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 forward. 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 truly matter?
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 monitor growth trends, forecast future revenue, and identify potential issues early.
How to calculate it:
MRR = Total Monthly Revenue from all active subscriptions.
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 ensures you’re acquiring customers profitably.
How to calculate it:
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 generating a healthy return on investment.
Why it matters:
CLV estimates the total revenue you can expect from a customer over their entire relationship with your business. A high CLV indicates strong customer retention and the ability to generate long-term value.
How to calculate it:
CLV = Average Revenue Per User (ARPU) × Average Customer Lifespan.
Pro tip:
Focus on increasing CLV by improving customer retention, offering upsells, and enhancing the overall customer experience.
Why it matters:
Churn rate is the percentage of customers who cancel their subscriptions during a given period. High churn can quickly erode your revenue and stunt growth, making it one of the most critical metrics to monitor.
How to calculate it:
Churn Rate = (Number of Customers Lost in a Period ÷ Total Customers at the Start of the Period) × 100.
Pro tip:
Track both customer churn (number of customers lost) and revenue churn (revenue lost from cancellations) for a more comprehensive view.
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 it:
NPS = % of Promoters (scores 9-10) - % of Detractors (scores 0-6).
Pro tip:
Use NPS feedback to identify areas for improvement and turn detractors into promoters.
Why it matters:
ARPU helps you understand how much revenue you’re generating per customer. It’s a key metric for evaluating pricing strategies and identifying opportunities for upselling or cross-selling.
How to calculate it:
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, providing insight into the effectiveness of your retention strategies.
How to calculate it:
CRR = [(Customers at End of Period - New Customers Acquired) ÷ Customers at Start of Period] × 100.
Pro tip:
Combine CRR with churn rate to get a full picture of your customer retention efforts.
Why it matters:
This metric tracks the percentage of leads that convert into paying customers. It’s a critical indicator of the effectiveness of your sales funnel and marketing efforts.
How to calculate it:
Lead-to-Customer 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, managing burn rate is crucial to ensure you don’t run out of funds before reaching profitability.
How to calculate it:
Burn Rate = Monthly Operating Expenses - Monthly Revenue.
Pro tip:
Keep a close eye on your runway (how many months of cash you have left) to avoid financial surprises.
Why it matters:
TTV measures how quickly new customers see value from your product. A shorter TTV can improve customer satisfaction and reduce churn, as customers are more likely to stick around if they experience value early.
How to calculate it:
TTV = Time from Onboarding Start to First Value Delivered.
Pro tip:
Streamline your onboarding process and provide clear guidance to help customers achieve value faster.
Tracking these key SaaS metrics is essential for understanding your business’s health, identifying growth opportunities, and addressing challenges before they become major issues. Remember, metrics are only as valuable as the actions you take based on them. Regularly review your data, set benchmarks, and continuously optimize your strategies to drive SaaS success.
Which of these metrics are you currently tracking? Are there any others you’d add to the list? Let us know in the comments below!