The success of any subscription-based SaaS business depends on the data they collect and analyze.
Pulling meaningful insights from this data is a challenge that all SaaS businesses face.
Today we will discuss the underlying reasons why SaaS businesses track KPIs and the most important KPIs to track.
In A Hurry?
- KPIs are Key Performance Indicators.
- KPIs are usually tracked by the IT or Business Analytics team and presented to the executives and board directors.
- SaaS businesses sell subscriptions to their services most often on a monthly or annual basis.
- Most one-time fees for setup upsells, or discounts are not counted in monthly KPIs.
What Are KPIs?
In modern technology vernacular, the term “KPI” or “KPIs” stands for Key Performance Indicators.
These are statistics that a business can measure to estimate the stability of their business.
In regards to the SaaS (Software as a Service) model, these KPIs become more critical due to their subscription business model.
Regardless of the services you provide, the trick is identifying the smaller set of metrics that help determine your business’s health.
Why Are KPIs Important for SaaS Businesses?
Subscription KPIs are vital for tracking the success of your business.
Considerable time and effort must be taken to track and record the following KPIs to maximize revenue and avoid costly business decisions.
Poor performance in one or more KPIs will give you the necessary data to identify and prevent negative trends in your business.
Tracking SaaS KPIs also allows you to plan future revenue so you can grow more comfortably.
The struggle most SaaS businesses face is accurately reporting KPIs and integrating various data sources into one centralized location.
This is where Data Solutions Agencies like Data Sleek come into play.
By utilizing the skill sets and experience of 3rd party agencies, SaaS companies can avoid personnel costs while effectively leveraging their in-house staff.
Most SaaS startups do not have full-time database administrators or data analysts which makes it difficult to leverage accurate and real-time KPIs.
By relying on 3rd party agencies, they can still transform their data pipelines into meaningful business insights.
The health of any SaaS business comes down to the ability to acquire and retain active subscribers.
Businesses that fail to maintain accurate and timely records of their customers can fall into the trap of overpaying for customer acquisition.
Customer growth is paramount for both investors and key executives.
Below we will outline the Top 10 SaaS KPIs that every subscription-based SaaS business should be tracking.
Top 10 SaaS KPIs for Growth
All subscription-based SaaS businesses should track the following Key Performance Indicators (KPIs).
Failing to do so could mean costly expenses or loss in revenue or customer base.
Accurately tracking and analyzing the following KPIs should be an integral part of your IT and business analytics team’s day-to-day duties.
- Active Subscriber Count (ASC)
Active Subscriber Count is one of the most obvious metrics to track for SaaS.
In short, it is the number of paying customers for your service at any given time.
Most SaaS businesses sell their services on a monthly or annual subscription model.
Most SaaS businesses allow customers to sign up for their service at will and can cancel at any time or once their contract has expired.
Because the active subscriber count is continuously changing, key decision-makers must have easy access to the most up-to-date data.
Active Subscriber Count can also be broken down into a few sub-categories like:
- Which subscribers are the most profitable?
- Which are the most engaged with the product (who uses your product the most)?
- Which customers are most likely to stay customers.
- Which customers are most likely to churn (also known as canceling their subscription to your service)?
ASC is one of the best KPIs to use in executive committees and board meetings because it tells the “story” of business growth.
- Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) is the total sum of marketing and sales efforts to acquire a single customer.
CAC is another critical KPI to track because a high cost to get a customer can be harmful to overall business health.
When combined with other KPIs like Active Subscriber Count (ASC) or MRRC (Monthly Recurring Revenue Churn), you begin to paint an excellent outlook for your business.
A standard formula used to calculate CAC is:
CAC = Total Sales and Marketing Costs / Number of Customers Acquired
When SaaS business begins, its CAC can be exceptionally high as it gains its first few hundred customers.
It is not uncommon for CAC to be 150-200% or more in their first year of business.
If done correctly, businesses with high CACs can compensate for the initial loss of revenue by upselling their current customers to more expensive services or multi-year commitments.
Once a subscription-based SaaS company establishes their credibility in the marketplace, they can see a CAC of about 20-30%.
CAC can also provide insights into the effectiveness of your marketing and sales efforts.
Many SaaS businesses struggle with centralizing all marketing channels and attributing each acquisition of new costumes accurately.
Finally, tracking CAC accurately can provide future insights on the ability to scale and remain profitable.
- Customer Lifetime Value (CLV)
Customer Lifetime Value is the revenue received by each customer over the lifetime of their subscription.
It is also the prediction of revenue a business will receive over a defined period.
Like ASC, you can add segments of CLV for further insights into your profitability.
Other factors like frequency, recency, and monetary value should not be ignored.
Simply put, CLV is the most critical KPI for driving actionable insights.
Increasing CLV should be the focus of your marketing and sales strategy.
CLV can also tell you where to invest more resources for acquiring the best customers and shy away from the least profitable sales channels.
- Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue is the total of all revenue from recurring subscription service plans minus all of the one-time or non-recurring payments.
MRR is the backbone of all SaaS KPIs and provides insights into plan upgrades and downgrades, pricing strategies, and discounts.
Other subcategories of MRR include:
New MRR – converted paid customers in a given timeframe.
Expansion MRR – the increase in MRR from existing customers over a given time.
Contraction MRR – the decrease in MRR from existing customers over a given time.
Net New MRR – the delta of current MRR to Expansion MRR over a given time.
Monthly Recurring Revenue and its sub-categories are essential for each business to understand and utilize.
Without strict adherence to these KPIs, a business can quickly lose money and customers.
- Monthly Recurring Revenue Churn (MRRC)
Just as MRR tracks monthly subscription revenue, MRRC or Monthly Recurring Revenue Churn measures how much your monthly subscription revenue was lost.
When a customer leaves your company and no longer pays for services, they are considered “churn.”
MRRC is measured by the number of customers who cancel or do not renew their subscriptions in a given month.
- Average Revenue Per User (ARPU)
ARPU (Average Revenue Per User) is a critical SaaS KPI to track.
Tracking your ARPU KPIs allows you to see how much value your customer base is providing your business.
To calculate your ARPU, divide the MRR from your active customers by your total number of customers.
Tracking ARPU lets you make educated plans for current and long term business decisions.
ARPU also gives you insights into which customer personas or “avatars” are most profitable.
Just as ASC measured the number of customers at any given time, the Customer Churn relates to how many customers your subscription business loses at any given time.
Customer Churn can be beneficial in calculating with regards to particular marketing campaigns to measure how effective they were.
Months to Recover CAC or MRCAC helps determine the timeframe it takes to recover the CAC after you’ve closed a customer.
This KPI can help determine the effectiveness of marketing and sales campaigns and shed light on your customer onboarding processes and procedures.
The faster you can recover your CAC, the better off your long-term profitability will be.
- Customer Engagement Score
The Customer Engagement Score is a SaaS KPI that measures how engaged your customers are with your service.
Customer Engagement includes the following factors:
- How often do they log into your service?
- What are they using your software for?
- How much bandwidth do they use on your platform?
- How many users they’ve set up with your service?
Customer Engagement is a crucial measurement that is a precursor to MRRC or customer churn.
If your customer is not interacting with your service or platform, they are less likely to renew at the end of their current subscription.
Implementing ways to increase engagement such as product training, assigning a Customer Success Manager, and periodic check-ins with your customers will minimize churn.
This KPI metric is the total revenue that customers have pledged to your business in a given time.
It pulls together all of your sales and marketing channels to provide the most transparent way of calculating revenue growth.
It is not necessary to include the following in your SaaS Bookings calculations:
- Setup Fees
- One-time fees
- Credit adjustments
We also encourage you to measure your proportion of new bookings (new customers) to upgrade bookings (Expansion MRR).
This measurement will allow you to allocate more sales attention to upselling existing customers.
SaaS KPIs For Growth Conclusion
As you can see, there are many KPIs and sub-KPIs that every SaaS business should track and measure.
There is an old saying:
“What gets measured gets improved.”
If you are not currently tracking any or all of these SaaS KPIs in your SaaS business, it may be time for drastic changes in your data approach.
At Data Sleek, we help SaaS businesses streamline data into meaningful analytical insights.
We work with cutting-edge data technologies like Fivetran, Snowflake Computing, and DBT which are key to building an efficient and scalable KPI reporting solution.
The combination of these powerful tools helps eliminate roadblocks and blindspots in your business.
Data Sleek can help integrate your data pipelines and analytics in a short amount of time and with limited resources.
We provide your company with human resource “elasticity.”
This means you can quickly build a dedicated team with the right expertise to fine-tune your KPI dashboards.
We will also mentor your business analytics team at the same time so that nothing is lost in translation.
Once the project is complete you can quickly scale down personnel as needed.
We want to help you reduce your overall cost and increase the speed of delivery.
If you’re interested in discussing how we can streamline your SaaS KPIs into meaningful insights, please fill out the brief questionnaire on your Contact Us page.
We look forward to working with you and helping you master your SaaS KPIs for continued growth!