifetime value through new products, features, levels, or pricing changes.
6. Net promoter score:
A net promoter score measures the willingness of your customers to recommend your product or service. It’s become increasingly important for SaaS companies as more and more potential customers online value their peer’s opinions over any other form of content. Net Promoter Score is calculated using a survey to determine users’ sentiment toward your product and then as the difference between the percentage of the “Promoters” and “Detractors”. Promoters are people who love your product and are evangelists for you. Detractors are people who will cancel on you and will go as far as telling others the problems they’ve had with your product. Of course, the ideal is to increase your promoters. Your customers are your greatest potential advocates as their network are likely your ideal customers as well. The average NPS for SaaS is around 40 and anything above 50 is excellent. Having a high NPS leads to the easily higher conversion rates and lower churn with little effort and less spent on advertising. Learn more about metrics for tracking customer engagement.
7. Conversion rate:
Your lead-to-customer or conversion rate lets you know how many of the leads through a specific marketing channel actually become customers. Across marketing channels, the goal for SaaS companies is an automated sales process. This metric helps you determine how well you’re doing that and can help you determine what needs to improve and where. If one of your marketing channels does really well but another does not, this score can help you determine where you need to improve your conversion process.Different marketing channels can vary in cost. You will want to focus on improving your lead to customer rate in cheaper channels like blogs and organic searches. Read more on how you can convert traffic into sales.
8. Burn rate:
Burn rate is that ominous stat that hangs over every SaaS team as a big time motivator to make things happen fast. It’s basically how quickly your team is spending your funding month over month.It’s importance doesn’t need explanation but it is something that SaaS companies needs to try to reduce to extend your time and use your cash in the most effective way possible. SaaS companies usually are funded by large investments for development and then marketing and sales; how this is managed is imperative to success. One big potential cost area for a lot of SaaS startups is the cost of marketing and sales. For a slower burn rate while maintaining growth, you want to focus on organic traffic and growth. Your customers can be your biggest help in this area and using creative ways to make them your promoters can save your burn rate.
9. Viral Coefficient:
Your viral coefficient is the number of users an existing user generates. It shows you how well your product user base is organically growing. Improving your viral coefficient can help your team save tons of time and money on marketing and sales. Just like your net promoter score, improving this metric is a key factor is achieving consistent, organic growth. This KPI can be improved through many things but a big factor is customer satisfaction with your product. You want to ensure that your customers understand and are using your product and its features to its full value. Better introducing and educating users on how to use your product in their processes to get the most out of it can help you improve this.
10. Product stickiness:
This one really ties into many of the KPIs mentioned above and it’s success is the root of success for many others. Your product stickiness measures the amount of times a user performs certain actions or engages with features within your product on a monthly or weekly interval. This KPI can give you great insight into how you can better onboard, support users, and introduce new features. To improve it, your team can focus on improving the areas where users tend to fall of or improve your onboarding process so that users have a better sense for all features of the product.
Learn more on how to increase user engagement with your product and features.
Bonus KPI: Quick Ratio
Quick Ratio for SaaS is the company’s measurement of growth efficiency. It lets you know, with your current churn rate, how reliably you can grow revenue. It can provide a ton of insight into how you make money now and how you can improve in the long run. You can calculate your quick ratio from the various Monthly Recurring Revenues from different areas that affect your overall revenue: new customers, existing customers, contraction loss (downgrades), and churned loss (cancelled subscriptions). You can use this to better determine where you can improve to boost your overall quick ratio.
Many of these KPIs feed into one another and ensure each other’s improvement. Overall improvement in these areas guarantees a “healthy” and sustainable growth report card for your SaaS company. It’s important to not only track these but stay on top of the activities that will improve these KPIs. For an easy way to boost SaaS user engagement, try Beamer.