Keep your business on the right track with these analytics tipsSuccess in business is a goal every entrepreneur aspires to. But how is true success in business measured? Is it purely a dollar’s game? Or can success in business be defined by what you do and the impact it has on consumers?No matter how you choose to define success, it’s important to understand metrics are relevant indicators of your business’ overall performance.So let’s break down the top 10 KPIs your SaaS business should be monitoring to ensure smooth and efficient operation.
Revenue Growth Rate
Every business should be monitoring its finances. But in the Saas world, not all financial metrics are created equal. Some serve as a much stronger indication of performance than others.One such metric you should pay close attention to is the Revenue Growth Rate. The revenue growth rate refers to the company’s total income or sales growth over an annual period. You can calculate your company’s revenue growth rate by dividing your current year’s total income by the previous year’s annual income.
Your Profit Margin ratio is another key metric that will show you the total revenue your business brought in after expenses. In a SaaS environment, where products are typically online as opposed to physical, this will help you determine the total profit margin compared to the cost of labor, payroll, and other operating expenses.Favorable profit margins vary from industry to industry, but many companies aim for profit margins of around 20-25% or more.
Monthly Recurring Revenue
Your Monthly Recurring Revenue (MRR) measures the amount of revenue you expect to take in on a monthly basis. Your MMR is crucial to understanding how profitable your subscription service is.To calculate your company’s MRR, multiply the total number of paid users by the Average Revenue per User (ARPU) or average bill amount.
Annual Subscription Rate
If your service is subscription-based, you’re going to want to monitor subscriber growth. Your annual subscription rate is the number of new subscribers that sign up for your service each year.You can calculate your annual renewal rate by dividing the number of new subscribers acquired over the year by twelve.
Annual Renewal Rate
Similar to the annual subscription rate, you should also be monitoring the renewal rates of current subscribers. Your annual renewal rate will give you insight into the percentage of consumers that are renewing their subscriptions and the value of retaining that customer in relation to marketing spend. You can calculate your annual renewal rate by dividing the number of renewals over a yearly period by twelve.
Cost of Acquiring a Customer (CAC)
The cost of acquiring a customer shows the dollar amount you spend on sales or marketing in order to convert a single customer. You can calculate your company’s CAC by taking the total amount spent on marketing and operations over a period (say a month), then dividing that by the number of new subscriptions during that period.In order for your SaaS to survive, your CAC must remain lower than your profit margin. For many early-stage startups, this presents a huge challenge– as it’s nearly impossible for customer-generated revenue to surpass marketing spend without an established consumer base and brand recognition. SaaS companies should strive to begin recovering their CAC within a year if they expect to be in good financial shape.
Customer Lifetime Value (CLV/LTV)
The Customer Lifetime Value rate will show the total revenue generated by a single customer over the entire lifecycle of their account. Customer Lifetime Value is an extremely valuable SaaS metric because it shows how consumers engage with your product over a long period of time, if and when they see product usefulness drop off, and the value of retention per individual customer. The Customer Lifetime Value rate can be calculated by multiplying customer revenue by the customer lifetime, then subtracting the cost of acquisition and maintenance.
The activation rate is a key conversion metric that measures the percentage of potential customers who successfully complete one step in your onboarding process. This can be any pre-conversion operation such as downloading your lead magnet, subscribing to your email list, or engaging with a link or CTA.Your activation rate is important to track because it gives you a precise indicator of how your onboarding campaigns are performing and what factors seem to be pushing or pulling people to sign up for your service.
Funnel Drop Off Rate
Similarly to the activation rate, our funnel drop-off rate is a measurement of how many unique visitors begin and abandon a sales funnel without making a purchase. This will show you how customers view your sales funnels, helping identity points that are working and those that can be improved.To calculate funnel drop-off, first find the number of clicks of a specific step in your conversion funnel. Subtract that number from the number of conversions from the first onboarding step. Then divide that value by the original number of visits to find out how many customers you lost (multiply by 100 to get your percentage).
CSAT Scores / Net Promoter Scores
When sales are your service, how customers view your service is imperative. Your CSAT and Net Promoter scores are great metrics to further your understanding of how customers are interacting with your product.CSAT stands for customer satisfaction score. CSAT scores are collected through the completion of a customer satisfaction survey. A CSAT score above 80% is considered good for most SaaS businesses.Net Promoter scores are based on the question “how likely are you to recommend this service to a friend” and graded on a numeric scale (1 – 10). Net Promoter scores are also self-reported, so they generally serve as an accurate assessment of how your customers feel about your service or product.