Navigating the landscape of SaaS, or Software as a Service, requires an in-depth understanding of how success is achieved. In the highly competitive environment that this SaaS, these metrics can help guide the decision-making and strategy formulation of your company.
This article explores the metrics that every SaaS business should have on its radar. No matter if you’re just starting your journey in the SaaS world or are looking to enhance your growth, these performance indicators can help create sustainable success.
SaaS Sales Metrics You Should Know About
There are several important SaaS sales metrics you should know about. Below, you can explore a few of the most important, how to calculate them, and what their exact importance is.
Customer churn is a critical sales metric you should know about. It’s also known as customer attrition and is the rate at which customers stop doing business with a company during a period. It’s a metric used in many industries, including the SaaS world.
This rate can be calculated by dividing the number of customers lost during a period by the number of customers at the start of the period. The result is then multiplied by 100 to get the percentage you’re looking for.
This sales metric matters because the more customers you lose, the worse off your business is going to be. Understanding how to calculate this metric will help you understand any underlying issues with your product, service, or customer support and, therefore target areas for improvement.
Revenue churn, or revenue attrition, is another important metric. It measures the loss of revenue from existing customers in a specific period. It’s an important factor for businesses in the SaaS industry as it reflects customer spending, especially in subscription-based businesses.
To calculate the revenue churn rate, you need to divide the revenue lost during a period by the total recurring revenue at the start of the period. Then, take that number and multiply it by 100.
By keeping this number in mind, you can monitor the financial stability of your business.
Customer Lifetime Value
Customer lifetime value is a crucial metric that represents the total net profit a company expects to earn from a customer throughout its entire relationship. It calculates the total revenue that a business expects to earn from a customer while, at the same time, subtracting the costs associated with acquiring and serving them.
The formula involves multiplying the average value of a sale by the number of repeat transactions by the average retention time and then subtracting the customer acquisition cost.
It’s a metric that you need to know because it helps businesses decide how much to invest in acquiring new customers and retaining existing ones. It also helps you determine how important it is for your business to shift from one-time sales to building longer-lasting relationships with your unique customers.
To improve customer lifetime value, also sometimes written as CLTV or CLV, you can offer additional products or higher-tier services to existing customers, reward customers for repeat purchases, and tailor efforts to individual customer needs.
Customer Acquisition Cost
Customer acquisition cost, or CAC, is important, especially in industries like SaaS. These types of businesses need to know exactly what the cost is to acquire a new customer to evaluate marketing and sales efficiency.
It’s calculated by dividing the total cost of sales and marketing by the number of customers acquired.
Knowing this metric helps businesses determine how much they should spend on marketing and sales to pick up new customers regularly. Plus, by comparing CAC to Customer Lifetime Value, you can assess if you are spending too much to acquire customers.
Months to Recover CAC
Months to recover CAC or customer acquisition cost is a metric that reveals how long it takes for a company to recoup the costs incurred to acquire a new customer.
To calculate this metric, you need to divide CAC by the monthly recurring revenue (MRR) contributed by a customer (minus any variable costs).
Knowing the time to recover helps you manage cash flow and plan future financial strategies. If you have a shorter recovery period, you may be able to have more aggressive growth, while a longer recovery period might require more caution.
Customer Engagement Score
The customer engagement score, or CES, is a metric used to gauge the level of engagement. This applies to all brands and products as well as services. CES is different because it seeks to quantify the ongoing relationship and interaction between a customer and a company.
This score takes several different factors into account, including usage, customer support interactions, participation in forums, social media, and a few other elements.
This metric matters because the more engaged customers are, the more loyal and likelier they are to advocate for the brand.
Qualified Marketing Traffic
This metric refers to the number of visitors on a website or online platform likely to convert into leads. This is based on specific criteria or behaviors. Unlike general traffic, qualified traffic consists of individuals with interest or engagement.
These visitors should be among those who meet certain predefined criteria that align with the company’s target audience. This could be everything from demographic information to online behavior, and engagement with specific content, and more.
Understanding who qualifies as QMT enables you to employ a more tailored marketing effort and increase engagement and conversion.
Understanding and utilizing metrics like customer churn, customer lifetime value, months to recover CAC, and the others mentioned in this article are essential for any business aiming for growth.
If this article was helpful to you, consider reading up about product experience metrics.
If you’re looking to enhance your customer engagement and optimize your sales efforts, consider diving deeper into these metrics with Saleo’s comprehensive analytics platform. You can do everything with Saleo, from monitoring your customer engagement score to understanding your marketing traffic.
Request a demo today, and take the first step towards a more data-driven and customer-centric approach!