Top 20 Essential SaaS Growth Metrics Every Company Should Track

Manoj Palanikumar
|
June 6, 2024
Top 20 Essential SaaS Growth Metrics Every Company Should Track

Contents

If you’re measuring everything, then you’re measuring nothing.

In SaaS businesses (software as a service), data-driven decisions are of the utmost importance. Although the data is served on plates, you should know which is right for your business. That is why it is essential to measure SaaS growth metrics to determine important factors for your SaaS business.

With the information overload these days, it is very likely that you will fall into the maze and get confused about what needs to be tracked and measured. But fear not! In this blog, we have created a list of important SaaS growth metrics that need to be tracked and why it is essential to track them.

Product managers, marketing departments, and customer-facing teams usually track these most important SaaS metrics.

The 20 Best SaaS Growth Metrics that SaaS Companies Should Measure

The SaaS metrics are divided into five types:

Acquisition Metrics

Acquisition metrics help you understand the efficiency and effectiveness of your customer acquisition strategy and their ability to generate revenue. These SaaS metrics can then be used to optimize your marketing efforts and sales strategies.

  1. Customer acquisition cost (CAC)
  2. Months to recover CAC
  3. Customer conversion rate

Engagement Metrics

Engagement metrics are the most important SaaS metrics that help you understand how actively paying customers use your product and how engaged they are. This enables you to improve the user experience and functionality of the product.

  1. Daily active users (DAU)
  2. Customer engagement score (CES)

Retention metrics

Retention metrics are critical for understanding how well you retain your paying customers and the recurring revenue generated. These metrics indicate customer satisfaction score.

  1. Customer churn rate
  2. Revenue churn rate
  3. Retention rate
  4. Net revenue retention (NRR)

Growth Metrics

Growth metrics focus on your business's overall expansion and scalability. They’re essential in refining customer acquisition and customer retention.

  1. Monthly recurring revenue (MRR)
  2. Customer monthly growth rate (CMGR)
  3. Net promoter score (NPS)

Economic metrics

Economic metrics provide insights into your SaaS business operations' financial health and efficiency, including profit, cash flow, and other expenses.

  1. Gross Margin
  2. Customer lifetime value (LTV)
  3. LTV-to-CAC ratio 

Every organization has a different stage as the business evolves. While the industry grows, the priorities shift, and so do the important SaaS metrics you need to track. In this article, we have divided the metrics based on your company's stage. 

Early Stage SaaS Growth Metrics:

At this stage, SaaS companies have limited internal resources. Hence, it would make sense to focus solely on acquiring customers and validating the product-market fit. This requires the SaaS business to focus on minimum viable metrics, ensuring SaaS companies focus on what truly matters and make better-informed decisions.

1. Customer Acquisition Cost

Customer acquisition cost (CAC) measures the amount spent on acquiring a new customer, including all marketing efforts, sales team, and other associated expenses. It is calculated by dividing the total amount paid and the number of customers acquired that month. It helps you understand the efficiency of your acquisition efforts.

Formula:

Customer acquisition cost (CAC) = Total amount spent on marketing and sales process over a month ÷ Number of customers acquired within a month

Why track customer acquisition costs?

  • It helps optimize your marketing spend.
  • It allows you to evaluate the effectiveness of different acquisition channels.
  • High CAC can indicate the need for strategy adjustments.

2. Months to Recover CAC

This metric measures how long it takes to recover the cost of acquiring a customer.

Formula:

Months to Recover CAC = CAC / (MRR x GM)

Why track Months to Recover CAC?

  • Provides insights into cash flow and financial health.
  • Helps plan and manage customer acquisition strategies.
  • A shorter recovery period indicates a quicker return on investment, but it takes time.

3. Customer Lifetime Value

LTV is the total revenue an organization can expect from a customer account over its lifetime. Understanding this metric helps make informed decisions about customer acquisition and customer retention strategies. As paying customers use your service for longer, the lifetime value increases.

Formula:

LTV = (Customer revenue × customer lifetime value) – the cost of acquisition and maintenance

Why track LTV?

  • Determines the profitability of customer segments.
  • Helps in aligning marketing efforts and sales efforts with revenue goals.
  • A high LTV compared to CAC indicates sustainable growth.

4. Customer Conversion Rate

The customer conversion rate is the percentage of trial users who convert into paying customers.

Formula:

Conversion rate = total no. of trial users who signed up for paid subscription ÷ total no. of trial users

Why track Customer Conversion Rate?

  • Indicates the efficiency of your sales funnel.
  • Helps in evaluating the sales strategies.
  • A low conversion rate can highlight issues in the sales process or product-market fit.

5. LTV-to-CAC Ratio

The LTV-to-CAC ratio compares a customer lifetime value (LTV) to the cost of acquiring (CAC) that customer.

Formula: 

LTV-to-CAC ratio = Customer lifetime value over a specific period/customer acquisition cost over a particular period

Why track the LTV-to-CAC Ratio?

  • This indicates the profitability of your customer acquisition efforts. For a profitable SaaS business model, the ratio should be 3:1.
  • It helps in assessing the long-term sustainability of your SaaS business model.
  • A higher ratio suggests better returns on your marketing efforts and sales investments. 

Growth Stage SaaS Metrics

While the SaaS company grows, the metrics involved and the metrics that need to be tracked increase. Plus, now that your organization is growing, you have the resources and infrastructure to analyze the metrics more deeply. This helps improve the strategies, which eventually helps discover missed and hidden opportunities.

Here is the detailed breakdown of the SaaS growth marketing metrics you need to track as an advanced SaaS company in the growth stage:

6. Monthly Recurring Revenue (MRR)

MRR represents the predictable monthly revenue that SaaS companies can expect every month. It's a key indicator of growth and stability.

Formula:

Monthly Recurring Revenue (MRR) = Total contract value / No. of years

Why track MRR?

  • Provides a clear picture of average revenue trends
  • Helps in forecasting future revenue
  • Essential for budgeting and financial planning

Annual Recurring Revenue (ARR)

Annual recurring revenue represents the predictable total revenue a SaaS company can expect annually from its paying customers.

Why track Annual Recurring Revenue (ARR)?

  • Annual recurring revenue provides a clear picture of revenue trends.
  • It helps in forecasting future revenue.
  • Essential for budgeting and financial planning.

7. Customer Churn Rate

The customer churn rate is the percentage that shows customers who stop using your service during a given period. It's a critical metric for understanding customer retention and satisfaction.

Formula:

Customer Churn rate = (No. of churned customers in a period ÷ total number of customers to start period) × 100

Why track Customer Churn Rate?

  • A high customer churn rate can signal dissatisfaction and prompt corrective actions.
  • It helps in predicting long-term revenue impacts.
  • Essential for improving customer experience and retention strategies.

8. Revenue Churn Rate

The revenue churn rate is the percentage of recurring revenue lost due to cancellations or downgrades.

Formula:

Revenue Churn Rate = (MRR Lost During Period / MRR at Start of Period) × 100

Why track Revenue Churn Rate?

  • Provides insights into the financial impact of revenue churn.
  • It helps identify revenue at risk and revenue lost.

9. Retention Rate 

The customer retention rate is the percentage of existing customers SaaS companies retain over time.

Formula:

Retention Rate = [(Number of customers at the end of the period - No. of new customers acquired during the period) / (Number. of customers at the start of period)] × 100

Why track Customer Retention Rate?

  • Indicates customer loyalty and satisfaction.
  • It helps in predicting long-term SaaS business growth sustainability.
  • Higher retention rates can signal the product-market fit.

10. Net Revenue Retention

Net revenue retention measures the percentage of recurring revenue growth over a period retained from existing customers, including upsells and cross-sells, minus downgrades and customer churn.

Formula: 

NRR rate = (Retained revenue / Base recurring revenue) x 100

Why track NRR?

  • Indicates the overall revenue growth potential of your existing customer base.
  • Helps in assessing the impact of customer success initiatives.
  • A higher NRR signifies strong customer loyalty and recurring revenue growth.

11. Net Promoter Score (NPS)

Net Promoter Score (NPS) is a customer loyalty metric that indicates whether existing customers will recommend your product to others. It's a strong indicator of customer satisfaction and brand loyalty. You need to send a Net Promoter Score (NPS) survey and get responses from your current customers.

Why track Net Promoter Score (NPS)?

  • Identifies promoters who can become advocates for your brand.
  • Highlights areas for improvement based on customer feedback.
  • Correlates with long-term growth through word-of-mouth referrals.

12. Customer Monthly Growth Rate

CMGR measures the monthly growth rate of your customer base.

Formula:

CMGR = ( No. of Customers at End of Period / No. of Customers at Start of Period) × 100

​Why track CMGR?

  • Indicates the effectiveness of your strategies used for acquiring customers.
  • A higher CMGR indicates robust customer growth.

13. Daily Active Users and Monthly Active Users

Daily active users and monthly active users measure the number of unique users engaging with your product daily and monthly, respectively.

Why track DAU and MAU?

  • DAU and monthly active users provide insights into user engagement and product stickiness.
  • A high ratio of DAU to monthly active users indicates strong user engagement.

14. Customer Engagement Score

CES is a comprehensive metric that evaluates the level of engagement and interaction customers have with your SaaS company. It combines various indicators of user activity to provide a holistic view of customer involvement.

Formula:

The customer engagement score is typically calculated by assigning weighted values to different engagement activities (e.g., logins, feature usage, session duration) and summing these values to get a total score for each customer. The exact formula varies depending on the specific activities and weights necessary for your product.

CES = (w1*n1) + (w2 * n2) + … + (w# + n#)

Example Formula:

CES=(Login Frequency×0.3)+(Feature Usage×0.4)+(Session Duration×0.3)

Why track CES?

  • Understanding which features drive engagement can inform product enhancements and new feature development.

Some Additional Growth Metrics for a SaaS Company

15. Traffic-to-Lead Rate

The traffic-to-lead rate measures the percentage of website visitors that convert into leads.

Formula:

Traffic-to-Lead Rate = (No. of Leads / Total Traffic) × 100

Why track Traffic-to-Lead Rate?

  • Indicates the effectiveness of your website and landing pages.
  • Helps optimize marketing strategies to increase lead generation.
  • A low rate may indicate the need for better content or user experience enhancements.

16. Average Revenue Per User (ARPU)

ARPU is the average revenue generated per user over a specific period. This metric helps understand individual users' revenue contributions.

Formula:

Average Revenue Per User (ARPU) = MRR ÷ total no. of active subscriptions

Why track Average Revenue Per User (ARPU)?

  • Average revenue helps identify the value of different customer segments.
  • Provides insights for pricing strategies.
  • Average revenue per user is essential for revenue forecasting and growth planning.

17. Activation Rate

The activation rate is the percentage of users who take a critical action that signifies initial success with your product.  

Formula:

Activation Rate = (No. of users to successfully reach your critical event / total no. of users) x 100

Why track the Activation Rate?

  • Identifies how well users are engaging with your product.
  • Helps in refining the onboarding process to enhance user experience.
  • A higher activation rate can lead to increased customer satisfaction and retaining customers.

18. Expansion Revenue

Expansion revenue indicates additional revenue generated from existing customers through add-ons, upselling, or cross-selling.

Formula:

Expansion revenue = Total MRR generated by upselling and cross-selling from existing customers

Why track Expansion Revenue?

  • Highlights the effectiveness of your customer success and account management teams.
  • It helps identify growth opportunities within your existing customer base.
  • A high expansion revenue indicates strong customer relationships and product value.

19. Quick Ratio

The SaaS quick ratio measures a company's ability to grow recurring revenue relative to losses from customer churn over a specific period.

Formula:

Quick Ratio = (New MRR + Expansion MRR) / (Churned MRR + Contraction MRR)​

Why track Quick Ratio?

  • Provides a clear view of revenue growth efficiency.
  • Helps in assessing the effectiveness of growth strategies and customer retention efforts.
  • A quick ratio greater than one shows that your SaaS company is growing faster than it is losing revenue, which signifies healthy growth.

20. Gross Margin

Gross margin is the percentage of revenue that exceeds the cost of goods sold (COGS).

Formula:

Gross margin = ((Revenue - COGS) / (Revenue)) x 100

Why track Gross Margin?

  • It shows the profitability of your core SaaS business operations.
  • A higher gross margin indicates better profitability at a solid financial position.

FAQs

What are SaaS growth metrics?

SaaS (software as a service) growth metrics are key performance indicators that help measure a company's health and growth potential. They provide insights into customer acquisition, retaining customers, revenue generation, and overall business performance.

Why are SaaS metrics important for SaaS companies?

SaaS metrics are crucial for understanding the effectiveness of your SaaS business strategies, identifying improvement areas, and making data-driven decisions that drive growth and profitability.

What are the most important metrics for SaaS growth?

The most critical metrics for a SaaS company include:

  • Customer acquisition cost
  • Monthly recurring revenue
  • Customer Lifetime value
  • Customer Churn rate
  • Revenue churn rate
  • Net promoter score
  • Average revenue per user

How do you track a company's growth?

A company's growth can be tracked by regularly monitoring key SaaS metrics, using analytics tools, and comparing performance against set benchmarks. Periodically reviewing and analyzing these metrics helps make informed decisions and adjust strategies for sustained growth for your SaaS company.

Manoj Palanikumar
A Connoisseur at creating product-led marketing strategies that are equipped to approach both organic and paid channels.

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