Updated: Feb 11, 2022
Saas market is growing at a staggering rate. In 2022 it is expected to reach 145 million US dollars. Which means in order to stay competitive, saas companies need to stay in hyper-growth mode. To do this successfully, tracking revenue and growth using saas marketing metrics is essential to any CMO's job. If you have a well-documented marketing strategy, metrics will allow you to measure the effectiveness of your initiatives.
The question is - which saas marketing metrics to track? With so much data and a variety of tools that are available in the market today, identifying and focusing on the right ones matters. You don’t want yourself and your team to be overwhelmed by measuring everything as that isn't really productive. Start by clearly defining what success means for your company. Once you do that you will know which metrics to track.
So let’s look at the important metrics that show the health of your company -
6.CAC Payback period
9.Qualified Web Traffic
Saas companies offer their software on a subscription model which means earning revenue on a monthly basis, hence the name MRR. Monthly recurring revenue is the total amount of money your customers spend with you in one month.
What needs to be factored in : Subscription fees, any other kind of fee, discounts, churn rate and any additional revenue on account of upselling.
Average revenue per account x Total accounts per month = MRR
In January you had 4 customers paying $100 each, your MRR would be - $100 x 4 = $400
In February you added 2 more customers, your MRR would be - $100 x 6 = $600
In March you lost 1 customer, your MRR would be - $100 x 5 - $500
Annual Recurring Revenue or ARR is the predictable revenue that can be counted on per year.
MRR X 12 = ARR
Every business needs new customers and the sales and marketing cost to acquire a single new customer is what Customer Acquisition Cost or CAC is.
Total sales and marketing spend / Total customers acquired in a time period
If your monthly spend is $200,000 and you acquire 200 customers, your CAC will be = $1000
How much money a customer on average spends throughout his time with your company is your CLV or customer lifetime value. To determine this, you have to first find your Customer Lifetime Rate, then your Average Revenue per Account, then multiply the two.
Customer Lifetime Rate - Divide churn rate (let’s say it's 5%) by 1 - 1/.05 = 20
Average Revenue per Account - Divide Total Revenue (let’s say $50,000) by Total Customers (let’s say 100) = $500
CLV will be - $500 x 20 = $10,000
Customer retention rate determines how many customers have you retained over a month, quarter or year. This saas metric lets you know how successful you are in keeping your customers happy. It is also a good predictor of revenue.
You will need data points in calculating CRR - Number of retained customers at the start of the period (A), Number of retained customers at the end of the period (B) and number of new customers you acquired during the period (D)
CRR = ((E-N)/S) X100
6.CAC payback period
This metric helps you determine how long it will take for you to recover your customer acquisition cost and start generating an ROI for your business.
CAC payback period = CAC/MRR X Gross Margin
There are 2 kinds of churns - Revenue and Customer.
While Revenue churn is the rate at which MRR is lost. Customer churn is the rate at which existing customers are lost. A high churn rate isn’t good for a company in hyper-growth mode.
Customer Churn Rate = Customers beginning of the month - Customers at the end of the month / Customers beginning of the month
Revenue Churn Rate = (MRR beginning of the month - MRR end of the month) - MRR in upgrades during month / MRR beginning of month
Net Promoter Score determines how happy or unhappy your customers are with your Saas brand, products and services. Thus it is important to keep a track of this score to know whether your customers will recommend you or not. Higher the score, happier your customers.
9.Qualified Web Traffic Growth
Is your website traffic increasing? In monitoring this, you want to make sure you are not counting your existing customers who are accessing your site for your product, instead new ones that are considering you as a vendor and may likely do business with you.
10. CLV:CAC Ratio
Building a CLV:CAC ratio measures the customer lifetime value with customer acquisition cost. Knowing how long a customer engages with your brand and comparing that to the cost that you incurred on acquiring them let's you know - is that customer worth it?
From growth stand point you also want to know - are you spending too much on your sales and marketing or too little on your growth. An ideal ratio for SaaS businesses is considered to be 3:1.
(#)CLV : (1)CAC Ratio = CLV/CAC
If your CLV is $4000 and your CAC is $1000, your ratio will be 4:1
Knowing what is the return on your total marketing investment is important.
ROI = Profits - Marketing investment / Marketing investment
You can also calculate return from individual marketing channels such as - Social advertising, Google ads and Trade shows - known as MCROI.
MCROI = (Conversions x CLV) - Channel cost
Setting up your marketing dashboard with key metrics to track is essential to do right at the outset. This way you can measure what is working and what isn't and chart your growth forward.
Which marketing metrics to pick will vary from company to company. You may use few of these or all of them depending upon business. Criteria to keep in mind is how they are helping you move towards company wide objectives.