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Sales | Dec 1
Jessica Malnik on November 3, 2020 • 13 minute read
What’s considered an acceptable growth rate for a SaaS company?
Should I pay more attention to MRR, ARR, or ARPU?
What about CAC vs. LTV?
There are so many sales metrics (and acronyms) that you can track in SaaS.
How do you know which one to prioritize based on where you are currently at in your business.
In this post, we’re going to share the top 16 SaaS sales metrics to track, including:
SaaS stands for software as a business. These businesses are subscription-based. For example, some well-known SaaS companies are Shopify, HubSpot, and MailChimp.
While many people associate SaaS companies with selling directly to businesses, there are many notable examples of SaaS companies designed for consumers, including Netflix, Hulu, and Spotify.
A good rule of thumb is to track no more than 5 core SaaS sales metrics. These metrics should tie back to a monetary number.
According to our survey, the top 5 metrics that SaaS sales teams are tracking include:
For example, William Cannon of Messagely focuses on these four metrics – MRR, LTV, ARPU, and Churn.
“These are the four critical SaaS metrics we look at daily,” says Cannon. “One important point to note is Churn can be calculated on a customer or revenue basis and looked at gross or net; we look at all four.”
In addition, we reached out to nearly 30 sales professionals and asked them to share their most important SaaS metrics they are tracking.
“Monthly Recurring Revenue is the backbone of your company,” says Andrea Loubier of Mailbird. “This is the revenue that you can always rely upon, with new sales adding to this number. When deciding whether to add new team members to your marketing or sales division, your MRR is what you should study to ensure that your budget will allow for more expenditures.”
Oliver Andrews of OA Design Services says, “As for MRR, tracking your changes over time is easier than tracking changes in various metrics and understanding which ones are serious and which ones are not. To calculate MRR, multiply the total number of paying customers you have in a month by the average income per account.”
Peter Thaleikis of Bring Your Own Ideas Ltd. adds, “The monthly recurring revenue (MRR) is not just a classic, it’s also a key metric to track for numerous reasons. It’s giving you the bird-eye view of how sustainable your business actually is.
By nature, it’s heavily influenced by other metrics such as churn and customer acquisition costs. If your churn is high, no number of new customers will make the business long-term sustainable as your monthly customer losses keep growing faster and faster. It is like trying to fill a bucket with a large hole in the bottom.
If your customer acquisition costs (CAC) are too close to your customer lifetime value (LTV), you can’t acquire a substantial number of customers without large investments. This will keep your MRR growth minimal and makes growing your business much more difficult. The MRR and its growth combine the key health metrics for your business. Keep close track of it.”
Editor’s Note: Looking for an easy way to monitor MRR? If you use Stripe as your payment gateway, check out this Stripe MRR + Churn dashboard template to keep an eye on your churn rate and track the growth of MRR. It ensures you are retaining customers as you acquire new ones.
For example, Matthew Johnson of Userback says, “As an early-stage SaaS company, our most important sales metric is MRR as it provides a clear measure of how we are growing. We think of MRR as a tier 1 metric as it provides a clear success measure that our entire team can rally around, keeping them aligned and motivated. With that said, there are obviously many drivers behind MRR, so we also track tier 2 metrics like conversions, churn, customer numbers, and average revenue per user.
So if MRR is not tracking as well as projected, we’re able to drill down into our tier 2 metrics to understand why.”
Muhammad Mateen Khan of PureVPN adds, “Monthly recurring revenue (MRR) is one of the most popular SaaS sales metrics. It tracks all monthly sales, upsells, and churn.
Maintaining a healthy MRR is valuable because it ensures you’re focused on generating recurring, consistent revenue to boost your monthly cash inflow.
MRR is also a useful SaaS sales metric to predict future business health and growth, and many investors and executives take MRR one step further. They look at:
Comparing your current MRR and sales pipeline, you can not only measure your current recurring revenue but also predict where it will be in one, two, and three years — it’s an excellent metric to measure the health of your company.”
“The most important metrics for my marketing team are New MRR that we acquire each month, the number of new signups and customers, followed by the conversion rate on each step of our customer acquisition funnel,” says Andrzej Bieda of Landingi. “These are the basic ones to evaluate our marketing spendings and activities and how they impact the whole business.”
“Tracking the average revenue per user can be instrumental in devising marketing strategies, specifically upsells and contract renewals,” says Carrie McKeegan of Greenback Expat Tax Services. “If a company can get a clear idea of the revenue generated by each customer, then it’s much easier to understand the funds that can be allowed to secure and engage each customer.”
“There are a number of different metrics, but churn rate is especially important,” says Adam Connell of Startup Bonsai. ”It can be particularly useful as a way of understanding whether there is a problem with some part of your product. If churn rates spike, you need to work to understand why.”
Stephane Gringer of Chameleon Collective says, “Churn is affected by almost every aspect of your company. How marketing set up expectations for the product. How your onboarding has created a-ha moments that drive adoption. How customer success handles issues and questions. When churn rises, you have some immediate paths to investigate.”
Catriona Jasica of Top Vouchers Code adds, “Many SaaS companies run like a whirlwind into the market, only to go belly-up within a few years.
There are several reasons the SaaS marketplace is so challenging: a lack of market demand, poor management, high churn rate are all common SaaS challenges. Given all these challenges, there are some sales metrics that you should track, which includes
SaaS sales Metrics can give you an in-depth insight into your customers, including the profitability and value of your product. It’s an excellent tool to use to iterate and ameliorate your product.”
Editor’s Note: If you use Help Scout and Stripe, check out this free Customer Success Dashboard template to monitor churn rates.
“Lead momentum,” says Carol Tompkins of AccountsPortal. “This metric measures our business growth in terms of leads. It is important because it can help us predict future sales growth and revenue.”
“As we scale our demand gen efforts, we are focused most on CAC and our efforts to lower this so that we can scale,” says Anna Murphy of Curacubby. “We prioritize this over other lead-based metrics because those don’t get to our bottom line: revenue.
You can’t (and shouldn’t) measure everything in marketing. Our customers are a sum total of our marketing efforts, and we want to see the cost to acquire them go down as we become more targeted and focused.”
“Customer lifetime value is an important Saas metric to track because of how important returning customers are,” says Melanie Musson of AutoInsuranceCompanies.org. “Previous customers cost less and take less effort to convert again. Improving customer lifetime value should be a major focus.”
Mike Sadowski of Brand24 adds, “Customer lifetime value is the amount of revenue generated by a single customer during their subscription to the product. It tells you about the profits you make, and when you know the number, you can work on improving it. Reach to your existing customers, work on email marketing, SMS marketing, and your social media presence.
It’s easier for you to get old customers to buy your product than to acquire new ones. That’s why you need to find a balance between customer acquisition and marketing for repeat purchases, and CLV can help you with that.”
“Lifetime Value (LTV) and Customer Acquisition Cost (CAC) are instrumental in finding out if your revenue strategy is working,” says Tyler Burch of Samaritan. “It can also uncover issues with customer success, onboarding experience, and other elements that create a positive brand image. Of course, LTV and CAC will also mathematically show if you are growing.”
Bernadett Dioszegi of Bannersnack adds, “As most SaaS businesses grow, we have two main objectives: to acquire new customers and to maximize our revenue and lifetime value. The most important sales metrics that every Saas business should track are: lead velocity rate (LVR), conversion rate, monthly recurring revenue, customer lifetime value (LTV), cumulative cohort revenue (CCR), customer churn rate, lead-to-close rate, and customer acquisition cost.
To have a healthy, also profitable business, you need to know exactly what are the sales and marketing expenses that are required to acquire new customers (CAC); also the average revenue you make from a customer (LTV). Calculating the customer lifetime value will help you determine whether you are spending too much on customer acquisition.
The optimal LTV: CAC ratio is 3:1. If you want to predict future revenues and growth, it’s important to track the lead velocity rate, which quantifies your business growth in terms of leads. To calculate LVR, subtract the number of qualified leads month-over-month and divide by last month’s qualified leads.”
“Conversion rates are all about the bottom line – literally,” says Alexandra Zamolo of Beekeeper. “If your strategies are not converting over to sales, then it’s definitely important to reassess those and pivot to new campaigns. This doesn’t have to include just paid campaigns, but strategies where your company invests a lot of time also apply.”
Tracy Davis of Fetchify says, “Our most important sales metrics and actually the simplest – the conversion rates from leads to free trials and then to sales. These ultimately inform us of how our sales funnel is performing. Other metrics help us to improve our performance within the funnel – but ultimately, we need to have that steady flow of prospects before all else.”
Bruce Harpham of SaaS Marketing Services adds, “I find it helpful to track a few sales metrics. Start with your SaaS conversion rate on your website. You should see a steady or increasing number of leads come from your website. Once that part of the business is going well, I then turn to customer lifetime value. If that metric declines, it tells us we need to improve product quality, service quality, or seek out customers that are a better fit.”
“Cost per Acquisition is important so that you can recover your investment as fast as you can,” says Mudassir Ahmed of Blogging Explained. Usually, it includes two costs
Typically, the easiest way to calculate the cost is to divide your overall investment by the number of new customers you generated. The key is to train your sales team on customer retention strategy, including relevant upselling, encouraging contract renewals, etc.
As a SaaS biz owner, you will only become profitable when you’ve recovered the acquisition cost and then make the customer stick to you for a long time instead of a month or two. Otherwise, you will require big capital to survive and grow.”
“When it comes to SaaS, it’s all about LTV vs. CPA,” says Darren Litt of Marketer Hire. “Everything else is secondary and can be encompassed by those two metrics. Unfortunately, many companies get lost in a sea of numbers and lose perspective on what matters most — how much revenue you generate and what it costs you.”
“Lead to close rate – If we don’t know how many leads it takes to close a deal, then it’s extremely hard for marketing and sales to collaborate and be successful,” says Dan Seitz of Beacon Digital Marketing. “This metric not only allows us to evaluate our sales team’s ability to close but also our marketing team’s ability to generate qualified leads. One doesn’t work without the other.”
“In every SaaS company, you need to track this metric so you can improve your sales strategy,” says Dennis Bell of Byblos Coffee. ”Lead Velocity Rate is a significant metric to track. It’s a quick way to measure my lead generation’s monthly growth.
If I see that my leads are continuously growing, it means that my current strategy is effective. We keep track and report our LVR monthly. It’s a real-time indicator of growth and actual sales performance.
Keeping an eye on LVR lets me see if we have fewer leads than usual. It will allow me to take action in generating new leads to achieve growth and earn more revenue in the future.”
“There are a number of metrics we track, but some of the most important include: Monthly Active Users,” says Bronwyn Karaoglu of Genbook. “This gives us insight into the health of our business.”
“Meetings booked are a leading metric to understanding total pipeline value,” says Brennan McEachran of Soapbox.
“Tracking the funnel between meetings booked, pipeline value, and MRR are the three key milestones that help our team better understand where the gaps are in the funnel and where our time should be spent to fix those gaps.”
“The average new account value is significant,” says Ramey Miller of Text Request. “It helps us track any add-ons or those who just pick a higher-priced option, for those who haven’t used our product yet.”
Casey Hill of Bonjoro adds, “Although this can vary by SaaS and market, a huge component of growing a SaaS is often increasing ACV (Average Contract Value). It means selling into larger teams or selling buyers on higher plans.
Larger ACV deals tend to be stickier (less churn) and often opt into annual purchases (securing more stable revenue and pulling it in upfront).”
In sum, the SaaS sales metrics you choose to focus on will depend on how long you’ve been in business, whether you have product-market fit and many other factors. However, it is a great idea to pick 3-5 metrics to monitor each week.
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