Essential SaaS Metrics Every Business Owner Must Track
The main reason to consider SaaS metrics in the first place is to keep track of not only how much the business grows, but also to pinpoint exactly whatever it is that is not adding to the profitability of the business. Here’s where SaaS metrics come into play. Businesses tend to opt for SaaS metrics to limit their tracking to the more important parts of their business. The key metrics are selected carefully, focusing mainly on the ones that will measure the success of the business.
Monthly Recurring Revenue
The first SaaS metrics is MRR(Monthly Recurring Revenue). In SaaS businesses, the initial investment needed to build the business from scratch is provided by the manufacturer. After it has proven its credibility to potential customers, and have managed to bring these potential customers on board with its stability. Then only do the businesses start collecting monthly subscriptions from its customers. The MRR is given more importance because it is the amount of revenue the business is adding to or losing from their expected amount to receive every month. It is extremely crucial to track the MRR because it will give you an idea of just how many stops the business has to pull out to achieve its expectations.
The second SaaS metrics is Churn. Simply put, customer churn is when your current customers terminate any business with you. Depending on how your firm operates, it can mean that your client has closed their account, canceled subscription, has not renewed their service agreement or contract, or simply has decided to turn to another service provider in your place. Hence, the rate at which customers have severed ties with you is the churn rate for your business.
Churn rate can be calculated in percentage in two ways. For the first method, you need to take the total number of customers that were there in the beginning of the current month, and the number of customers that were lost. Dividing the first by the second and then calculating percentage gives you the churn rate.
Churn rate=(Number of customers lost)/(Number of starting customers) x 100%
A similar calculation can be done, but instead of taking starting subscribers, we consider the number of customers who remain at the end of each month.
Churn rate=(Number of customers lost)/(Number of ending customers) x 100%
A revenue-based calculation can also be done, using the Monthly Reoccurring Revenue (MRR) metric as their baseline figure.
Churn rate=(((MRR at the beginning of month-MRR at the end of the month)- Money brought in by existing clients))/(MRR at the beginning of month)
If the churn is negative, it would mean that the company would still make money in spite of MRR loss. It is optimal for a business to have a low churn rate so that you avoid losing customers and keep making profit.
However, the point remains that not all businesses were made equal. What may be amazing churn rate for one business might be suicidal for another, depending on your field of service.
In order to reduce churn rate, companies should focus on making the first impression a lasting one, keep exceeding expectations of the customers and most importantly, provide great service. It’s also important to find out why customers churn, and fix that particular issue.
Cost per Acquisition
The third SaaS metrics is Cost per Acquisition. What this measures is the expenses made by the business on marketing and sales. In order to make sure that a certain product reaches all the layers of the marketing world, it is very easy for a business to lose track of just how much it is spending to make sure its product is received on a larger scale. Keeping track of such expenses will help the business to prioritise their marketing strategies better.
For a starter SaaS business, these three are the most important SaaS metrics to be kept track of. Once the business has flourished and managed to stand on a stable ground, it is encouraged that they opt for more branches of SaaS metrics which will undoubtedly make their work a lot easier and help them envision an much simpler endgame.