There are many metrics you can track when evaluating the success of your SaaS business. However, these five metrics will give you a complete picture of the health of your business without overwhelming you with information.
1. Monthly Recurring Revenue
The monthly recurring revenue(MRR) is the most important number you need to track as a SaaS business owner, because it is the one that most determines whether you have a sustainable business or not. Monthly recurring revenue is the amount of money that you expect to receive each month. A low MRR can spell trouble down the line, as you need a steady stream of revenue to maintain and improve your software as well as retain and service new and existing customers.
2. Monthly Churn
Churn is the number of customers you are losing each month. If your churn rate is high, in the double digits, then you have a problem with your product that you need to fix immediately. The easiest way to fix your churn rate is to contact former customers and ask why they left. Once you have contacted enough former subscribers, patterns will likely emerge, and you will have the information you need to fix the problems with your product. Too high a churn rate and it will cost too much to acquire new customers, which leads into the next important SaaS metric.
3. Customer Acquisition Cost
Marketing is expensive. Customer acquisition cost (CAC) lets you know how much it costs to gain new subscribers. You need to know if your marketing campaigns are profitable or if you are spending more money to acquire new customers than you will receive. A simple way to calculate your CAC is to add all of your marketing and sales expenses for the previous month and then divide that number by the number of new customers you acquired that month. In addition, calculate the CAC for individual marketing campaigns. You want to know which marketing channels are giving you the most return on your investment so you can better allocate your marketing dollars and still achieve your goals.
3. Average Revenue Per Customer
The average revenue per customer is an important metric when taken into consideration with your churn rate and cost per acquisition. If your churn rate is high, the average revenue per customer lets you know just how much money you are losing each time a customer unsubscribes. If your cost per acquisition is high, then you will need to look for ways to increase the amount of revenue you receive per customer to offset those costs. The easiest way to increase revenue per customer is to use upselling and cross-selling. The higher you push your per customer revenue, the more money you can spend to acquire new customers and still have healthy margins.
5. Lifetime Value
While the average revenue per customer details the amount of revenue you have already received, the lifetime value predicts the amount of revenue you will receive over the lifetime of a subscriber. There are several ways you can determine the lifetime value of a customer. The simplest way is to take your average subscription length and multiply it by your average monthly revenue. For a complete number, factor in the costs to acquire, support and retain customers as well. Once you know your lifetime value, you will have a sense of what it costs you when you lose or gain a customer and where to focus your efforts to grow your business to increase the lifetime value of each customer. Industry standard suggests your lifetime customer value should be three times your customer acquisition cost.
SaaS is an ever growing industry, and those who make it, value metrics. To evaluate your metrics properly, you need the full picture. Evaluate these metrics often. They are your ticket to success. To host your SaaS on a safe, efficient environment, contact us.