The SaaS Metrics You Need to Keep an Eye On
Over the past few years, the Software as a Service market has grown exponentially. In 2021 its worth was valued at 123 billion dollars and for 2022 it is estimated to obtain a value of 145 billion USD.
This means that growth for these types of companies has become the center of attention. But how do you measure if a company is gaining market share at a steady rate? Well, there are multiple enterprise product metrics (other than revenue) that can show how much a company is growing. Let’s take a look at some of them.
What is SaaS?
If you are reading this blog entry, chances are you already know what SaaS means and you are looking for key performance indicators (SaaS KPIs) that can measure the success of your company. Nonetheless, let’s do a quick recap.
SaaS or Software-as-a-Service is the way of delivering applications over the cloud, as a service. In the past companies would have to install software in their machines one by one, but thanks to the power of the internet any company that wants to acquire a computer program for their business can do so by just signing up.
A software is just as good as how many online users it has at any given point in time. If harnessing a bigger user base is your ultimate goal, it is important to maintain the ones you currently have.
SaaS Churn measures how many users have stopped using your software in a certain period of time. Experts consider this to be a key SaaS metric as it effectively shows:
- User Count
- Industries and Personas related to a dropped user
- The why behind a fail to renew
Sales, marketing and customer service can benefit from knowing this information as it most definitely can help them develop strategies to retain users and drive the license renewal.
Customer Acquisition Cost (CAC)
Just as its name states it, CAC shows how much it costs to acquire new customers and the value they bring to your business. To calculate it, simply divide your total sales and marketing spend by the total number of new users in a specific time period.
CAC rates help SaaS companies take the reins of their growth and determine if their value of their acquisition process can drive growth.
This metric is more focused on usability and how a customer is engaged. In here you can discover:
- How often are they logging in
- What are they using the software for?
Customer engagement helps companies find out how likely a user might cancel their subscription. If you notice a trend in users logging in multiple times a day, then it is safe to assume that specific software has become part of their daily routine.
This is more for the marketing and sales teams. If you are a recurring reader of our blog, then you know that a lead is a potential customer that wants to learn more about a company. Leads are usually divided into two categories:
- Marketing Qualified Leads (MQLs): A potential customer that has entered a website multiple times. He or she is aware of the company and would like to learn more about their services.
- Sales Qualified Leads (SQLs): Someone that is ready to be approached directly by a sales rep as it is now in an evaluation stage. Ergo it is more likely to make a final purchase.
Bottom line, qualified leads are any incoming users that might end up becoming a customer. If your incoming leads are high this means the marketing strategies are working and driving new traffic onto a website. But, don’t forget it is the sales team’s responsibility to turn them into final users.
We’ve talked about user based metrics, but the revenue stream is just as important for the growth of a company. SaaS companies have multiple metrics that can measure from how much money a user is spending to how much money a user is willing to spend.
- Recurring revenue:
This measures how much money a customer spends on the platform on a regular basis. Subscription models depend heavily on this number as is one of the key indicators of estimated growth over time. Recurring revenue can be divided into:
- Monthly Recurring Revenue (MMR): The amount of money generated on any given month.
- Annual Recurring Revenue (AAR): The amount of revenue generated in a given year.
- Expansion Revenue:
It can be measured on a monthly or annual basis as it shows the extra purchases a subscription based customer did on a certain period of time. These “extras” can be additional accounts, add-ons or increasing the amount of their payment to gain access to additional features.
These are just some of the most important key point indicators (or metrics) that SaaS companies use to evaluate and predict their growth in a specific time frame. As these types of businesses become more and more profitable is it imperative to know how the company is doing and where it should go. After all, knowing the numbers can make the difference between success and closing down.
At Bexi we have the experience and knowledge to work with SaaS Companies to develop the right tools and strategies that will drive in more users without breaking the bank. Learn more about our services.