20+ Essential SaaS Growth Metrics to Track
Acquisition Metrics
"What metrics should I be tracking?" is a common question SaaS startups ask. So here are seven essential metrics to track and why you'd want to follow them.
Cost of Acquiring a Customer (CAC)
SaaS companies must spend money to acquire a customer.
They might offer free trials, advertising, and other types of marketing; this is called the cost of acquiring a customer (CAC).
Most companies' most significant expense is acquiring a new customer.
An excellent way to reduce this expense is by channeling your resources and efforts into marketing channels with the highest return on ad spend (ROAS).
Three main factors impact CAC:
- Acquisition Cost
- Customer Value
- Customer Lifetime Value.
CAC: Adding up the costs of marketing and sales activities like
- advertising
- sales salaries and commissions
- lead generation
that are associated with your revenue from a given customer and then dividing that amount by the number of customers you acquired.
The general rule of thumb is to spend at most $3 to acquire customers.
Lead-to-Customer Rate
Lead-to-customer rate measures the percentage of potential leads that actually become paying customers.
It's a way to understand how effective your sales process is in converting leads to customers.
Imagine a software company receiving 1,000 inquiries (leads) about their product in a month.
Out of these, 200 become paying customers. The lead-to-customer rate would be 20% (200 customers / 1,000 leads).
This metric highlights how well a company's sales and marketing efforts convert potential customers into paying ones.
It provides insight into the effectiveness of the sales process.
Engagement Metrics
Daily Active Users (DAU) & Monthly Active Users (MAU)
These metrics show how many users are actively using a product or service on a daily and monthly basis, respectively.
They help gauge the popularity and engagement level of the offering.
If a social media platform has 1 million DAU and 5 million MAU, it means around 1 million people use it daily, and 5 million use it at least once a month.
These metrics measure user engagement and show how often people interact with a product. They help companies understand the stickiness and popularity of their offering.
Customer Engagement Score (CES)
CES quantifies how engaged and satisfied customers are with a product or service. It's often based on surveys or feedback mechanisms.
CES gauges customer satisfaction and loyalty, offering valuable insights into areas that might need improvement.
High engagement scores often correlate with customer retention.
Retention Metrics
Churn Rate
One of the frequent questions SaaS marketers ask is how to make their churn rates as low as possible.
Churn rate is a term that refers to the number of customers who cancel their subscriptions and stop using the vendor's services.
Churn rates are significant because they show how well a business retains its customers over time.
As with any business, the more you know about your customer, the better you'll be able to match their needs and expectations.
The Churn Rate: (Lost Customers / Total Customers at the beginning of the period) * 100
Suppose you had 140 customers in May and lost 12 customers at the end of May.
Your churn rate would be (12/140)* 100= 8.5%
After calculating your churn rate, it's time to ensure you're doing everything possible to reduce it.
The churn rate is one of the most critical metrics in determining how profitable a customer is for your business.
It also helps you determine whether or not specific customers are worth keeping around.
Here are some tips for you:
- Don't disengage with customers
- Make your customers feel special
- Focus on loyalty-oriented customer service
- Ask for feedback
Customer Lifetime Value (CLV)
Customer Lifetime Value (CLV) is the net profit accumulated by a company from an average customer over the entire period of their relationship with the company.
CLV is often used to decide whether to retain, grow, or dispose of customers.
The higher an individual's CLV, the more likely they should be retained and offered additional value-added products and services.
CLV is a metric that measures the value of a customer based on multiple factors. Obvious factors include sales, but other factors may also be considered like:
- What kind of behavior does this customer exhibit?
- Is it repeat business?
- Word of mouth advertising?
- Are they a stable or growing market segment for your company?
You can calculate CLV by:
Customer Lifetime Value (CLV) = (the average order total _average number of purchases _average customer lifespan)
Customer Health Score
The customer health score is an important SaaS growth statistic that aids businesses in assessing the general success and health of their client relationships.
Customer happiness, product usage, payment history, and involvement with support and marketing initiatives are some variables that determine it.
With the help of this metric, businesses can gain a thorough understanding of how their clients are doing and spot any emerging concerns before they get out of hand.
It is calculated with this formula:
Customer health score = total action value #1 + total action value #2 + total action value #3
A high customer health score indicates a solid and positive customer connection, whereas a low one suggests that the customer may be in danger of leaving or need more assistance to continue as a successful and happy client.
Growth Metrics
Customer Monthly Growth Rate (CMGR)
CMGR shows the rate at which your customer base is growing on a monthly basis. It's essential for tracking the pace of expansion.
CMGR = ((Ending Customers / Starting Customers) ^ (1 / Number of Months)) - 1.
If a subscription service starts with 100 customers and ends the month with 150, the CMGR would be approximately 50%.
CMGR is a key metric for startups and growing companies. It shows how quickly a company gains customers and helps assess whether growth targets are being met.
Net Promoter Score (NPS)
One of the most crucial SaaS growth metrics for measuring client loyalty and happiness is the net promoter score (NPS).
When customers are surveyed about their satisfaction with a business, NPS is computed by classifying the responses into three groups: detractors, passives, and promoters.
Customers who give a score of 9 or 10 are considered promoters, while those who give a score of 7 or 8 are considered passive, and those who give a score of 0 to 6 are considered detractors.
The percentage of detractors is then subtracted from the percentage of promoters to determine the NPS.
Annual Recurring Revenue
(ARR)ARRR! This exclamation can be heard from any corner of the startup world.
It's become the holy grail for many startups, including those that don't offer subscriptions or other recurring revenue models.
The most important metric for a subscription-based business is Annual Recurring Revenue (ARR).
ARR represents the total recurring revenue the company brings in each year.
ARR = (Overall Subscription Cost Per Year + Recurring Revenue From Add-ons or Upgrades) - Revenue Lost from Cancellations.
We can also calculate the ARR by multiplying MRR by 12.
Monthly Recurring Revenue (MRR)
Similar to ARR, MRR calculates the monthly revenue generated from subscriptions or recurring services.
Recurring revenue is what makes a business sustainable.
It's a great metric to track because it shows whether you are getting more customers or if your existing ones are buying more products and services.
At the end of each month, you can see how much recurring revenue you have generated and compare that to how much you made in non-recurring sales that month.
MRR = (average revenue per account)* (the total number of customers for that month)
Note: Although this calculation looks simple, the following are some considerations regarding your MRR calculation:
- Recurring revenue
- Upgrades and downgrades
- Customers churn
- Discounts
Economic Metrics
Gross Margin
Gross margin is the difference between revenue and the cost of goods sold, expressed as a percentage of revenue. It indicates the profitability of each unit sold.
Gross Margin = ((Revenue - Cost of Goods Sold) / Revenue) * 100.
It is the profit earned from each sale after deducting the cost of producing the product.
If a product sells for $50 and costs $20 to make, the gross margin is 60% (($50 - $20) / $50 * 100).
Gross margin indicates how efficiently a company is producing goods or services. It's a measure of profitability and helps assess the viability of the business model.
CAC-to-LTV Ratio
This ratio compares the cost of acquiring a customer (CAC) to the expected revenue generated from that customer over their lifetime (LTV).
It helps assess the efficiency of customer acquisition efforts.
CAC-to-LTV Ratio = CAC / LTV.
A low ratio suggests efficient spending.
This ratio ensures that the cost of acquiring a customer aligns with the revenue that the customer brings over time, ensuring healthy profitability.
Burn Multiple
This metric indicates how long a company's current cash balance will last, considering its monthly burn rate (expenses exceeding revenue).
Particularly important for startups, the burn multiple indicates how sustainable a company's financial situation is, helping avoid running out of funds.
Other Metrics:
➢ Logo Retention: This is the percentage of existing customers retained over a specific period, showing how well a company keeps its customers.
➢ Net Revenue Retention (NRR): NRR measures the revenue growth from existing customers, accounting for expansions, upsells, and churn, which can contribute significantly to overall growth.
➢ Customer Concentration: This reflects how much of a company's revenue relies on a small number of major customers.
Monitoring customer concentration helps mitigate the risk of relying too heavily on a small number of clients.
➢ Sales Qualified Lead (SQL): An SQL is a prospective customer that meets specific criteria and is deemed ready for direct sales engagement.
Identifying SQLs ensures that the sales team focuses on leads with higher conversion potential, making the sales process more efficient.
➢ Marketing Sourced Revenue (MSR): MSR tracks the revenue generated from leads that originated from marketing efforts, guiding resource allocation.
➢ Product Market Fit Score: This score evaluates how well a product meets the needs and desires of its target market, guiding product development.
➢ Expansion Revenue: Expansion revenue comes from existing customers who increase their spending, often through upsells or additional purchases.
Expansion revenue directly contributes to growth without requiring new customer acquisition efforts.
➢ Trial Conversion Rate: This rate indicates the percentage of users transitioning from using a trial version of a product to becoming paying customers, offering insights into the product's appeal.
➢ Active Trials: Active trials represent the number of ongoing trial periods for a product or service.
It indicates how successfully users adopt and use the product, which can impact their overall satisfaction and retention.
➢ Activation Rate: The activation rate measures the percentage of users who complete a desired action or reach a certain milestone after signing up or installing a product.
Must-Know SaaS Statistics for Growth
1. General SaaS Statistics
The SaaS market is growing at a breakneck speed.
It's no secret that SaaS has been taking over, but here are a few statistics that will put this growth into perspective:
➤ According to the global public cloud application services (SaaS) market size report, the software as a service (SaaS) market is estimated to reach 232 billion U.S. dollars by 2024.
➤ Statistics on global cloud security priorities show that the most important cloud security priority for companies in 2023 was preventing cloud misconfigurations.
Another 12 percent of respondents stated that their company's priority was cloud security training, while five percent of surveyed participants wanted to secure bring-your-own-device (BYOD) policies.
➤ According to Gartner's 2022 global projection for end-user expenditure, the expenditure on cloud services by individuals worldwide totaled $491 billion.
This figure is projected to ascend to $597.3 billion by the conclusion of 2023.
➤ According to the SaaS-powered workplace report, 38% of companies say that they are running almost completely on SaaS.
➤ On the other hand, SaaS stats show that 78% of small enterprises invest in at least one SaaS tool.
2. SaaS Market Statistics
➤ According to a survey conducted by Microsoft, 86% of U.S.-based respondents are planning to increase their investments in hybrid cloud and multi-cloud.
➤ In 2023, spending on IT services is projected to amount to around 1.42 trillion U.S. dollars worldwide.
➤ In the fourth fiscal quarter of 2023, Microsoft achieved revenues of $28.5 billion, solidifying its position as the foremost revenue-generating entity among cloud vendors.
Within its offerings, Azure, Microsoft's cloud computing platform, provides customers with a range of services to effectively operate and oversee applications across diverse cloud settings.
➤ In 2023, Silverlake bought Qualtrics for $12.5 billion, the biggest software company acquisition of the year. This move is expected to bring changes to the business analytics market with Silverlake's involvement.
➤ Global revenue in the creative software sector was predicted to grow steadily from 2023 to 2028, with a total increase of $1,251.7 million (13.76% growth).
According to this projection, by 2028, the revenue is expected to reach $10.4 billion, marking the fifth straight year of growth.
Notably, the creative software sector's revenue has been consistently rising in recent years.
➤ According to the European software market statistics, revenue was predicted to rise steadily from 2023 to 2028, with a total increase of $50.7 billion (34.56% growth).
The estimated revenue for 2028 is projected to reach $197.38 billion.
➤ The software as a service market in the United States is expected to experience the most significant increase, from 92 billion euros to 191 billion euros in 2025.
➤ In 2023, the SaaS market in Japan is expected to reach a value of about ¥1.5 billion.
3. SaaS Churn Statistics
Churn is a fundamental metric for SaaS companies and is the lifeblood of subscription-based businesses.
Unfortunately, it is a word that every SaaS company dreads hearing. It's what happens when customers stop using your product.
A high churn rate can spell doom for a SaaS business, and it usually means you're leaving money on the table.
➤ As a general rule of thumb, a churn rate of 5-7% is considered to be acceptable for SaaS companies.
However, a churn rate of 5-7% does seem to hold true for the larger SaaS companies, but smaller companies seem to have much higher churn.
Here are some more specific benchmarks for churn rates in different industries according to multiple sources:
- B2C SaaS: 5.06%
- B2B SaaS: 4.67%
- Enterprise SaaS: 3.74%
- SMB SaaS: 6.27%
It's important to note that these are just benchmarks, and the ideal churn rate for your company may be higher or lower depending on your specific circumstances.
➤ According to SaaS statistics, 42% of customers report that they decided to stop using a SaaS application due to poor support.
4. SaaS Pricing Statistics
The next time you're feeling discouraged about your software startup's growth, take a moment and look at the big picture.
Things may be challenging right now, but what's important is how you manage the challenges you face.
To help with that, we've put together some useful SaaS pricing statistics.
➤ In 2023, 55% of respondents prioritize optimizing current cloud usage for cost savings.
Leading the list is migrating more workloads to the cloud, at 59%, showcasing organizations' ongoing dedication to utilizing cloud services in the times ahead.
➤ According to SaaS free trial conversion rate benchmarks, with an opt-in trial, the organic free trial to conversion rate is 18.20%, while for opt-out trials, an average organic conversion rate of 48.80%.
Wrap Up
SaaS statistics and growth metrics are crucial to the success of SaaS businesses.
SaaS companies can obtain critical insights into their business performance and make data-driven decisions to spur growth by measuring key metrics like MRR, CAC, CLV, and NPS.
We've outlined the most critical metrics you need to track to get the best picture of your business.
Remember, companies are living, breathing things that must be nurtured and cared for if they are going to thrive.
With a clear picture of your business, you can make critical decisions to help it grow.
Frequently Asked Questions
1. Why are SaaS Growth Metrics and Statistics Important?
SaaS companies need growth metrics and statistics to monitor their performance, set goals, and make decisions that will result in long-term success and growth.
SaaS companies can better understand their customer base, income sources, and general financial health by keeping an eye on these data.
2. What is a Good Revenue Growth Rate for a SaaS Company?
The growth rate shows a company's revenue increase over a specific period. One must have the prior year's and current year's revenue to calculate the growth rate.
Let me give you an example for quickly calculating the monthly growth rate:
(Current Month Revenue – Prior Month Revenue) / Prior Month Revenue * 100 = % Revenue Growth Rate
As a company develops and matures, its sales growth rate changes. For example, the average revenue increase for a startup that provides SaaS services is around 15% to 45%.
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