Like any other startup business, tracking metrics is vital when running SaaS. But with dozens of them to study, it can often be confusing work. So, to help you out, we have compiled a list of the ones that matter the most.
Note that this list includes only the metrics that relate directly to your SaaS operations. These are the ones that give you a more detailed picture of the health of your service. By combining it with more general metrics, you can better determine the direction it needs to take.
SaaS Metrics No. 1: Customer Acquisition Cost
The first metric that we tackle is customer acquisition cost. As the name implies, this represents the total amount you need to spend to turn an initial prospect into a paying customer. It serves as the baseline you will compare other spending metrics to.
Calculating customer acquisition cost is pretty straightforward. You take the total money you spend on acquiring customers for a given period. That includes both the amount you spend on personnel and marketing. Divide this amount by the total number of customers your startup company got for that period.
Why The Metric Matters To Your Startup Company
As mentioned, customer acquisition cost is the baseline metric for everything else. Its first purpose is to determine the value of a customer. Those that have a high acquisition cost are often considered as high value.
Image from Customer Imperative.
However, customers with low acquisition costs are also essential. They represent the people that are easiest to get. These are the ones that will often make up the bulk of your customer base. Hence you want to pay attention to them.
SaaS Metric No. 2: Customer Lifetime Value
As SaaS relies heavily on continued customer usage, you would want to know the revenue to expect from each customer. That is what the customer lifetime value (CLTV) is all about. It gives you an accurate picture of the growth you can expect for each customer.
Various formulas can help you calculate CLTV. One of the simplest is the following.
Alternatively, you can use this formula.
Note that you can use both formulas on the initial data above. That lets you see a projection of what you can generate from each customer.
Why It Matters To Your Startup Company
Aside from giving you a revenue projection, CLTV also helps you determine the amount you should spend on customers. This is known as the CLTV/CAC ratio. It might seem odd since you already have the customer acquisition cost above. But the ratio helps you adjust your acquisition strategies to be more cost-effective.
Image from Neil Patel.
In most cases, the recommended ratio is 3:1. This means that the value generated by the customer should be three times their acquisition cost. Customers with high acquisition costs will indeed create significant value. On the other hand, this will give you an idea of whether pursuing certain customers would be worth the effort.
SaaS metric No. 3: Daily Active Users
Since SaaS relies on a constant stream of users, you also need to keep track of the number of daily ones you have. That is pretty straightforward, as you only need to record the number of active accounts on a given day.
However, there are a few nuances that you should take into account. One is how you define an active user. That depends highly on the type of service that you offer. For instance, online collaboration software would define an active user by how long they are using your service. You then need to track the number of people that match your given threshold.
Image from Apps Flyer.
Why This Metric Matters To Your Startup Business
The most obvious reason why the metric matters are that it gives you an idea of how successful your SaaS product is. More active users mean that your service is gaining popularity. However, it can also provide you with more insights.
One is that your number of daily active users lets you better understand the quality of users you attract. That becomes apparent when you compare it to other usage metrics. For example, you can compare it to the daily logins.
Image from Neil Patel.
Here, you can already see the depth of engagement you are getting. If the number of active users matches the number of logins closely, you know that most of your customer base engages with your service. That indicates you are attracting the right target audience.
SaaS Metric No. 4: Recurring Revenue
SaaS runs on a recurring revenue model. What this means is that the bulk of your income comes from the regular payments made by your customer. For this, you need to keep track of several recurring revenue metrics.
The first is the monthly recurring revenue (MRR). As its name implies, this is the total monthly revenue you get from your users. Calculating this is straightforward, just add up all the revenues generated from each customer. But you do need to note certain variables that affect your overall revenue. These include things like coupons and discount offers, late payments, and plan switches that change the expected revenue.
The other type of recurring revenue you want to track is the expansion MRR. This is the revenue generated from various business expansion channels. The metric highlights the increase in the amount users spend on your products, thanks to these other streams.
Why This Metric Matters To Your Startup Business
The two types of recurring revenues are essential for tracking the growth of your business. If your MRR is increasing, you are on track toward business growth. Meanwhile, the expansion MRR is a great measure of customer interest in your product.
Image from SendX.
When taken together, both metrics can help you better chart the course of your operations. The expansion MRR, in particular, will give you an idea of the potential markets you can tap. You can also better gauge how efficiently your business is growing.
Helping Your Startup Business Track The Metrics That Matter.
Virtua Solutions understands how important the right data is for your SaaS Startup business. Thus, when you sign up with us, we will set up a system to track your metrics effectively. Contact us today and let’s get started charting the course of your business.