What are SaaS Metrics and KPIs?

SaaS (software-as-a-service) metrics are benchmarks used by businesses to evaluate overall growth and financial performance.  

KPIs (key performance indicators) are more specific data points used to measure strategic goals. 

SaaS metrics and KPIs allow founders and executives to make informed decisions.

Some of the most important SaaS metrics that businesses ought to track are:

• MRR (Monthly Recurring Revenue): This is a fundamental metric that analyses the predictable revenue your SaaS business has gained over the course of a month.
• Churn Rate: By monitoring this metric, you can identify the percentage of users that have closed their subscriptions. Keeping an eye on this benchmark helps in quickly tracking customer satifaction issues and effectively addressing them. 
• Customer Acquisition Cost (CAC): With the help of this metric, SaaS businesses can determine the costs associated with acquiring new customers. This means considering your marketing, support, and sales expenses required in the process of acquiring new users. 
• Customer Lifetime Value (CLV): This metric reveals how much revenue your user relationships are generating. When you are aware of your CAC expenses, tracking CLV helps in determining if there is a return on investment.
• Net Revenue Retention (NRR): Monitor this metric to understand the amount of revenue your SaaS business is generating from upgrades and expansions (cross-sales and upsells).

Financial modeling in the SaaS (software-as-a-service) industry is the process of creating specific revenue-projecting models based on the characteristics of different SaaS business models. These characteristics include recurring revenue, churn rates, and acquisition expenses. 

To use financial modeling for income forecasting, begin with a simple model and continuously elaborate on it.

Here are two common revenue recognition methods SaaS businesses use: 

• Accrual Accounting: In this case, income is recognized when earned, even if payment has not been received yet. This method allows for a precise representation of the company’s financial performance.
• Cash-Basis Accounting: This method recognizes income once it is received. While it can be an appropriate option for small businesses, it can alter the perception of a company’s financial health.

Here are four aspects to consider when optimizing your SaaS pricing strategy: 

• Value-based monetization: Highlight the value your product delivers. Your pricing strategy needs to communicate the benefits your users are gaining, not just cover the production and maintenance costs.
• Tiered Pricing: Offer customers different pricing plans to choose from. You will able to target different market segments and audiences.
• Experiment: It’s important to A/B test different pricing strategies and messaging to understand which option is the right one for your customers. 
• Constant monitoring: Pricing optimizations are an ongoing process. Continuously reassess your process, evaluate your product, and track market changes.

To effectively track your SaaS metrics and KPIs, consider the following three practices:

• Visual Dashboards: Obtain insights by collecting real-time overviews of your metrics and KPIs. 
• Regular Monitoring: Set up metric evaluation timeframes (monthly, weekly, or quarterly) to ensure regular monitoring.
• Prioritize Insights: Share data reports and evaluations across your entire SaaS organization to ensure your entire team is aware of the results.