Back to All Services7 Must measure SaaS Marketing Metrics
Successful SaaS companies have a strong emphasis on growth driven by data. These businesses usually have access to data through various tools. The challenge here majorly is in identifying and understanding the key B2C and B2B Saas Metrics. We have put together here the 7 must measure SaaS metrics and KPIs. By concentrating on these 7 essential SaaS metrics, you can effectively strive towards achieving your ambitious growth objectives.
For every sales funnel for your DTC and SaaS brand, there are a few metrics that need to be measured for your product’s success. Here’s a cheat sheet for your SaaS Marketing Metrics:
A. Acquisition Metrics:
1. Customer Acquisition Ratio:
How to calculate:
CAC = (Cost of Sales + Cost of Marketing)/New Customers Acquired
Why is it important:
CAC measures the ad spend, marketing, and other related costs incurred to acquire a new customer. It is difficult to win back the money spent on acquiring customers. So businesses think spending on acquiring customers restricts their growth, making cash flow difficult in the first few years. Therefore the best SaaS revenue model is to recover this amount in a maximum of 12 months of their operations.
2. CAC-LTV Ratio
How to calculate:
LTV/CAC Ratio = [(Revenue Per Customer – Direct Expenses Per Customer) / (1 – Customer Retention Rate)] / (Direct Marketing Spending / No. of Customers Acquired)
Why is it important:
LTV is the Customer Lifetime Value and CAC is Customer Acquisition Cost. This ratio compares the value of a customer over their lifetime to the cost incurred in acquiring them..
Having an LTV/CAC less than 1.0 is considered inadequate and a value more than 1.0 is considered good but more analysis is required. A value of 3.0 and more is considered the best for SaaS products.
B. Revenue Metrics
1. Annual Recurring Revenue(ARR)
How to calculate:
No. of customers X Avg Billed Amount
Why is it important:
Monthly Recurring Revenue (MRR) is the total revenue your customers generate in one month. Recurring revenue makes the SaaS business models better than other business models. The customers pay every month, as long as you continue to provide value to your services. You should charge properly to make your business self sustainable.
2. Revenue Run Rate (RRR)
How to calculate:
One month’s revenue X 12
Why is it important:
Revenue run rate(RRR) also called Annual Run Rate or Sales Run Rate is a method of knowing the upcoming revenue for a year based on previously earned revenue using any digital marketing activities, for example, Google Adwords or Facebook advertising. For example, if your business has provided you a revenue of $15,000 in sales in the previous quarter, your annual run rate would be $60,000. RRR assumes current sales will continue, using that information to make projections for future performance of the RRR of your company.
Revenue run rate is calculated based on the recognized revenue in your ERP. You should get a more refined understanding with effective bookings to revenue and bookings to cash waterfalls.
C. Sales Performance Metrics
1. Average Sales Cycle
How to calculate:
Total days in the pipeline for closed deals / No. of closed deals
Why is it important:
This is the time it takes to close a client/prospect entering your sales pipeline. It starts with a new lead being addressed with a proposal and knowing your services and ends with this lead becoming a customer of yours that will also bring you referrals.
A quick tip for you here is that you should avoid getting too invested in industry benchmarks for the sales cycle. This metric is highly sensitive to your unique business model where pricing strategy impacts the sales cycle tremendously.
2. Annual Contract Value
How to calculate:
Total contract value / Total years in contract
Why is it important:
Annual Contract Value refers to the average annual revenue per customer contract, excluding fees. If a customer signs a 2-year contract for $10,000, his average value per year will give you an annual contract value of $5,000.
ACV, or Annual Contract Value, lacks informative significance by itself due to the variation in contract sizes across different businesses, which is influenced by their specific business models and target customers. When it comes to Software-as-a-Service (SaaS) companies, those primarily catering to Business-to-Business (B2B) clients tend to have higher contract values compared to those targeting Business-to-Consumer (B2C) markets.
This discrepancy arises from the fact that ordinary consumers are typically unwilling to pay substantial monthly fees for services. However, enterprises recognize the value that these tools can provide and are thus willing to pay significant amounts annually to companies such as Salesforce or Microsoft without much hesitation.
D. Retention Metrics
Customer Lifetime Value
How to calculate:
Customer Value= Avg value of sales X Avg number of transactions
LTV= Customer value X Avg customer life span
Why is it important:
LTV is the profit margin a SaaS brand expects to earn over the entirety of their business relationship with the average customer. It takes into account all their orders ever placed and used. It is a good metric to size up customer satisfaction, loyalty and the viability of a brand. CLV is long term, repeating the benefits of better ROI and unit economics.
Gaining comprehension of, assessing, and enhancing the aforementioned metrics can facilitate the expansion of a SaaS enterprise’s customer base and lead to its overall success. Furthermore, these improvements need not be substantial; even minor enhancements can contribute significantly to maintaining the well-being of your business.
From the CEO’s Desk
Saffron Edge specializes in assisting SaaS brands in measuring their success through SaaS metrics. With their expertise, they help businesses select and prioritize relevant metrics that align with their goals. We also aid in setting measurable goals, optimizing strategies based on metric analysis, and enhancing conversion rates through CRO techniques. Our focus on customer retention strategies ensures that SaaS brands can effectively monitor and improve their performance, ultimately achieving long-term success.
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