saas metrics

There are so many ways of measuring a successful business, but they all come down to key performance indicators, or KPIs. But with so many KPIs out there, it’s hard know which ones are right to measure the success of your particular business.

Fortunately, the picture is much clearer for SaaS businesses. And to get a clear indication of your business’ health—and to have the information you need to make important decisions—you only need to focus on these five SaaS metrics.

#1 Monthly recurring revenue (MRR)

While many companies look at monthly revenues, that metric isn’t enough for SaaS businesses. Since SaaS business are subscription-based, the more important metric is monthly recurring revenue (MRR).

Knowing your monthly recurring revenue (MRR) will help you determine whether your our business model is sustainable, and it’s the most important number for SaaS businesses to track. This is because you need a business plan that works in the long run.

#2 Churn

Retaining customers is the first step toward building a sustainable SaaS business, and this is why knowing your churn rate is so important. Churn measures the number of people who stop doing business with you. For SaaS businesses, this means looking at the percentage of people who cancel their subscriptions in a given period.

If your churn is in the double digits, there’s something fundamentally wrong with your product. In that case, don’t worry about growth or marketing. Instead, focus on fixing your product as quickly as possible.

The easiest way to reduce churn is to look at your customer feedback. Reach out to your customers on the social platforms you use and talk to them one-on-one in order to understand exactly why they are leaving. This will help you build a product your customers truly love.

#3 Cost per acquisition

Marketing is expensive, and doing it on the wrong channel can destroy your profit margins. The only way to avoid this is by tracking the cost per acquisition of your campaigns.

To start, add up all of your expenses for marketing and sales from the previous month. Then, divide that number by the total number of customers you acquired in the same period. This will give you the average amount that you spend for each new customer. The figure isn’t detailed, but it gives you a quick health check of your business.

The next step is to find the cost per acquisition for individual marketing campaigns. This is a little trickier. You need to track your campaigns over the long term to see which ones actually bring in customers. And to do this, you need customer analytics that tie data back to your customers.

Once you know your cost per acquisition, revisit your business plan and make sure you’re not spending too much on acquiring new customers.

#4 Average revenue per customer

After your churn rate is under control and you have a reliable way of acquiring customers, the keys to increasing revenue are up-sells and cross-sells.

Cross-sells are extra features you sell with your products. Cross-sells such as annual plans, on the other hand, increase your average revenue per customer since they lock customers into a longer billing cycle.

The goal is to build systems that steadily increase revenue from customers, and this metric will tell you whether you’re succeeding.

#5 Lifetime value

By combining your average revenue per customer and your churn rate, you can figure out the lifetime value in terms of the revenue that your customers will provide you with in the future.

There are various formulas for this. You can include your cost per acquisition, the cost to service your customers (support and retention programs), and profit margins.

For a SaaS business, take your average subscription length and multiply it by your average monthly revenue per customer. When you have the lifetime value of your various customer groups, you’ll know exactly where to focus your time in order to grow your business.