A SaaS business is often considered as rewarding profit margins are higher than regular businesses. However, you have to deal with various challenges to run it successfully. One of the most critical aspects of managing a SaaS company is to monitor its performance effectively. Without understanding the key performance indicators, you can’t make data-driven decisions to grow and sustain your business.
You need to monitor some crucial SaaS performance metrics to monitor the health of your business. It also helps you identify potential problems, optimize customer experience, and develop a product that is both valuable and profitable. In this article, we’ll explore the 5 essential metrics for tracking your SaaS business performance. Let’s do so without further ado.
1. Monthly Recurring Revenue (MRR)
It’s one of the most crucial SaaS metrics. MRR is the total predictable revenue your business generates every month from active customers. It allows you to predict future revenue, plan for expenses, and measure growth over time. By monitoring it, you can track your company’s financial health and determine which pricing strategies work best.
You can analyze this metric to track revenue consistency and customer satisfaction. A higher MRR indicates your customers are satisfied and retention policies are working efficiently. You can rely on it to forecast future growth trends as well.
2. Customer Churn Rate
Churn is the biggest concern for any business owner. It refers to the percentage of customers who cancel or do not renew their subscriptions over a specific period. It’s inevitable for any SaaS business and cannot be removed permanently. All you can do is develop effective strategies to control or reduce it.
A high churn rate indicates that customers are not satisfied with your product or service. It leads to lost revenue and the need for constant customer acquisition to maintain growth. Monitoring this metric helps you identify areas where you need to improve to retain customers. For instance, you can focus on customer experience, product features, or support services to retain customers. Analyzing churn will also help you check the effectiveness of your retention strategies.
3. Customer Lifetime Value (LTV)
It’s one of the most mysterious yet crucial SaaS performance metrics. LTV is the total amount of revenue you expect to earn from a customer throughout their relationship. You can analyze it to understand the long-term value of your customers. It can help you determine how much you should spend on customer acquisition and retention efforts.
The higher your LTV, the more revenue you can generate from each customer. It will ultimately boost the overall profitability of your company. You can track LTV for different cohorts to identify high-value customers. Analyzing it will also provide insights into the effectiveness of retention strategies as customers who last longer often have high LTV. You can also rely on this metric to monitor upselling and cross-selling efforts of your team.
4. Customer Acquisition Cost (CAC)
As a business owner, you always need to acquire new customers. To do so, you need to spend a considerable amount on marketing, sales, and onboarding. All these expenses are collectively referred to as customer acquisition costs. You can track and analyze it to understand the effectiveness of your sales and marketing strategies. A lower CAC shows that your marketing team is on track.
It also helps you understand the cost-effectiveness of different marketing and acquisition channels. This metric is directly linked to the profitability of your business. You can compare it with LTV to track profitability. A simple rule of thumb is that if the LTV to CAC ratio is 3 or higher, it means you are generating good profit. If it’s lower than this, it indicates you are spending a lot on acquiring new customers.
5. Customer Retention Rate
This SaaS metric is opposite to the churn rate. It measures the percentage of customers who continue to use your service over a set period. As a business owner, you need to pay equal attention to acquisition and retention to ensure sustainable growth. Retaining customers is more affordable than acquiring new ones. Monitoring this metric can help you understand the success of your customer service, product updates, and retention strategies.
If the retention rate is lower, it means either your product isn’t offering the value your customers expect or your retention strategies are not up to the mark. It also helps you check customer loyalty and satisfaction. A high retention rate is a positive indicator of customer satisfaction and product quality.
Bottom Line
Monitoring the aforementioned metrics will help you track the performance of different business operations. However, doing so manually can be a big challenge. You can leverage Baremetrics to track and analyze all these metrics. It’s a trusted tool with a user-friendly interface. You can use it to monitor more than 26 metrics and compare them to get useful insights.
