The SaaS industry is highly competitive and requires unparalleled awareness and control over multiple business factors. Adding to this challenge, there are lots of metrics to keep track of, and that much data can be overwhelming.
Still, that doesn’t nullify the reality that your company’s competitiveness is affected by how seriously you view Key Performance Indicators (KPIs) and take the necessary action. But even though it’s beneficial to keep track of your business’s KPIs, monitoring the wrong indicators doesn’t help a lot, so here are the crucial SaaS KPIs that should be on your radar in 2024:
1. Customer Churn Rate
The first one shouldn’t come as a surprise – customer retention is a key foundation in any business. Despite the importance, not all SaaS businesses check their customer attrition rate sufficiently. What most businesses do is focus so much on gaining new customers that they forget to keep an eye on the ones they are losing.
Determining the churn rate is important since retaining current customers is more cost-effective than acquiring new ones. Here’s the quick formula to calculate the churn rate:
Churn Rate = Customers lost / Customers at the beginning of the month * 100 (to get the %).
But if you don’t like your maths a lot, you can make use of SaaS dashboards with churn reporting and critical subscription metrics from a leading provider like Cleverbridge. The good thing about using subscription management software like the one Cleverbridge offers is it helps you stay updated about more than just the churn rate.
2. Customer Acquisition Cost (CAC)
The Customer Acquisition Cost (CAC) is the cost you incur to acquire a new customer. Essentials like advertising, marketing campaigns, commissions, salaries, sales expenses, and other similar elements all go into this metric.
When calculating CAC, you use the formula:
CAC= Total cost of marketing + Total cost of sales (Total acquisition cost within a certain period) / Number of new customers acquired
By calculating the CAC, you can easily determine how long it’ll take to get a return on the investment required to attain your new customers.
3. Monthly Recurring Revenue (MRR)
This metric indicates the total revenue collected from subscription-based customers every month. It encompasses subscription fees, recurring charges, and other predictable revenue generation streams.
With an MRR value, you can determine the revenue stability and growth trajectory of your SaaS business, and it’s calculated as follows:
MRR = Number of active subscribers * Monthly billing account
To improve your MRR, you should consider acquiring new customers, enforcing cross-selling and upselling systems, reducing churn, optimizing product offerings, and delivering lovable customer experiences.
4. Average Revenue per Account (ARPA)
The average revenue per account is what you use to determine the average revenue generated by a user or customer in a given period. This metric is beneficial in establishing the revenue potential of every customer and working out the effectiveness of your pricing and packaging strategies.
To calculate ARPA, use the formula:
ARPA = Total revenue generated in a given period / Total number of user accounts within that period
You can boost your ARPA value by considering using tiered pricing plans, implementing effective cross-selling and upselling strategies, and offering premium features.
5. Customer Lifetime Value (LTV)
This refers to the total revenue that a customer generates for a business in their whole lifetime as an active customer. The Customer Lifetime Value (CLTV) is calculated as follows:
CLTV = Average Revenue per Account (ARPA) / Customer churn rate
Measuring the LTV allows you to segment customers based on their value. That way, you can allocate resources efficiently and optimize marketing and retention efforts.
6. LTV:CAC Ratio
The LTV:CAC ratio is important for gauging the financial health of a SaaS business. It’s derived using the following formula:
LTV:CAC = Customer Lifetime Value (LTV) / Customer Acquisition Cost (CAC).
A ratio of 3:1 or better means your business is doing good, whereas a 4:1 ratio shows you have a great business model. A ratio of 5:1 or higher indicates that your business has a great potential of growing faster, only that you’re probably under-investing in marketing.
Additional KPIs to Consider
As you may expect, the above are not the only KPIs you should pay attention to, so here are a few more you need to check out:
- Annual Recurring Revenue (ARR)
- Committed Monthly Recurring Revenue (CMRR)
- CAC Payback
- Lead Velocity Rate (LVR)
- Customer Retention Rate
- Net Promoter Score (NPS)
- Return on Investment (ROI)
- User Engagement
- Gross Margin
- Customer Satisfaction Score (CSAT)
SaaS KPIs are must-have navigation tools that guide you through unexplored territories, empowering you to make informed decisions as your business grows.
The above KPIs will be instrumental in helping you rise above the competition, so make sure to consider them throughout 2024. Where possible, use a tool like CleverInsights from Cleverbridge to make your work easier and access accurate insights for the best results.