12 Essential SaaS Metrics to Track Business Growth

Quick Summary: Assessing your business performance is a crucial and periodical process that helps you stay on the path to success. We have discussed the key SaaS metrics in this blog that you should consider when estimating the performance of your business. Keep reading to check out the list of these SaaS metrics and use them for evaluating your business.

Software-as-a-Service (SaaS) is quite a popular business model today due to lower overheads, operational efficiency, and simplified sales. The global SaaS industry stands at approx. US$197 billion in 2023 and is expected to be worth US$232 billion by the end of 2024.

The exponential growth of SaaS has led an intense competition among firms operating in this industry. As a result, growth is more imperative for these companies. Tracking your SaaS company’s performance is a reliable way to measure growth.

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SaaS metrics allow companies to know if they are doing well in business or not. It is useful to gauge success and plan for the future. Business leaders can make the right decisions by evaluating the metrics and can know if they are profiting from their SaaS solution or lacking somewhere.

What Actually Do SaaS Metrics Mean?

In the simplest form, SaaS metrics are benchmarks allowing businesses to track their growth and performance. Developing a SaaS product is not the end of the world, setting realistic targets and measuring success regularly is crucial for long term growth. SaaS metrics provide a neat picture of how a SaaS company has performed over a specified period. These metrics play an important role in measuring business success, planning activities for future growth, and adjusting when needed.

“Anything that is measured and watched improves.” - Bob Parsons, Founder, GoDaddy

These metrics, when chosen correctly, indicate the health of your business and show the scope for improvement. They also provide a way for businesses to differentiate themselves from their rivals and compare performance with them. Using these metrics helps you determine the true benefits of SaaS and the potential for your business.

How can you beat your competitors unless you know where you stand? Of course, once you find out how you are doing in the business, it helps you plan accurately to win the race. Paying attention to your business will enable you to look at other aspects where you might be lacking.

“Pay attention to your competitors but pay more attention to what you are doing.” - Bob Parsons, Founder, GoDaddy

Important SaaS Metrics to Track Performance and Growth

Though the most important SaaS business metrics vary based on your goals, there are common metrics that are widely used to measure performance. These metrics are also Key Performance Indicators (KPIs) for SaaS businesses that provide a picture of fundamentals.

1. Churn Rate

This is one of the key SaaS metrics. There is another term, customer churn, used for this. It indicates the percentage of customers of a SaaS business who cancel subscriptions or services. An increase in the churn rate indicates customer dissatisfaction and you need to work on customer retention to improve it.

Churn Rate = (number of subscribers canceling / total number of subscribers) * 100

2. Average Revenue Per Account

This enterprise SaaS metric helps to determine the correct prices and helps to understand the expansion of your business. ARPA (Average Revenue per Account) denotes how much revenue is generated per account. The monthly recurring revenue (MRR) is divided by the total number of accounts to calculate it.

ARPA = MRR / number of accounts

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3. Customer Lifetime Value

CLV (Customer Lifetime Value) is the sum of money your company receives or expects to receive from the customers till they are engaged with your business. In other words, it’s the amount that your company can receive during a customer’s lifecycle. It offers a good picture of your business. The benefit of this SaaS metric is to evaluate a customer’s worth for your business.

CLV = (1 / churn rate) * ARPA

4. Customer Acquisition Cost

CAC (Customer Acquisition Cost) shows expected spending on marketing and sales to get new customers. In simple words, it’s the cost to acquire new customers. A higher CAC means that you are spending much more than you are getting by acquiring new customers.

CAC = the sum of cost of sales and marketing / number of new customers

5. Customer Attrition Rate

It denotes the percentage of customers that a business has lost during a specific time period. The customer attrition rate, customer turnover, and customer defection rate are all used interchangeably.

This is a very useful metric for SaaS businesses to identify an increase in customer dissatisfaction and is tracked monthly or annually.

Customer attrition rate = (number of those customers that have been lost / total number of customers) * 100

6. Net Retention Rate

When you develop a SaaS application or any other solution its success depends on the sustainability of your business. Here comes the role of Net Retention Rate. It is also called Net Revenue Retention and measures what percentage of recurring revenue is generated from existing customers. It helps evaluate whether you are getting continuous income or not.

NRR = ([(MRR + Expansion Revenue) - loss of revenue owing to churn and downgrade]/MRR) x 100

It shows a company’s success in customer retention by measuring renewals. The metric takes into account renewal metrics like extending the contract of service or earning extra revenue from existing customers.

7. Net Promoter Score

NPS is a great SaaS metric to help businesses to improve their services. It is a measure to gauge customer satisfaction, loyalty, and how enthusiastic customers are about your SaaS offering. Customers are asked to pick a scale between 0-10 to show their satisfaction level. The aggregate NPS scores are used to measure customer satisfaction.

NPS = [(aggregate of promoters / total number of respondents) x 100] - [(sum of detractors / total number of respondents) x 100]

8. Average Selling Price

Another important SaaS metric that matters is ASP (Average Selling Price). It is the average price a product or service is sold for across all customers. It denotes the number of customers willing to pay for the SaaS service.

ASP = revenue from SaaS service / number of subscribers (customers)

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9. Activation Rate

It is also called “sign up to paid conversion” rate and measures the percentage of customers that turn into paid customers from on-trial prospects. This is a key SaaS metric that directly indicates your business performance. The better the activation rate is, the more paid customers you will have.

Activation Rate = (number users opted for paid subscription / total users who started trial) x 100

10. Monthly Recurring Revenue

MRR is a measure that provides estimates about the revenue a SaaS company expects to receive from customers in a month. As one of the simplest SaaS business metrics, it shows the customer strength of a SaaS business and the revenues received from them.

MRR = number of total accounts x price for an account

11. Annual Contract Value

ACV is a SaaS metric that defines a customer subscription’s average value measured yearly. It is a good metric that helps companies determine the right strategy for sales and marketing.

ACV = The value of a contract / number of years of contract

12. Lead Velocity Rate

LVR is one of the best SaaS metrics to predict the revenue and future growth of your business. It shows how much leads have increased over months. It indicates the growth prospects in your customer base.

LVR = (qualified leads in present month – qualified leads in previous month) / qualified leads in previous

The Bottom LineUnderstanding and measuring the different metrics mentioned above can help you gauge the success of your SaaS business. It will help you to make the right decisions and reach your given goals. However, developing the right SaaS product is the first step in business success.Hence, you must conduct thorough research and build a SaaS product that offers profitability and growth. At Radixweb, we are well-experienced in helping businesses create innovative SaaS products with our expertise in software development services and related consulting.We can assist you to build an innovative SaaS solution by helping from ideation to launch. Our tech experts will help you pick the right technologies and guide you to deliver a top-notch digital experience. Contact our experts to get more information and let us build a cutting-edge solution for you.