One way to jumpstart growth in your business is to reevaluate your key performance indicators (KPIs). If you’re not sure what to track, you might consider learning from how SaaS companies analyze their performance. Most small businesses could benefit from incorporating SaaS metrics into their KPIs, even if the industries differ wildly.
What Is SaaS?
Software as a service, or SaaS, is a business model in which customers pay to use a company’s software, usually on a subscription basis. The software is hosted on the SaaS company’s servers, and users access it online rather than downloading it to their computers. Salesforce, Zoom, and DropBox are all examples of SaaS companies.
What Are the Benefits of SaaS Metrics?
SaaS companies have various metrics available to them due to the nature of their industry and how their services are accessed. They are adept at tracking the cost of acquiring new customers and the effectiveness of their marketing efforts. Although the SaaS business model is unique, many of the SaaS KPIs they use can also benefit other companies.
By tracking these SaaS metrics and identifying trends in your own business, you can make evidence-based decisions to drive revenue growth. You’ll also gain a deep understanding of how your product or service is performing over time, and you’ll be better able to identify areas for improvement.
10 SaaS Business Metrics to Know
In today’s data-driven world, understanding your business’s key performance indicators is essential for growth and success. Some of the top SaaS metrics can provide valuable insights into your business’s overall health and future trajectory.
The terms that SaaS companies use to name their metrics might differ from what other companies would call them, but the principles are universal. Here are the top 10 SaaS metrics you should track in your small business, regardless of your industry.
- Annual recurring revenue (Total Revenue of Recurring Sales) + (Total Expansion Revenue) – (Total Contraction Revenue): One of the most critical SaaS metrics for any business is ARR. This is the total revenue you anticipate earning from your customers over a year. Every business should know what they will be bringing in annually.
- Churn rate (Lost Customers over a Given Period) / (Total Customers over a Given Period): Churn rate measures the percentage of customers who cancel their business within a given period. It is a critical business metric that directly impacts revenue growth and customer retention.
- SaaS quick ratio (New ARR + Expansion ARR) / (Lost ARR + Churn ARR): Once you have your ARR and churn rate, you can use this metric to compare your revenue growth from new business to your revenue lost. If your new and expanded sales exceed your lost and reduced sales, the ratio will be greater than 1.
- ARR per head (Total Revenue) / (Number of Full-Time Employees): This metric tells you how much revenue you earn, on average, for every employee on staff. Balance is critical here. Underhiring to improve your income will stretch your existing employees thin, inhibiting long-term growth.
- Annual contract value (Total Contract Value) / (Length of Contract Term): With this KPI, you can see the total value of a contract, account, or project over time. Comparing these values apples-to-apples with similar values is an extremely valuable tactic.
- Customer lifetime value (Customer Value) x (Customer Lifespan): This metric measures the total revenue a customer generates during their time with your business. It helps you understand the full value of your customer relationships and tweak your customer retention strategies accordingly.
- Deal conversion rates (Closed-Won Deals) / (Total Closed Opportunities): This metric allows you to see the percentage of conversions versus the total number of opportunities you have in a certain period.
- Customer acquisition costs (Total Sales + Marketing Expenses) / (Number of New Customers): CAC measures the cost required to create a new customer. By tracking this metric, you can assess the effectiveness of your marketing and sales strategies and ensure that your customer acquisition efforts are cost-effective.
- Net promoter score (Percentage of Customers Who Recommend Your Brand) – (Percentage of Customers Who Won’t): This KPI measures customer satisfaction and loyalty by asking customers how likely they are to recommend your product or service to others. It is a valuable metric for assessing customer sentiment and identifying areas for improvement.
- Average revenue per user (Total Revenue) / (Number of Users): One of the most basic SaaS KPIs, ARPU measures the average revenue generated by each customer. By tracking this metric, you can assess the effectiveness of your pricing strategies and identify opportunities for upselling or cross-selling.
How Can Small Businesses Benefit from Using SaaS?
SaaS metrics are not just numbers on a spreadsheet—they are your roadmap to success. If you leverage them wisely, you can find new ways to track and grow your revenue over time. Here’s how to get started with monitoring these SaaS KPIs in your business:
- Define your goals: Clearly define your business goals and objectives before diving into SaaS metrics. This will help you identify the most relevant metrics for your needs and align your efforts accordingly.
- You can set a starting point: Establish a baseline for your new SaaS KPIs. This will serve as a future reference point and allow you to track your growth over time.
- Regularly monitor your metrics: These metrics are not set-and-forget. You must frequently analyze your metrics to identify trends, patterns, and areas for improvement. Set up dashboards and create regular reports to streamline the process.
- Use metrics to guide your decision-making: Make data-driven decisions based on your metrics. Whether adjusting your pricing, optimizing your marketing campaigns, or improving your products’ features, your KPIs can give you direction.
- Share your metrics: Communicate your insights with your team and key organizational stakeholders. This process promotes transparency, aligns departments, and enables everyone to make informed decisions based on a shared understanding of the data.
Want to learn more about putting SaaS metrics to work for your business? A small business coach can help you implement new KPIs in your organization. Click here to schedule a free video call with me, and let’s discuss SaaS KPIs.
Coach Dave
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