Too much data can be a bad thing.
Especially if you are a new or growing SaaS business who’s struggling to find the right indicators to measure performance.
There are so many data sources and benchmarks available today, and dozens of metrics to track.
Many Saas companies make the mistake of analyzing too many metrics or end up tracking the wrong ones.
This can lead to flawed decisions, unfavorable outcomes, and can even kill your business.
This is why it’s essential to choose the right marketing metrics that make sense for your business, and that are aligned with your goals.
But which SaaS marketing metrics matter the most?
In this article, we’ll explain top SaaS marketing metrics, why it’s important and how you can measure it.
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What are SaaS Marketing Metrics?
Growing a SaaS company is especially challenging compared to traditional business.
Apart from attracting new customers, a SaaS business should also focus on retention and monetization.
The unique model of a SaaS business (subscriptions or renewals-based) means that the decisions made while scaling a SaaS need to be strategic and data-driven, with a view to retaining customers.
SaaS marketing metrics or key performance indicators (KPIs) are clearly defined values that are used to measure the effectiveness of SaaS marketing campaigns at every stage of your sales funnel — acquisition, retention and monetization.
Tracking the right SaaS marketing metrics will give you a comprehensive view of the health and performance of your business.
It can help you accelerate growth by finding opportunities, diagnosing risk, and making sure you take the right steps to retain existing customers and monetize them.
Top SaaS Marketing Metrics
Without clearly defined metrics that help you gauge performance and make decisions in response, you don’t quite know where you’re headed.
It’s a bit like driving down a dark road without headlights.
Every member of your SaaS team needs to be aware of the following metrics and make sure they work together to monitor and analyze them.
#1: Unique Monthly Visitors
This is basically the number of visitors who are heading to your website every month. This is a useful metric because it tells you about the size of your audience and their response to your content.
The number of sessions shouldn’t be confused for unique visits as an individual may visit your website several times in a day.
Sessions take into account multiple visits from the same user. But multiple visits from the same browser or device will still be tracked as one unique visitor.
Successful SaaS companies get an average of 1,800 monthly visitors via organic search.
While it may not accurately depict the quality of your visitors or how interested in your service they are, it can still give you an understanding of
- How big your audience is
- Where your visitors are coming from (organic, direct or paid traffic?)
- How they respond to changes in content (changes made on the landing page, CTA buttons, lead magnets)
- How well your audience is responding to overall marketing
How do you track unique monthly visitors?
Most companies use a free tool like Google Analytics to track visitor data. All you need to do is click on Audience → Overview and plug in a date range to see your unique visits.
#2: Leads and Qualified Leads
Tracking monthly visitors is pointless if you’re not also tracking how many turn into leads.
A lead is a potential customer or anybody who’s given you their contact details in exchange for information and shown an interest in your SaaS product or service.
They might have downloaded your lead magnet, subscribed to your newsletter or sent a product enquiry via the Contact Us form on your website.
But all leads aren’t the same, and each has a varying level of interest.
Based on their position in the sales funnel (middle or bottom) you’ll want them to qualify your leads into a marketing qualified lead (MQLs) or sales qualified lead (SQLs) .
A MQL for instance might already have engaged with your content, be interested in your product, and ready to talk to a salesperson. A SQL might be ready to buy and may have asked for a free trial or a product demo.
Tracking leads and qualified leads will help your sales and marketing teams to focus their efforts on attracting and converting customers.
They can figure out what’s working well and do more of the same or targeted content to increase engagement in case something’s not.
How do you track leads and qualified leads?
#3: Lead Conversion Rate
No matter how sales-ready your leads are, there’s no real benefit until they turn into paying customers.
The lead conversion rate captures the rate at which your qualified leads are converted to customers.
It helps you track whether your team of SaaS marketers and salespeople are doing a good job of converting your qualified leads to customers. It also reveals how well (or not) your content marketing efforts are paying off in nurturing and converting qualified leads.
How do you measure lead conversion rate?
To calculate the lead-to-customer rate, divide your total monthly customers by the number of total leads (X 100 to get the percentage).
Suppose you have 200 leads and 20 of them turn into paying customers
Lead conversion rate = 20/200 X 100 = 10%
#4: Customer Churn Rate
Customer churn is an essential metric that all SaaS businesses need to track.
Churn is basically the proportion of customers who stop using or fail to renew their subscription of your product or service.
Since SaaS businesses are subscription-based models which need to be renewed periodically, losing customers at a high rate can bleed your business.
Sure, some customer churn is expected but a high churn rate signals that it’s time to look into reasons why customers are leaving.
Did they find a better deal with a competitor? Are they not satisfied with your product or service? Or did they simply make a change in strategy?
5-7% churn rate is considered to be a decent churn rate for SaaS companies.
Measuring your churn rate will help you dig deeper to find out why your customers are leaving.
You’ll want to work out a marketing strategy that reduces churn. These could include
- Talking directly to your customers and gathering feedback
- Getting your sales and marketing team together to use marketing analytics to analyze what’s making them leave
- Continually adopting tactics to deliver value and increase retention.
How to measure customer churn rate?
Make a note of the customers you had in a given month. Suppose you have 5000 customers in January.
Now subtract the number of customers who left that month. Say, 250.
So your customer churn rate for the month = 250/5,000 = 5%
PS: If your customer renews annually, then you’ll want to analyze annual churn rates.
#5: Monthly recurring revenue (MRR)
This is basically the lifeblood of your business, because every SaaS is dependent on recurring revenue.
Unlike a traditional software business, there’s no huge one-time upfront fee. Instead, SaaS businesses make money in smaller renewals or subscriptions over a longer time frame.
This is a primary metric that all SaaS businesses should track because it shows how much profit your business will bring in every month. It helps you analyze revenue growth and plan customer acquisition costs.
How do you measure monthly recurring revenue?
MRR is simply the sum of all the recurring revenue generated by your customers for a given time period.
For example, if you have 5 customers in January who are on different subscription pricing models.
One is paying $250 per month for a basic service, two are paying $300 each for the premium model and one is paying $500 per month for the enterprise model.
MRR = 1($150) +2($300) + 2($500) = $1,750
Average revenue per account (ARPA) in this case would be $1,750/5 = $350
#6: Customer acquisition cost (CAC)
There’s a good reason behind why customer acquisition cost has been called a start-up killer.
Your customer acquisition cost is basically the amount of money spent on acquiring a new customer.
But why do SaaS companies need to be especially wary about spending too much on attracting new customers?
Because, spending too much on acquiring new customers and not enough on customer retention will lead to a falling ROI, even if your product or service is top notch.
If your SaaS business wants to be profitable and well balanced, the customer acquisition cost should be less than CLV.
Calculating your customer acquisition cost helps companies keep track of how much is spent on the acquisition process. It can help companies figure out the most profitable marketing channel and allocate resources to give them the highest ROI. .
It also gives them an opportunity to cut back on customer acquisition costs by implementing tactics to boost conversions.
How do you measure customer acquisition cost?
CAC can be calculated by dividing your sales and marketing expenses by the number of new customers in a given period. Expenses here should include money spent on your marketing campaign, paid advertising and the salaries of your sales and marketing teams.
So, if you spent $100,000 in sales and marketing over a month and acquired 200 customers, your CAC would be 100,000/200 = $5,000 per customer.
#7: Customer lifetime value (CLV)
This metric reflects the value of your average customer.
CLV or LTV (Lifetime Value) is the total amount of money or revenue that you’ll earn from your existing customers as long as they subscribe to your product or service.
This is an important SaaS metric because it helps businesses understand their most valuable audience segments via buyer personas. This can lead them to make strategic decisions around interacting with them on various aspects including support, sales and marketing.
A boost in CLV is a favorable sign as it shows that more renewals are taking place, leading to more revenue for your company.
How do you calculate customer lifetime value?
- Calculate average customer lifetime (ACL)
Average customer lifetime (ACL) = 1
Customer churn rate
- Calculate average revenue per account (ARPA)
ARPA = Total Revenue
Total number of customers
- Customer Lifetime Value (CLV) = Average Customer Lifetime (ACL) X Average Revenue Per Account (ARPA)
#8: CLV:CAC ratio
The customer lifetime value to customer acquisition cost ratio compares the lifetime value of a customer to the cost taken to acquire them.
If you’re getting more value from your existing customer than the cost incurred to attract them, then you’re definitely doing something right.
This is a key metric that can give you a good indication of the health of your marketing campaigns. It lets you decide which campaign you need to increase spending on and which you need to stop investing in.
How to measure the CLV:CAC ratio?
If you worked out your CLV was $5,000 and it cost $1,000 to acquire them.
This means your CLV:CAC is 5:1
Best practice for SaaS businesses shows that a company should have a CLV which is three times higher than CAC to be successful, so a 3:1 a good ratio to aim for.
If you are a new SaaS business who is looking to scale, your marketing efforts must be underpinned by clear SaaS metrics that can drive ROI.
Stay clear of vanity metrics that aren’t a clear indicator of real business growth. Instead, choose a few key metrics that can measure success and give you insights to make informed decisions to scale your business. This could include tactics such as changing your pricing strategy, producing new gated content to attract leads or reducing churn via incentives.
After reviewing the metrics above, choose a few high-level metrics that make sense for your business, and run with it.
The right metrics or KPIs are essential tools that can steer your business in the right decision.
But, keep in mind that they need to be closely linked with your marketing goals to impact the overall success of your business.