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It is similar in the case of SaaS businesses that are marred with additional complications and complexities of needing to sustain the growth period for quite some time.
Moreover, maintaining this growth in this competitive market is tricky for any SaaS development company.
It is a fact that SaaS companies majorly rely on the revenue to be earned in the future to a certain extent. When it comes down to traditional business models, the central section of the payment is generally collected when the product is sold.
Customer retention makes up a small section of the entire revenue. But in the case of SaaS businesses, the income is distributed evenly over an extended period. However, various factors can affect the growth of SaaS businesses.
Customers can easily affect the development of any SaaS business, like any other business. There are specific ways through which customers' decisions and choices can affect the growth rate of a SaaS business and even result in its success or failure.
How are SaaS Businesses Affected by Customers?
When it comes to any business, if the customer is unsatisfied with the product or service, they will switch to an alternate one.
This can cause the company to lose quite a considerable amount of money spent on the up-front sales and marketing investment it has made to gain those customers initially. Also, too many customers leave the business before it earns back its investment, significantly if it is extended over months and sometimes years.
In that case, the SaaS business will only achieve sustainability.
Customer retention is a crucial aspect of custom software development services indulged in the SaaS business. A variety of decisions that the SaaS business owner makes can influence the overall future performance.
Also, more than the traditional business metrics are needed to account for myriads of challenges that the business face that relies essentially on recurring revenue.
If a business is involved in SaaS product development, you should consider the following aspect. The various essential metrics for SaaS businesses are generally centered around the overall future growth of the company.
These metrics determine the health of the SaaS business, the impact of its marketing strategies and their effect, the health of the customer-company relationship, and much more. Hence, it is crucial to understand various essential SaaS business metrics which can make a massive difference in the future results of the SaaS business.
Key SaaS Business Metrics
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Customer Churn Rate
This metric is considered among the most critical business metrics signifying growth.
Generally, there are two types of customer churn rates that a business needs to consider. It includes customer churn and revenue churn.
Regarding customer churn rate, it measures the total number of business customers leaving its services every month in terms of a particular percentage of the total number of customers a business has. In the case of revenue churn, it essentially measures the amount of revenue paid by the customers leaving the business's service each month in terms of a particular percentage of the business's total revenue.
Regarding most SaaS companies, it is essential to measure revenue churn since it is a better and more accurate indication of the business's health instead of customer churn.
For SaaS businesses at their nascent stage, tracking the churn doesn't hold any value, especially when they have a couple of hundred customers.
Finding another 3 to 4 customers to replace those who have left is quite tedious.
However, as the business grows, the overall depreciation of the churn rate becomes quite a crucial goal. A single-digit churn rate can easily translate to hundreds of thousands of customers, which means losing tens of thousands of customers every month.
Hence, replacing many such customers regularly and monthly is certainly not sustainable.
Also, churn gets compounded over time. Single-digit monthly churn converts to a two-digit churn rate annually, meaning you have to replace a significant percentage of your complete customer base to maintain the same revenue stream.
So, the more customers you have, the more you need to invest in the retention of the customers before planning for further growth.
Since most SaaS businesses are often based on the annual subscription model, keeping customers is as essential and crucial as acquiring new ones.
Whenever a business track churns on either a monthly or a quarterly basis, it should dig much more deeply than merely the customer count. It needs to identify the personas and profiles of the churned customers along with the industries or anything unique that can help discover why the customers failed to renew.
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Revenue Churn Rate
As mentioned earlier, the revenue churn rate is as essential as the customer churn rate when evaluating the overall outside impact a few customers might have over the rest of the customers.
Especially if the subscription price is variable, which depends on the number of users a customer pays for, the customer churn rate might be completely different than the actual churn rate in case some customers generate much more revenue than others.
Measuring both customers and revenue churn rate is essential so that a business isn't surprised when it receives a quarterly or annual report on overall numbers.
A custom software development company must keep track of the revenue churn rate after achieving success in its SaaS product.
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Customer Lifetime Value (CLV)
It is the average amount of money the customers pay during their entire engagement with the SaaS business. This metric offers businesses quite an accurate picture of their current growth.
Customer Lifetime Value shows what the worth of an average customer is. And the businesses still in the startup mode can display their business value to investors.
Also, as discussed earlier, most SaaS businesses operate on the subscription-based model. Hence, each renewal leads to another period of recurring revenue, which ultimately increases the lifetime value per each customer.
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Customer Acquisition Cost (CAC)
It shows how much business costs to acquire new customers and how much value those customers bring to the company.
Also, when combined with CLV, it helps firms guarantee that their business model is quite viable.
A business can quickly work out Customer Acquisition Costs by simply considering the exact amount of investment made on marketing and sale in a given month, which includes employees' salaries as well as other related expenditures, and then simply dividing that by an overall number of customers that were acquired in that month.
This metric is quite essential for extensive data development services.
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Months-to-Recover CAC
It assists in determining how long after the business has closed a customer it recoups the total Customer Acquisition Cost.
In other words, it takes months to recover the CAC, which shows how quickly a customer starts generating a Return on Investment for the business. It should get smaller over time for the company to grow. Divide CAC by the total product of gross margin and MRR or Monthly Recurring Revenue.
Read More: How to Develop a SAAS Product Step by Step?
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Customer Engagement Score
It can offer you a rare glimpse of how engaged your customer is. It signifies how often they log in, what they do on the software, and other contributing metrics, which show the likelihood that they will churn.
Suppose a customer is using a SaaS service multiple times a day, every day. In that case, it will be more challenging even to consider canceling their subscription to something part of their routine.
Every business's customer engagement score can vary depending on how a typical user or customer uses the software. To create a business's customer engagement score, it needs to come up with an extensive list of inputs that predict the longevity and satisfaction of the customer through observing the most satisfied and longest-standing customers.
After a business has the list of these inputs along with the value assigned to each one, also depending on how crucial they are to customer retention, the company can calculate the overall engagement score across the board for the customers such that it can easily and quickly evaluate customer health with a single data point.
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Total Qualified Marketing Traffic
Every business understands the importance of website traffic. The actual reporting on the total unique visitors and traffic per channel must be an essential part of the business's reporting routine.
In the case of a SaaS product development company, it needs to be more profound. Many SaaS websites have a login link on their website, generally on the top navigation. Offering a cloud-based solution, the customers have to log in, which means they have to revisit the website.
As the users of the app increase, so will the overall traffic of the business. It can lead to false data and show higher traffic growth owing to the marketing initiatives, which is different from reality.
It is essential to independently track all of these returning customers as they can easily skew the traffic numbers.
A marketer needs to follow what actual percentage of the visitors are already the business's customers and which are essentially qualified marketing traffic. The ability to differentiate these two groups will easily allow the marketer to set actional traffic key performance indicators and even build a much better traffic generation plan.
Also, there are many ways to quickly identify this traffic as returning customers. You can use event tracking to count each time every visitor reaches the company's login screen or even clicks the link present in the navigation.
Also, you can easily use in-app analytics to identify logins and usage per month.
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Leads by Lifecycle Stage
For a business, the importance of leads is humungous. A primary charge is a prospect starting to conduct their research.
But breaking tips into distinct subcategories outlines where they are in the buying process.
Marketing Qualified Lead is a prospect who has taken additional research steps like returning to a website etc.
Sales Qualified Lead is a prospect who has even moved way beyond the initial phase of research, is most likely considering vendors, and is worth a direct follow-up for sales.
The entire sales process of SaaS products can easily range from a couple of days to a whole year. Hence, having a complete grasp on these lead qualification definitions, such as lead, MQL, and SQL, will undoubtedly assist in identifying if and where the tips may get stuck in the entire funnel.
Since most of the research is done by the prospect, it is up to the opportunity to take the next step and even request a free trial or a demo.
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Lead-to-Customer Rate
For any business, driving the customers is the final goal. Here, the importance of the lead-to-customer rates comes into significance.
It shows how well the company generates sales-ready leads and improves over time. It even outlines how many leaders, on average, turn into customers. It offers the sales process's efficiency and leads nurturing methods.
Among the most streamlined ways to gather the data is through the implementation of closed-loop reporting.
Through the integration of customer relationship management software with analytics software, every time a deal is completed, that particular contact is marked as a business customer within the analytics reports.
A crystal clear view of how various customers close will often offer unique data into which campaigns were generally most successful and into the expected behavior of all the customers. It will also help shape new marketing strategies and campaigns throughout the year. It is essential in businesses like cloud computing services.
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Customer Health Score
Like customer engagement scores discussed earlier, a business should come up with a specific score that helps the frontline success of customer managers to predict the customer's relationship health with the company and whether it is at risk.
Utilizing a customer service tool with predictive analytics is critical in creating and maintaining a customer base. It is usually done because it is generally too late whenever a customer informs them that they wish to cancel the subscription.
If a business wishes to stop customers from leaving, it needs to have data to work on proactively to prevent it.
Hence, customer health scoring, which assigns various values to separate signals of customer loyalty or even customer churn, assists the customer-facing employees to easily have a bird's-eye view of how their entire portfolio of customers is essentially doing such that they can easily reach out to any customer at risk of churning through additional support, educational resources, etc. before they lose that customer.
Data-Driven
Mentioned above are several nuances that need to be considered when reporting on various marketing and sales data for any SaaS business.
Indeed, these metrics can easily be applied across different industry verticals and business types and need to be monitored regularly.
Also, it is essential to put vital reports in place and set benchmarks for each of them.
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Conclusion
When it comes down to achieving the growth of a business, it is quite a tedious task. It is more difficult in the case of any SaaS business as it has to exert additional efforts to achieve the required growth through recurring business, which is the basic foundation of the SaaS business.
Also, a company that wishes to pursue software product development of SaaS products that the customers value has to consider various aspects to retain them.
Even the pricing strategy needs to be under growth sustainability. Also, more profits need to be generated than the total investment made to keep the customers to bring down the real churn rate, expenditure on marketing campaigns, salaries of employees, etc.
The SaaS mentioned above business metrics assist a SaaS business in keeping track of the actual business growth and even mitigate different issues that arise in the industry via analyzing these metrics.
