The SaaS KPIs You Really Need to Track

Metrics are guideposts. But if you don’t know where to focus your attention, it’s easy to become overwhelmed and confused instead of making rapid, critical decisions.

So let’s talk about exactly what key performance indicators (KPIs) are, what they should cover, the SaaS KPIs you really need to track, and, finally, how you can track and then leverage those valuable metrics.

What are SaaS KPIs?

KPIs, or key performance indicators, is simply the term for the metrics in your business that provide you with vital information about your company’s performance. Every business uses KPIs to track their progress and company health. But the SaaS industry is a unique creature and, as a result, there are certain KPIs that are unique to SaaS businesses and very important to track. Of course, there are plenty of SaaS KPIs that you could track for your business that you don’t really need to. In order to track the right KPIs, you have to understand what SaaS KPIs need to cover.

What should SaaS KPIs cover?

Good question. In order to scale your SaaS business and keep your bottom line healthy, there are several areas across which you need to track metrics. Some of these areas will give you more of a big picture and some will offer you more detailed, actionable insights.

Marketing

Your business needs effective marketing in order to scale. But you also can’t afford to pour a bunch of money into marketing if you’re not seeing a decent return on your investment. Marketing KPIs can help you definitively measure your marketing efforts, assess how effective your current marketing strategy is at helping you meet your overall goals, and help determine if you could better optimize your ad dollars.

Customer Success

You already know how detrimental churn can be to a SaaS business and how important it is reduce your overall customer churn. That’s why customer success is the beating heart of a thriving SaaS company — after all, a happy customer is a customer less likely to churn. By tracking customer success KPIs, you can determine how effectively your customers are able to use your product, how well you’re doing at developing loyalty, etc.

Sales

In order to grow a healthy SaaS business, you need to have a full understanding of your customer acquisition costs and the dollar value associated with a customer. Sales KPIs can be used to track and evaluate sales performance, optimize your sales process, and set up your team for success.

Revenue

When it comes right down to it, steadily growing your SaaS business means tracking your revenue and seeing the changes and trends over time. That means you have to keep your finger on the revenue pulse. And that’s where revenue KPIs come in. These are big-picture metrics that help you track your revenue growth, revenue trends, and your company’s overall financial health.

Which SaaS KPIs do you really need to track?

1. Churn Rate

This first one may seem obvious, but it’s one of the most important KPIs for SaaS businesses. When a customer cancels their subscription, we refer to this as churn. So your churn rate calculates the percentage of customers your business lost over a specific period. It goes without saying that, ideally, you want this metric to be as low as possible.

If the number is high, it could signify a gap in your customer retention strategy. By conducting a free churn audit with Churnkey, you can analyze your churn rate and gain a better understanding of why your customers are leaving and what you can do to prevent it.

How to calculate churn rate: Churn rate = Customers lost in a period / total customers at the beginning of the period * 100

2. Monthly Recurring Revenue (MRR)

SaaS businesses typically structure their business model around monthly or annual subscriptions. And that’s why your monthly recurring revenue (MRR) is so important. This simple but powerful metric tracks new sales, upsells, renewals… all of your recurring revenue that comes in each month. This SaaS KPI can also later be used to calculate the ARR (Annual Recurring Revenue) and give you an overview of your gross margins and growth rate.

How to calculate MRR: Take the monthly fee paid by subscribers and multiply it by the total number of current customers.

3. Conversion Rate

Your conversion rate signifies the percentage of people who visited your website who were then converted to actual customers. This SaaS sales KPI can be extremely valuable in mapping the traffic you need to generate for your site to hit a specific number of sales. It’s also an excellent indicator of how efficient your sales funnel is or if it needs to be altered.

How to calculate conversion rate: Conversion rate = number of conversions / total visitors * 100

4. Customer Acquisition Cost (CAC)

Your customer acquisition cost (CAC) measures how much money you need to spend to acquire a new customer. This is key metric in the SaaS industry because it can help you develop (or refine) your pricing strategy to ensure that you make more revenue than it costs to acquire new customers. By comparing your CAC with your customer LTV (more on that soon), you can determine your company’s profitability and efficiency.

How to calculate CAC: CAC = (marketing + sales expenses) / # of new customers

5. Customer LTV

Another crucial metric for SaaS businesses is customer lifetime value (LTV). This SaaS KPI determines the amount of money a customer will bring to your company from the moment they sign up till they cancel their subscription. As a general rule, LTV should be at least 5 or 6 times higher than your CAC in order for your business to be profitable. By adjusting your strategy with informed LTV and CAC data, you can maximize your growth.

How to calculate customer LTV: LTV = number of transactions (T) multiplied by average order value (AOV), multiplied by average gross margin (AGM), multiplied by average customer lifespan in months (ALT), and divided by the number of clients for the period.

6. Annual Recurring Revenue (ARR)

Annual recurring revenue (ARR) measures how much money you can expect to generate from your subscribers annually. This metric is important in order to budget for future expenses and measure the growth of your business.

How to calculate ARR: Multiply your MRR by 12.

7. Revenue Churn

Similar to your churn rate, revenue churn stands for the amount of revenue your SaaS business lost in a given period due to downgraded or canceled subscriptions. The lower your revenue churn, the better. This KPI allows you to observe customer behavior, leading to actionable insights.

How to calculate revenue churn: Revenue churn rate = ((revenue in the previous period - revenue in this period) / divided by the revenue in the previous period) * 100

8. Net Promoter Score (NPS)

Your net promotor score (NPS) is an important metric when it comes to customer satisfaction. It’s used to assess customer loyalty, advocacy, and contentment toward your business, and it’s measured by asking existing customers how likely they are to recommend your product to a friend. Tracking your net promoter score gives you a sense of how satisfied your overall customer base is and can give you a head’s up if satisfaction levels are dropping.

When it comes to calculating your NPS, note that the only answers taken into account are those of promoters and detractors. Promoters are those who respond with a score of 9 or 10, while detractors respond with a score of 0-6.

How to calculate NPS: NPS = Percentage of Promoters - Percentage of Detractors

9. Lead Velocity Rate (LVR)

Your lead velocity rate is a SaaS KPI that tracks the growth you have in the number of qualified leads you receive month over month. A positive lead velocity rate means you’ve gained leads from the previous month.

How to calculate LVR: Subtract the number of qualified leads you captured last month from the number of qualified leads this month and divide by the number of qualified leads last month. Then multiply by 100 to get a percentage.

10. Monthly Unique Visitors

This KPI allows you to track the number of unique visits that your website has gotten over a set monthly period. Unique visits means that you’re tracking how many different people access your website, not how many times people have visited your site (which will inevitably include multiple visits by the same people). Tracking monthly unique visitors helps you measure your top-of-the-funnel marketing and analyze how well your efforts are paying off. In order to calculate your monthly unique visitors, you’ll need to use a web analytics tool.

Are you ready to track and leverage your SaaS KPIs?

Accurate SaaS reporting is essential for growth. Without the proper data, your company will run blind in the dark, unable to scale up or move forward. That’s why you need the right tool to help you easily track and monitor your SaaS KPIs and then leverage the resulting data.

Confusing graphs, conflicting values, and painful data comparisons are the norm for most subscription metrics. We don't think it has to be that way. That’s why we work hard here at Churnkey to interpet your numbers and tell the story behind them. Start tracking your metrics today with a free trial.