SaaS businesses have various marketing and sales campaigns and channels to monitor. But how do they know if these tactics are successful?
This is why the top B2B SaaS metrics are critical to track - they provide vital insights into your performance, helping you deploy revenue-driven decisions.
At MADX, we understand how imperative it is for SaaS companies to set and track the right KPIs. This article covers the top B2B SaaS metrics, the benefits of monitoring these KPIs, and how to use SEO to boost your performance.
What We'll Cover:
Importance of Tracking SaaS Metrics
Tracking key metrics is critical to measuring success. A SaaS business can use these insights to evaluate revenue, make informed decisions, identify areas for optimization, and measure performance.
Evaluate Revenue
Although you might have paying customers, are you profiting from your marketing campaigns? Tracking the right SaaS metrics reveals critical insights into your revenue. You can understand how well your business is doing regarding how much money you generate.
However, revenue is one of the many factors to consider here. SaaS companies also need to assess
- How much do they spend on customer acquisition?
- What are the total marketing expenditure costs?
- What is the total lifetime value of each buyer?
- How much do they invest in customer support, infrastructure, resources, etc.?
Tracking the right SaaS metrics helps you maintain the monthly recurring revenue you need to cover your costs and scale your company. SaaS businesses also have the insights to identify the most profitable sales and marketing channels. They can improve resource allocation and make revenue-driven decisions.
Make Strategic Decisions
One fundamental reason to track and measure SaaS metrics is to make informed decisions. SaaS KPIs reveal your sales and marketing teams' and business performance. These metrics provide answers to essential questions like:
- Are you achieving customer satisfaction?
- Why are existing customers remaining with your business?
- Does your product compete with others in the market?
- Is your marketing team accurately capturing your target audience?
- Is your sales team connecting with prospects by understanding their pain points?
SaaS companies need answers to hundreds more of these questions. Tracking essential SaaS metrics gives businesses the answers they need. They can understand their market position, product value, and customer relationships. You can make strategic decisions and improve your value proposition.
Your KPIs will also help you improve your business model, as well as your marketing and sales. Read our guide on SaaS statistics and trends to help you make growth-driven decisions.
Identify Areas for Improvement
The SaaS market is evolving, and decision-makers' needs are changing. You must stay in tune with market trends and target audience buying behavior.
To do this, continuously analyze SaaS KPIs to identify areas for improvement. It may be discouraging to experience a drop in sales or customer loss. However, you can get ahead of these problems before they become severe.
By tracking SaaS metrics, your company can discover critical areas for improvement, including
- How to improve customer success.
- Customer acquisition bottlenecks.
- How to improve customer engagement score.
- What is preventing you from revenue growth?
- How can you keep the average customer doing business with you for an extended period?
Consistently improving your value proposition, approach to customer satisfaction, and marketing and sales campaigns helps your SaaS business grow. These insights guide you in maintaining a thriving customer base. They also foster opportunities for customer loyalty and word-of-mouth referrals.
Measure Overall Performance
SaaS metrics reveal your performance and whether you are achieving your goals. For instance, if you've implemented a campaign to retain customers, these metrics measure its performance.
To understand your business progress, you can evaluate these efforts alongside other strategies, such as customer loyalty, community building, and referral marketing.
SaaS metrics give you insights about your performance, including your:
- Customer satisfaction score
- Effectiveness of marketing and sales campaigns
- Business growth over a fixed period
- Total revenue
- Impact of branding
- Social sentiment
As a result, SaaS businesses will completely understand their performance, strengths, and weaknesses.
Key Performance Indicators for B2B SaaS
There are many SaaS KPIs to measure to maintain revenue and business growth. Here are the most critical B2B SaaS metrics to monitor.
Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) measures how much it costs to acquire each new customer. CAC is critical to evaluate because it indicates whether SaaS companies are investing too much in generating new customers compared to the value those customers provide their business.
To calculate Customer Acquisition Cost, SaaS companies must calculate all the costs of acquiring every customer, including sales and advertising expenses. Then, they must divide these costs by the number of new customers gained within a specific period.
For example, if a SaaS spends $150,000 to acquire ten customers, the Customer Acquisition Cost for each customer is $15,000.
Customer Lifetime Value (CLV)
Customer lifetime value (CLV) evaluates the total revenue a customer is expected to generate for a SaaS business throughout their relationship with the brand. This metric provides insight into the most profitable customer segments, allowing you to focus on strengthening your relationships with these buyers.
Customer segments with high CLV are also more likely to become brand ambassadors, making it imperative for businesses to identify and prioritize these buyers. According to research by Customer Gauge, the average CLV for a software company is $240,000. While SaaS companies can use this as a goal for CLV, it's essential to set realistic CLV goals based on your current performance
In other words, if your CLV is lower than the SaaS industry average, set smaller goals and implement strategies to increase this metric. For example, you might create different pricing models and develop tactics to drive more targeted buyers to opt for the highest subscription offering.
There are many ways to calculate Customer Lifetime Value:
- CLV = The average value of a transaction x Average Number of transactions x Customer lifespan.
- CLV = Average revenue per customer per month (ARPU) x Average customer lifespan in months.
Calculate this key metric periodically to ensure your CLV is accurate and compare it to your actual CLV performance over time.
CAC-to-LTV Ratio
Your Customer Acquisition Cost (CAC) to Customer lifetime value (LTV) ratio determines how much you invest in customer acquisition compared to how much value each customer delivers to your business throughout their relationship with your brand.
If SaaS businesses have a low CAC, this highlights increased opportunities for revenue growth. A low CAC means your customers generate more revenue for your business than you spend on acquiring them.
However, if your Customer Acquisition Cost is high, you must implement strategies to solve this. A high CAC leads to a lower revenue. Your company must invest minimal costs to acquire paying customers and gain the most value from these buyers.
A favorable ratio is between three and five (3:1 to 5:1). So, based on how much you spent acquiring each customer, you should generate three to five times more revenue for each customer. If your LTV to CAC ratio falls below 1:1, your SaaS company is running at a loss, and you should evaluate other key metrics to identify areas for improvement.
To calculate your LTV to CAC ratio, divide your average CLV by your CAC over a specified period.
For instance, if your LTV is $4000 and your CAC is $2000, your LTV to CAC ratio would be 2:1.
Payback Period
Your payback period describes how long it takes to recover the expenses of acquiring a new customer break-even point. The ideal payback period for SaaS companies is anywhere within 12 months, and the lower your payback period, the better your business is geared toward long-term profitability.
However, if your payback period is extended over 12 months, this will become a concern for your business as it exposes you to insolvency.
Calculate your payback period at set intervals, every quarter, for example, to ensure your SaaS company maintains a healthy profit margin.
To calculate this key metric, first measure the three components of your payback period equation:
- Sales and Marketing Expense (S&M): Add the expenses related to your sales and marketing campaigns and resources.
- New Monthly Recurring Revenue (MRR): This revenue is generated from new clients.
- SaaS Gross Margin: The total profits after subtracting the cost of goods sold (COGS) from your revenue.
After calculating these three components, your payback period equation should look like this:
CAC Payback Period = Sales and Marketing Expense (S&M) ÷ (New MRR × Gross Margin).
Lead-to-Account Rate
As one of the most critical metrics, the lead-to-account or lead-to-customer rate measures the rate of leads that convert into paying customers. This metric is typically used with sales-qualified leads (SQLs) and marketing-qualified leads (MQLs) to represent how quickly different leads convert accurately.
For instance, a high MQL rate could mean your marketing team generates high-quality leads. However, if your sales-qualified lead rate is low, your sales team needs help to convert these leads into new customers. These insights give you the data you need for SaaS business growth, as you can understand how to improve sales and marketing efforts to drive target buyers through your conversion funnels.
Calculating this metric for your SaaS business is simple:
Lead-to-Account Rate = Number of paying customers ÷ Number of leads generated
Daily Active Users (DAU) and Monthly Active Users (MAU)
Daily active users (DAU) and monthly active users (MAU) measure usage and engagement with your SaaS product.
The first metric, DAU, measures how many users actively use your product daily, whereas MAU measures this engagement monthly. Engagement here means activities like logging into your platform, adding collaborators, generating reports, etc.
While DAU and MAU are similar, they provide different insights. DAU represents daily engagement on a user level. However, MAU reveals the engagement of your overall user base to understand your product's reach, overall engagement, and customer retention.
Customer Engagement Score (CES)
Your customer engagement score (CES) is a composite metric influenced by other engagement metrics, including product usage, customer satisfaction, feature adoption, and customer retention.
These engagement metrics assess specific aspects of your user engagement; however, CES provides an overall representation of these KPIs.
For instance, to calculate your CES, you may consider metrics such as DAU, customer satisfaction score, MAU, retention rate, and Net Promoter Score (NPS). The exact metrics you use to calculate your CES boils down to which engagement KPIs you measure and prioritize.
Customer Churn Rate
Another key metric for your SaaS business is customer churn rate. These KPIs measure the percentage of customers who have stopped using your product during a specified period. For instance, if your company has 1000 customers and loses 100 monthly, your churn rate is 10%.
According to Forbes, a healthy annual churn rate is 5%. While this figure may be higher for large established SaaS companies and inconsistent for startups, once you've achieved the product-market fit, your annual churn rate should fall between 4.5 and 5%. In other words, if you started the year with 1000 customers, that specific group of customers should have stayed above 950 by the end of the year.
The equation for your churn rate is:
Customer Churn Rate = (Lost Customers ÷ Total Customers at the Start of period) x 100.
Revenue Churn Rate
Like the customer churn rate, the revenue churn rate expresses the loss of customer revenue from buyers downgrading their plans or canceling their subscriptions. This metric is imperative because it provides more insights than the customer churn rate alone. Businesses can understand their financial performance and growth or loss of revenue.
This is how you calculate your revenue churn rate:
Revenue Churn Rate = Total revenue lost from churned customers in the last 30 days ÷ total recurring revenue in the previous 30 days
Monthly Recurring Revenue (MRR)
One of the top B2B SaaS metrics to evaluate is your MRR. This KPI expresses the monthly revenue your SaaS business is generating. In other words, this is how much revenue you can expect from your customers every month, provided you don't acquire or lose buyers.
Your MRR represents your growth rate from one month to the next. So, for example, if your MRR for June is $200,000 and for July it's $240,000, your SaaS company is growing at a rate of 20%. To calculate your MRR, multiply the total number of paying customers by the monthly average revenue per user (ARPU).
The equation looks like this:
Monthly Recurring Revenue (MRR) = Total Number of paying customers x average revenue per user (ARPU) per month.
Annual Recurring Revenue (ARR)
While your MRR measures how much revenue you can expect from existing customers monthly, your annual recurring revenue (ARR) evaluates this annually. MRR provides insights into how much monthly revenue each customer generates for your business, but ARR represents your overall revenue. Like MRR, this is another way to measure growth for your business.
Calculate your ARR by multiplying the Number of paying customers by the average revenue per customer per year. You can use this equation:
Annual Recurring Revenue (ARR) = MRR x 12
Net Revenue Retention (NRR)
Your net revenue retention (NRR) is the percentage of revenue you retain from existing customers over a set period. SaaS companies must have a high NRR, which indicates that you are maintaining your existing customers and generating revenue from them.
However, a low NRR could be detrimental to your business's success, as it shows that you are losing revenue by not maintaining customer relationships.
To calculate your NRR, use this equation:
NRR = (Retained revenue / Base recurring revenue) x 100
For example, if your company begins the month with $50,000 in recurring revenue from your existing customer base and ends with $70,000, your NRR is 71%. While this may sound high, an ideal NRR is 100% and above.
Net Promoter Score (NPS)
SaaS businesses must measure their net promoter score (NPS) to evaluate customer satisfaction and loyalty. This metric is imperative to understanding customer experience and improving buyer interactions with your product. To calculate your NPS, you must ask customers one question: "On a scale of 1 to 10, how likely are you to recommend my product to a friend or colleague?".
Your customers will then provide a rating in one of three categories:
- Promoters (9–10)
- Passives (7–8)
- Detractors (0–6)
To calculate your final NPS score, subtract the percentage of detractors from the percentage of promoters. A high NPS score means that customers are more likely to refer to your product and are satisfied with your brand experience.
The average NPS score for SaaS companies is 36 and above, but if your business achieves a score above 70, this is extremely impressive and highlights a fantastic customer experience.
Customer Monthly Growth Rate (CMGR)
Your customer monthly growth rate (CMGR) is the monthly rate at which you acquire new customers. This metric is expressed as a percentage and compared to the number of customers you had at the beginning of the month to the number that has grown or declined by the end of the month.
This metric matters because it reflects the impact of your growth and acquisition efforts. A high CMGR proves that your company's customer acquisition strategies are effective, whereas a low CMGR signifies greater focus on these channels.
To calculate your CMGR, use the following formula:
CMGR = (New customers / Starting period customers) x 100
For instance, if you start the month with 200 customers and gain 20 customers by the end of the month, your CMGR is 10%.
Gross Margin
B2B SaaS companies must measure their gross margin to evaluate their profitability. This is one of the most crucial metrics for understanding financial performance and whether a company generates profit. SaaS businesses should calculate the difference between their revenue and the cost of goods sold (COGS) and divide this figure by their revenue.
This is the formula to calculate your gross margin:
Gross margin = ((Revenue - COGS) / (Revenue)) x 100
Burn Multiple
Early-stage SaaS businesses often evaluate their financial growth using burn multiple, a key B2B SaaS metric that measures how quickly their company uses capital to drive revenue. This KPI gives companies insights into when they require more capital, preventing them from insolvency.
Here is how you calculate your burn multiple:
Burn multiple = Cash balance / Burn rate.
An example is if you have a cash balance of $200,000, but your burn rate is $50,000 monthly. Your burn rate would be four. In other words, it would take you four months before you need to raise more capital.
How to Use Metrics to Improve SEO
Tracking critical metrics for your SaaS businesses can help you optimize your SEO strategy. These insights reveal your best and worst-performing channels, allowing you to employ SEO, drive organic traffic to your website, and convert these leads into customers.
For example, if your customer acquisition costs are high, an SEO campaign can help you drive targeted buyers to your product at a much lower expense than most acquisition channels, like paid ads. Although SEO takes time to improve your metrics, this tactic will drive results longer without burning your SaaS budget.
Want to develop an SEO campaign and boost your SaaS metrics? Check out our blog for the latest insights.
Tools for Tracking SaaS Performance Indicators
The best tools for tracking SaaS performance indicators are MADX Digital, SimpleKPI, ProfitWell Metrics, and PerformYard.
MADX Digital
While MADX Digital is an SEO and link-building agency, we provide reports on crucial B2B SaaS metrics to help you make informed decisions. We report on imperative customer acquisition, retention, and engagement channels, including your content and SEO campaigns, to ensure you achieve the awareness and reach you need.
Our team focuses on tailored SaaS strategies and delivers in-depth reports on your monthly performance.
SimpleKPI
SimpleKPI is an online tool that only focuses on reporting and analytics. SaaS businesses can leverage intuitive KPI dashboards that are easy to create for specific teams or their entire organization. This platform provides templates for creating KPIs and connecting data to make reporting effortless.
Moreover, SaaS businesses don't have to create KPI reports from scratch; SimpleKPI does this for you.
ProfitWell Metrics
ProfitWell Metrics is a Paddle product that delivers real-time tracking. With this tool, you can monitor critical metrics, including your MRR, customer lifetime value, acquisition costs, churn rate, and revenue per customer.
You can also track your active customers, their buying behavior, and when your clients upgrade or downgrade your product.
PerformYard
PerfromYard provides tools to set custom SaaS goals and track your most important KPIs. This platform offers a simple user experience and provides support, training, annual reviews, compensation management, and real-time feedback and insights.
SaaS businesses can customize this software to their branding and integrate the necessary solutions.
Best Practices for Monitoring and Analyzing SaaS Metrics
- Choose the best KPIs to track: Decide which B2B SaaS metrics are relevant to your marketing and sales campaigns and prioritize those KPIs. Assign different KPIs to relevant teams so each department focuses on specific metrics, and you can monetize performance monitoring.
- Select the best monitoring tool: Understand whether you need cloud software or an on-premise solution, your budget for your SaaS monitoring tool, and what features you need.
- Identify your monitoring goals: Consider your marketing and sales channels and set goals for each campaign. Setting these goals will help you determine success and guide which KPIs are relevant to track.
- Keep an organized record of reports: Whether you rely on a monitoring tool to accomplish this or create an internal record, SaaS businesses must organize and store their reports. Doing this will allow you to revert to past reports and understand your growth over time.
- Communicate with your internal teams: Inform different departments of your monitoring goals and how this impacts daily operations. Aligning your team will make it easier to achieve your KPIs, as your team will know what they need to work toward.
Skyrocket Your Revenue with B2B SaaS Metrics
Your SaaS business must monitor the most imperative B2B metrics to understand and improve its performance.
These KPIs provide valuable insights into evaluating revenue, making strategic business decisions, identifying areas for improvement, and measuring overall business performance.
However, optimizing your KPI can be challenging, and that's where SEO campaigns come in. Need to kickstart your SEO and boost SaaS performance?
Contact MADX Digital, and we will help you get started today!
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