What are SaaS Metrics?

SaaS (Software as a Service) metrics are KPIs (Key Performance Indicators) that track the health and performance of your software business. They can tell you about relative performance since most businesses employ them. Use data based on monitoring past trends to inform your strategy. 

You can track these SaaS metrics for your business: 

• MRR (Monthly Recurring Revenue): measures the revenue your SaaS company receives every month on a recurring basis. 
• Churn Rate: the percentage of customers who cancel their subscription in a particular time period. 
• Customer Acquisition Cost (CAC): the total cost of acquiring a new customer, including market, sales, and onboarding. 
• Customer Lifetime Value (LTV): the total amount of revenue a customer represents during the course of their relationship with your business.
• Net Promoter Score (NPS): measures how satisfied and loyal a customer is with your business.

The benefits of employing SaaS metrics are: 

• Shows how well you’re doing: meeting objectives requires implementing a system to progress with metrics. 
• Inform your strategy: make data-driven decisions instead of intuition to determine the direction of your business.
• Take action in good time: prevent churn in the early stages before your business gets in trouble.

Work out your MRR by multiplying the number of paying users you have by their average revenue (ARPU). Follow this formula: 

Example: 1000 users subscribing at an average of $100/month = $100,000 MRR

Here are three ways SaaS businesses can use metrics to evaluate SaaS churn: 

• Understand churn: Collect metrics to spot patterns behind churn, such as poor onboarding.
• Monitor engagement: Keep track of ongoing signs of engagement to identify the health of your customers. 
• Act on your metrics by reaching out: Salvage at-risk customers with surveys, personalized calls, or rewards. 

Here are the pitfalls that follow a misinterpretation of your SaaS business metrics: 

• Irrelevant metrics: Evaluating metrics that are not relevant to your objectives.
• Failure to contextualize: Metrics don’t mean anything unless taken in a broader picture. 
• Losing momentum: Focusing on data collection without acting on the information gathered.

The Rule of 40 is a principle used in the SaaS landscape, where the growth and profit margin should be equivalent to or above 40%. Sustainable SaaS companies should combine growth industry trends and overall profitability.