What are the SaaS business metrics that matter most and why? - Coffee with CIS - Latest News & Articles

What are the SaaS business metrics that matter most and why?

In order to achieve growth in business, irrespective of the industry vertical it actually belongs to is quite difficult.

It is similar in the case of SaaS businesses that are marred with additional complications as well as complexities of needing to sustain the growth period for quite some time. Moreover, sustaining this growth in this competitive market is quite difficult for any SaaS development company.

It is an established 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 major section of the revenue is generally collected at the moment when the product is sold, and the retention of the customer makes simply a small section of the entire revenue. But in the case of SaaS businesses, the revenue is essentially distributed evenly over an extended period of time. However, various factors can affect the growth of SaaS businesses. Customers can easily affect the growth of any SaaS business, like any other business. There are certain ways through which customers’ decisions and choices can affect the growth rate of 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 not satisfied with the product or the service, he or she will switch to an alternate one. This can cause the business to lose quite a huge amount of money which was spent on the up-front sales as well as marketing investment it has made to gain those customers initially. Also, if too many customers are leaving the business before the business earns back its investment, especially if it is extended over a time period of months and sometimes, years, then the SaaS business won’t achieve sustainability.

It makes customer retention a crucial aspect for custom software development services indulged in the SaaS business. A variety of decisions that the SaaS business owner makes at present can actually influence the overall future performance. Also, the traditional business metrics aren’t enough to account for myriads of challenges which the business face that relies essentially on recurring revenue.

So, if a business is involved in SaaS product development, then you should consider the following aspect. The various essential metrics for SaaS businesses are generally centered around the overall future growth of the business. These metrics determine the health of the SaaS business, the impact of its marketing strategies and its effect, the health of the customer-company relationship and much more. Hence, it is certainly important to understand various essential SaaS business metrics which can certainly make a huge difference in the future results of the SaaS business.

Key SaaS Business Metrics 

1. Customer Churn Rate

This metric is essentially considered to be among the most important business metric signifying growth. 

Generally, there are two types of customer churn rates, which a business needs to consider. It includes customer churn and revenue churn. When it comes down to customer churn rate, it essentially measures the total number of business customers leaving its services every month in terms of a particular percentage of the total number of customers that a business has. In case of revenue churn, it essentially measures the amount of revenue that is paid by the customers who are leaving the business’s service each month, in terms of a particular percentage of the total revenue of the business.

When it comes to most of the SaaS companies, it is essential to measure revenue churn since it is quite a better and accurate indication of the business’s health, instead of customer churn.

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For SaaS businesses at their nascent stage, tracking the churn doesn’t hold any value especially when they have a couple of hundreds of customers, and it is quite tedious to find another 3 to 4 customers to replace those who have actually left. 

However, as the business grows, the overall minimization of the churn rate becomes quite a crucial goal. Just a single-digit churn rate can easily translate to hundreds of thousands of customers, and that means losing tens of thousands of customers every month. Hence, replacing such a huge amount of customers regularly and on a monthly basis is certainly not sustainable. 

Also, churn gets compounded over time. Single-digit monthly churn actually converts to a two-digit churn rate in annual terms, which means you have to replace a major percentage of your complete customer base to maintain the same revenue stream. So, the more customers you have, the more you need to actually make an investment in the retention of the customers before planning to further growth.

Since most of the SaaS businesses are often based on the annual subscription model, keeping the customers is as essential and crucial as acquiring new ones. Whenever a business track churns on either monthly or on a quarterly basis, it should ensure to dig much deeper than merely the customer count. It needs to identify the personas and profile of the churned customers along with the industries or anything which is unique that can help in discovering why the customers failed to renew. 

2. Revenue Churn Rate

As mentioned earlier, the revenue churn rate is as essential as the customer churn rate when it comes to evaluating the overall outside impact of few customers might have over the rest of the customers. Especially, if the subscription price is actually variable which depends on the number of users a customer pays for, then the customer churn rate might be completely different than the actual churn rate in case some customers generate much more revenue in comparison to others. 

It is essential to ensure to measure both customers as well as revenue churn rate so that a business isn’t surprised when it receives a quarterly or annual report on overall numbers. It is quite crucial for a custom software development company to keep track of revenue churn rate after achieving success in its SaaS product.

3. Customer Lifetime Value (CLV)

It is essentially the actual average amount of money that the customers actually pay during their entire engagement with the SaaS business. This metric offers businesses with quite an accurate picture of their actual growth.

Customer Lifetime Value essentially shows what the worth of an average customer is. And the businesses which are still in the startup mode can actually display the value of their business to investors. Also, as discussed earlier, most of the SaaS businesses often 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.

4. Customer Acquisition Cost (CAC)

It shows exactly how much it essentially costs a business to acquire new customers and also how much value those customers bring to the business. Also, when it is combined with CLV, it helps businesses guarantee that their particular business model is quite viable.

A business can easily work out Customer Acquisition Cost by simply considering the exact amount of investment made on marketing and sale in a given month, that includes employees’ salaries as well as other related expenditure, and then simply dividing that by an overall number of customers that were acquired in that month. This metric is quite important for big data development services.

5. 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 terms, it is months to recover the CAC, which gives a picture of how quickly a customer starts actually to generate Return on Investment for the business. It should get smaller over time for the business to grow. Simply divide CAC by the total product of gross-margin and MRR or Monthly Recurring Revenue.

6. Customer Engagement Score

It can offer you a rare glimpse at how much engaged your customer actually is. It signifies, how often they log in, what they do on the software and other various contributing metrics which shows the likelihood if they will churn or not.

If a customer is using a SaaS service multiple times a day, every day then it will be quite harder for them even to consider the cancellation of their subscription of something which is part of their routine. Every business’s customer engagement score can vary according to how a typical user or customer is using the software. In order to create a business’s customer engagement score, it needs to come up with an extensive list of inputs which 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 value assigned to each one, also depending on how crucial they are to customer’s retention, the business 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.

7. Total Qualified Marketing Traffic

Every business understands the importance of website traffic. The actual reporting on the total unique visitors as well as traffic per channel needs to be an essential part of the business’s reporting routine. In the case of SaaS product development company, it needs to be a little deeper. Lots of SaaS websites have a log-in 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 showing higher traffic growth owing to the marketing initiatives, which is not the reality. 

It is quite essential to independently track all of these returning customers as they can easily skew the traffic numbers. It is important for a marketer to track what actual percentage of the visitors are already the customers of the business 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 a plethora of ways to easily identify this traffic as overall returning customers. Essentially, 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 use in-app analytics to identify logins as well as usage per month too easily. 

8. Leads by Lifecycle Stage

For a business, the importance of leads is humungous. A basic lead is essentially a prospect who is actually starting to conduct his or her own research. But breaking leads into distinct subcategories outlines where they are exactly in the entire buying process. 

Marketing Qualified Lead is a prospect who has actually taken additional research steps like returning to website etc. 

Sales Qualified Lead is a prospect which has even move way beyond the initial phase of research, and most likely considering vendors and is actually worth a direct follow-up for sales.

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The entire sales process of the SaaS products can easily range from a couple of days to an entire year. Hence, having completely grasp on these lead qualification definitions such as lead, MQL as well as SQL, will certainly assist in identifying if and where the leads may actually get stuck in the entire funnel. Since most of the research is essentially done by the prospect, now it is up to the prospect to take the next step and even request for a free trial or a demo. 

9. Lead-to-Customer Rate

For any business, driving the customers is the final goal. Here, the importance of the lead-to-customer rates come into significance. It shows exactly how well the business is generating sales-ready leads as well as improving over time. It even outlines how many leads on an average turn into customers. It shows the efficiency of the sales process as well as lead nurturing methods. 

Among the most streamlined ways to gather the data is by means of implementation of closed-loop reporting. 

Through the integration of custom 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. By having a crystal clear view of how various customers close will often offer unique data into which different campaigns were generally most successful and into the actual common behaviour of all the customers. It will help in shaping new marketing strategies and campaigns all over the year too. It is quite important in businesses like cloud computing services.

10. Customer Health Score

Like customer engagement score 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 business and whether it is at risk. Utilizing a customer service tool that consists of predictive analytics is quite critical in creating and maintaining a customer base. It is done usually because whenever a customer informs that he or she wishes to cancel the subscription, it is generally too late.

In case a business wishes to stop customers from leaving, it needs to have data to work on proactively in order to prevent it. Hence, customer health scoring, that assigns various values to separate signals of the customer loyalty or even the customer churn assists the customer-facing employees to easily have a bird’s-eye view of how their entire portfolio of the customers are essentially doing such that they can easily reach out to any customer at risk of churning through additional support, educational resources, etc. before they actually lose that customer.

Data-Driven SaaS Development Company Growth

Mentioned above are a number of nuances that need to be considered whenever reporting on various marketing as well as sales data for any SaaS business. 

Certainly, these metrics can easily be applied across different industry verticals and business types and need to be monitored on quite a regular basis. Also, it is essential to put in place vital reports as well as set benchmarks for each of them. 

Conclusion

When it comes down to achieving the growth of a business, it is quite a tedious task. It is effectively more difficult in case of any SaaS business as it has to exert additional efforts to achieve required growth through recurring business, which is the basic foundation of the SaaS business. Also, a company which wishes to pursue software product development of SaaS product that is valued by the customers has to consider various aspects in order to retain them. 

Even the pricing strategy needs to be in accordance with growth sustainability. Also, more profits need to be generated than the total amount of investment made on keeping the customers, in order to bring down the entire churn rate, expenditure on marketing campaigns, salaries of employees, etc. The above-mentioned SaaS business metrics assist a SaaS business to keep track of the entire business growth and even mitigate different issues that arise in the business via analysing these metrics.