Most Important SaaS Performance Metrics To Track The Growth Of Your Business

As a SaaS business owner, you always want to increase your customer base and generate big revenues. To do so, you adopt different strategies.

Now, the main concern is how these strategies are working. Are they driving any results or are you wasting money on implementing them?

To figure this out, you need to track the growth of your business. You can check its financial health to estimate how much revenue it’s generating. To do so, you need to track some key SaaS performance metrics. Now, the main concern is what metrics you should track. Don’t worry! We will help you with this. However, first, we go through the importance of tracking these metrics. Let’s move forward without further ado.

Importance of Tracking SaaS Performance Metrics

The following are some key points that highlight the importance of tracking them. Let’s go through them.

• First of all, it will help you make informed decisions. When you know the progress and health of your business, you can take the right steps to approve it.
• Tracking some metrics such as CAC and LTV will help you identify high-value customers. You can put efforts into retaining them as acquiring new ones can cost more.
• You can estimate the financial health of your business by tracking monthly and annual recurring revenue (MRR and ARR).
• By tracking KPIs and comparing them, you can identify the areas of improvement.
• When you have a clear understanding of SaaS performance metrics, you can try to improve them and boost your business growth.

Top 6 SaaS Metrics That Every Business Should Track

The following are some most important metrics that every SaaS company should track.

1. Monthly Recurring Revenue (MRR)

It is the amount of revenue you expect to earn every month from your customers. MRR is a fundamental metric for SaaS businesses because it reflects revenue consistency and growth rate. It helps you understand how much revenue the company can generate each month. It helps in planning future expenditures.

You can improve product features or target higher-value customers to boost monthly revenue. You should also identify which customer segments contribute the most to MRR. It helps you focus on increasing their retention rate and upselling products.

2. Customer Churn Rate

It’s the percentage of customers that cancel their subscriptions over a given period. Churn is inevitable for any SaaS company. A high churn rate indicates dissatisfaction among users. It also helps you notice issues with your product, customer service, or pricing strategy.

You can implement proactive customer support and regularly update your product to keep customers engaged and reduce churn. It’s essential for long-term growth since acquiring new customers is more costly than retaining existing ones. You can also analyze it to understand why customers are leaving. It helps you address minor issues and retain more customers.

3. Customer Lifetime Value

It’s the most important yet trickiest of all SaaS performance metrics you need to track. This metric tells you about the total revenue you are expected to generate from a single customer in a lifetime or throughout the relationship. Tracking it will help you understand the long-term value of a customer and how much you should spend on acquiring and retaining them.

Analyzing it will help you adopt different strategies like upselling and cross-selling to improve it. Moreover, you can work on reducing churn to extend relationships. It’s critical for profitability, as the higher the LTV, the more revenue your business generates from each customer. You can analyze it by cohorts to identify high-value customers and tailor your marketing efforts accordingly.

4. Customer Acquisition Cost (CAC)

It is the average amount you spent to acquire a new customer. It includes marketing, sales, and onboarding expenses related to bringing in new subscribers. It determines how efficiently your business is acquiring customers. Once you manage to estimate it, you should balance it with LTV. A simple rule of thumb is that you should maintain an LTV to CAC ratio of 3 or higher.

If it’s lower, it means you are spending a lot on acquiring new customers.  It indicates that you need to optimize marketing and sales strategies. Tracking CAC will provide useful insights that lead you to focus on organic growth strategies like SEO and content marketing. It also helps you streamline sales and marketing processes to reduce costs. Above all, you can compare it with LTV to estimate profitability.

5. Gross Margin

It represents the percentage of total revenue left after subtracting the cost of goods sold (COGS). Server costs, hosting, customer support, and various other expenses are accounted for as COGS. This metric is critical for determining the profitability of your SaaS business. A high gross margin indicates that your business can generate more profits as it scales. On the other hand, a low gross margin indicates high operating costs.

Tracking this metric will allow you to evaluate your infrastructure costs and optimize them. It helps you scale customer support more efficiently through automation.

Note: If you offer multiple products or services, make sure to monitor the gross margin of each. It helps you identify the profitability of each service and product. Based on this, you can invest more on marketing products with a higher gross margin.

6. Annual Recurring Revenue (ARR)

ARR is the predicted amount of revenue you can generate in a gear. It is crucial for long-term planning and tracking the growth of your business. You can monitor ARR to identify trends and ensure that revenue targets are met annually.

Tracking and analyzing this metric will provide useful insights to focus on converting monthly plans to annual subscriptions. It also ensures that your pricing strategies reflect value to customers. Apart from that, you can use ARR data to project revenue growth and make informed decisions about investments.

Bottom Line

Tracking growth and monitoring the health of your SaaS business is no longer a challenge. You can do so by analyzing the aforementioned metrics. You can rely on Baremetrics to calculate and analyze all these metrics. It’s a trusted tool that will help you track more than 26 SaaS metrics.