When it comes to SaaS, successful companies and investors have agreed on the metrics that matter at every stage and their recommendations are up for the grabs.
So no matter where you are along your SaaS journey, no matter if you are the founder or a key team player, do explore our curated list of 5 resources explaining SaaS metrics. We have organized them from basic to more advanced, so feel free to start wherever you feel it fits your journey.
Understand what SaaS metrics to track at every stage of the business
Christoph Sanz, investor at Point Nine Capital who fueled funding into Zendesk, Unbounce, VendHQ and other resonant names, maps the SaaS metrics per stage with in-depth:
- pre product-market fit (when letting potential customers try the product): user feedback, signups waiting lists, indicators of activation and usage, Net Promoter Score, and even introducing qualified leads alongside trial signups
- post product-market fit, pre-scale (when getting the first paying customers): conversion rates, MRR, retention (preferably in the form of MRR-based churn), ARPA (average revenue per account)
- post-scale (when having about $500K MRR): LTV/ CAC ratio, CAC payback time
Download a ready-made SaaS KPIs dashboard
SaaS metrics 2.0 - a guide to measuring and improving what matters by David Skok from Matrix Partners
David Skok, serial entrepreneur and VC at Matrix Partners, provides a downloadable excel dashboard for SaaS startups, diving into more complex metrics.
The dashboard is supported by a very comprehensive article written from his expertise, as well as that of Ron Gill, the CFO of Netsuite, and Brad Coffey, the VP of Product Strategy at Hubspot.
David is categorizing startups into two types:
- those with most subscriptions on a monthly basis that should focus on MRR (monthly recurring revenue)
- those with most subscriptions on a yearly basis that should focus on ARR (annual recurring revenue) and ACV (annual contract value).
He defines the net MRR (or ACV) as the sum of:
- new MRR (or AVC) from new customers added in the month
- expansion MRR (or ACV) from existing customers who expanded their subscription
- churned MRR (or AVC) from existing customers that cancelled their subscription (a negative number)
As the business grows, churn rate is not only important to be kept at a minimum, but you should also aim to reach negative churn - which happens when expansion revenue from existing customers is higher than lost revenue from churning customers. Here is where upselling and cross-selling come into play!
This and much more on cohort analysis for tracking churns, predicting churns through customer engagement score, and funnel metrics can be found in the article together with the link to download the SaaS KPI dashboard.
Know how to avoid analysis-paralysis
Jason Lemkins shares lots of interesting words of wisdom on his blog saastr.com and this article on why lead velocity rate is the most important metric in SaaS is one of his best.
He explains why sales numbers / revenue growth are an indicator of how you were doing in the past, and that in order to make revenue predictable, then SaaS companies should use QLVR (qualified lead velocity rate = month-over-month growth in qualified leads) as a key metric.
“As long as you are using Qualified Leads, and you use a consistent formula and process to qualify them, you can see the future.”
Jason further mentions that if sales growth is misaligned with the leads growth, then you either have to look into your sales team quality (if it changed over time), or into your product (if it is not keeping up with competition).
From his experience at EchoSign, as long as they had hit the LVR goals “about every month”, topped with having an increasing quality sales team and increasing quality product - “the revenue followed. Not like clockwork every day. But clearly, every quarter, and every year.”
Benchmark your results against other SaaS businesses
In case you want to benchmark your metrics with other SaaS businesses, OpenView Venture Partners has surveyed 160 senior executives and consultants from SaaS companies and has put together a useful infographic of the findings.
- average annual revenue growth rate is the highest at an MRR below $100K (61%), and evolves between 43 to 52% as MRR increases over time
- average revenue per employee increases incrementally from 0.05 below $100K MRR to 0.24 at $2-5M MRR, and skyrockets to 0.6 at >$5M MRR
- average sales and marketing expenditure as a percentage of annual revenue is 39% below $100K MRR and continues to oscillate between 29% and 32% while growing between $100K and $1M MRR, growing to 38% and 42% between $1M and $5M MRR, and dropping again at 22% after $5M MRR
Totango, a customer success solution, reveals findings from the 2013 annual SaaS metrics survey on 257 executives at SaaS companies about their business KPIs that make from less than $1M to $100M annual revenue.
- The majority of business had less than 50% annual revenue growth, while there are also a quarter that more than doubled their revenues in 2013 (and the graph keeps the same trend and distribution if we exclude companies that make less than $1M annual revenue)
- SaaS vendors continue to focus more on acquiring new customers (97% marked it as priority) compared to managing revenue from existing customers (renewals and upsells)
- Most tracked SaaS metrics are (from most used to least used): unique visitors, churn, number of new trial signups or free accounts, conversion rates, product usage statistics, revenue per user, customer acquisition cost, customer health, customer lifetime value, net promoter score
- When it comes to measuring churn, 73% of the SaaS businesses look at the decrease in number of customers and 56% look at the decrease in revenue from the lost customers. Very few look at decrease in number of users/ licenses (26%) or product downgrade (15%), which proves once again that most companies focus too little on revenue from existing customers.
- The most wanted churn rate range of 0-5% (calculated as annualized revenue churned) is only achieved by 38% of the companies
- 43% of SaaS companies managed to achieve 0-20% year-over-year revenue increase from existing customers (upsell), and 28% of them achieved 20-40% increase. 16% of the SaaS business had no increase.
- Companies that outperform (had more than 75% yearly growth) recorded lower churns (42% of them had below 5% churn rate) and higher upsells (21% of them had more than 40% revenue increase from upselling)
Ready for more?
If you are part of a SaaS company, subscribe to our updates to make sure you won’t miss the upcoming recommended resources.
Also, do leave us a comment with your favorite learning and inspiration sources that help you grow your SaaS business and we might include them with a reference to your business in the upcoming articles.