In the fast-paced world of Software as a Service (SaaS), success isn’t just about having a great product—it’s about understanding the numbers that drive your business. Tracking the right metrics can help you make data-driven decisions, optimize your strategies, and ensure sustainable growth. But with so many metrics to choose from, how do you know which ones matter most?
In this blog post, we’ll break down the key metrics every SaaS business should track to measure performance, improve customer retention, and scale effectively. Whether you’re a startup or an established SaaS company, these metrics will provide the insights you need to stay ahead of the competition.
Why it matters:
MRR is the lifeblood of any SaaS business. It represents the predictable, recurring revenue you can expect each month. By tracking MRR, you can measure growth, forecast future revenue, and identify trends in your subscription model.
How to calculate MRR:
MRR = Total number of active customers × Average revenue per user (ARPU)
Pro tip:
Segment your MRR into categories like new MRR, expansion MRR (from upsells or cross-sells), and churned MRR to get a clearer picture of what’s driving growth or decline.
Why it matters:
CAC measures how much you’re spending to acquire a new customer. If your CAC is too high, it could indicate inefficiencies in your sales and marketing efforts. Keeping this metric in check is crucial for profitability.
How to calculate CAC:
CAC = Total sales and marketing expenses ÷ Number of new customers acquired
Pro tip:
Compare your CAC to your Customer Lifetime Value (CLV) to ensure you’re acquiring customers profitably. A good rule of thumb is to aim for a CLV-to-CAC ratio of at least 3:1.
Why it matters:
CLV estimates the total revenue you can expect from a customer over their entire relationship with your business. It’s a critical metric for understanding the long-term value of your customer base and justifying your CAC.
How to calculate CLV:
CLV = ARPU × Average customer lifespan
Pro tip:
Focus on increasing CLV by improving customer retention, offering upsells, and delivering exceptional value to your users.
Why it matters:
Churn rate is the percentage of customers who cancel their subscriptions during a given period. High churn can quickly erode your MRR and stunt growth, making it one of the most important metrics to monitor.
How to calculate churn rate:
Churn Rate = (Number of customers lost during a period ÷ Total customers at the start of the period) × 100
Pro tip:
Track both customer churn and revenue churn. While customer churn measures the number of customers lost, revenue churn accounts for the value of those customers, which can provide deeper insights.
Why it matters:
NPS measures customer satisfaction and loyalty by asking one simple question: “How likely are you to recommend our product to a friend or colleague?” A high NPS indicates happy customers who are more likely to stick around and refer others.
How to calculate NPS:
NPS = % of Promoters (score 9-10) - % of Detractors (score 0-6)
Pro tip:
Use NPS feedback to identify areas for improvement and turn detractors into promoters by addressing their concerns.
Why it matters:
ARPU helps you understand how much revenue you’re generating per customer. It’s a key metric for evaluating the effectiveness of your pricing strategy and identifying opportunities for upselling or cross-selling.
How to calculate ARPU:
ARPU = Total revenue ÷ Total number of customers
Pro tip:
Segment ARPU by customer type or plan to identify which segments are the most profitable.
Why it matters:
Retaining customers is often more cost-effective than acquiring new ones. CRR measures the percentage of customers who stay with your business over a given period, making it a critical metric for long-term growth.
How to calculate CRR:
CRR = [(Customers at the end of the period - New customers acquired during the period) ÷ Customers at the start of the period] × 100
Pro tip:
Invest in customer success initiatives, such as onboarding programs and proactive support, to boost retention.
Why it matters:
This metric tracks the percentage of leads that convert into paying customers. It’s a key indicator of the effectiveness of your sales funnel and marketing efforts.
How to calculate lead-to-customer conversion rate:
Conversion Rate = (Number of new customers ÷ Number of leads) × 100
Pro tip:
Optimize your sales funnel by identifying and addressing bottlenecks in the customer journey.
Why it matters:
Burn rate measures how quickly your company is spending cash. For SaaS startups, keeping an eye on burn rate is essential to ensure you don’t run out of funds before reaching profitability.
How to calculate burn rate:
Burn Rate = Monthly operating expenses - Monthly revenue
Pro tip:
Monitor your runway (how many months of cash you have left) to plan for fundraising or cost-cutting if necessary.
Why it matters:
TTV measures how quickly new customers experience the value of your product after signing up. A shorter TTV can lead to higher customer satisfaction and retention.
Pro tip:
Streamline your onboarding process and provide clear guidance to help customers achieve their goals faster.
Tracking these key SaaS metrics is essential for understanding your business’s health and making informed decisions. However, metrics are only as valuable as the actions you take based on them. Regularly review your data, identify trends, and adjust your strategies to drive growth and success.
By focusing on these metrics, you’ll be well-equipped to optimize your SaaS business, improve customer satisfaction, and achieve long-term profitability. Start tracking today and watch your SaaS company thrive!