The 12 most critical SaaS metrics everybody

should track

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What’s so different about SaaS metrics?Revenue for all SaaS services comes over an extended period oftime.

Customers will stay for a long time, if they are happy with theservice. And the profit from that customer will increase.

Customers will churn fast, if they are unhappy with the service. The business will lose money on the investment that they made toacquire that customer.

à Next to acquiring the customer it is critical to keep the customer.

SaaS metrics can be grouped into acquisition, retentionand revenue.

Visitors, Signup Conversion RateCustomer Acquisition CostLTV : CAC ratio

Average Time per SessionActive Users Retention Rate Net Promoter Score User Churn

Monthly Recurring RevenueRevenue ChurnAverage Revenue Per CustomerCustomer Lifetime Value

Metric Types

1. Acquisition

2. Retention

3. Revenue

Visitor and Signup Conversion Rate

The rate at which visitors convert into paying customers. Visitors are the number of people who come to your site. After a person visits your site, a signup for trial or service traditionally will be the next step.

1. Acquisition Metrics

Conversion rate = "#$%&'()#(#*+,(

-.."#$%&'(0...)#(*+,( = 15%ConversionRate

3%-5% are average conversion rates for SaaS businesses. Conversion metrics are often illustrated in a funnel.

Customer Acquisition Cost (CAC)

An estimate of the cost to acquire a customer. Marketing expenses can include ad spendings, headcount etc.

You should start calculating your CAC once you have reached a certain user scale.The months to recover your CAC should be less than 12.

CAC = "&?+@(ABC(&?A,EC*#%$CF'C%(C(G&?HC,+@%CIJ&(*+?C,(

1. Acquisition Metrics

$0.....CF'C%(C(M.%CIJ&(*+?C,( = $500CAC

LTV : CAC Ratio

An estimation of the value your company receives from eachcustomer in comparison to what you spent to acquire that customer.

Healthy SaaS businesses have a LTV : CAC ratio that ishigher than 3, sometimes as high as 8. Viable SaaS businesses are able to recover their CAC in 5-7 months.

1. Acquisition Metrics

$1.500 LTV : $500 CAC = 3

LTV : CAC

Average Time Per Session/Average Session Per Day

The average duration of your customer using your service.

ATPS and ASPD are good leading indicators for your customer retention and user churn.

Average time per session = P+*ABQ&,A*#+%+@ABB(C((#+%(G&?HC,+@(C((#+%(

2. Engagement Metrics

0R?#%*+*ABQ&,A*#+%S(C((#+%( = 3 min Average time per session

Average sessions per day = G&?HC,+@(C((#+%(I#*T#%*#?C@,A?CG&?HC,+@QAU(I#*T#%*#?C@,A?C

V.(C((#+%(-.QAU( = 1,6Averagesessionsperday

Active Users

An active user is a user who uses your application in a certaintimeframe. Typically they are clustered in daily active users (DAU), weekly active users (WAU) and monthly active users (MAU).

The best way to define an active user is to measure only the events that create value. For example, a login alone does not indicate that the user achieved a desirable outcome. Valuable events are specific to each product, so you need to define them in the context of your own business.

2. Engagement Metrics

Dailyactiveusers = 500Weeklyactiveusers = 1.000Monthlyactiveusers = 2.500

Retention Rate

The rate at which customers return using your application. An active user is a user who has triggered a key event. These eventsare specific to each product.

You should track your retention rate in form of a cohort chart, which compares similar groups of users over time.Naturally tends to drop off really fast but should flatten out over time. However, if it hits zero it is a strong signal you need to improve your product.

Retention rate = G&?HC,+@AJ*#fC&(C,(G&?HC,+@*+*AB&(C,(

2. Engagement Metrics

0.AJ*#fC&(C,(g.*+*AB&(C,( = 33%Retentionrate

Net Promoter Score (NPS)

The NPS is a customer loyality metric and an indicator for customerhappiness. The calculation is based on the single question:„How likely is it that you would recommend our company to a friendor colleague?“ The scoring is based on a 0 to 10 scale.

2. Engagement Metrics

NPS = % Promoters (9 and 10) - % Detractors (0 through 6)

40% Promoters - 15% Detractors = 25 NPS

If your organization’s NPS is higher than those of yourcompetitors, you will likely outperform the market. You should actively engage with your detractors to reducetheir churn probability.

User Churn Rate

The rate at which your customers are cancelling their subscriptions.

Your monthly churn rate should never exceed 5% monthly. An acceptable user churn rate is a 5%-7% range annually, which equals 0.42%-0.58% monthly.

User churnrate = (jA%JCBBCQJ&(*+?C,(I#*T#%*TCBA(*-.QAU(kJ*#fCJ&(*+?C,(-.QAU(A$+ ) x 100

2. Engagement Metrics

(V.JA%JCBBCQJ&(*+?C,(I#*T#%-.QAU(V..AJ*#fCJ&(*+?C,(-.QAU(A$+ ) x 100 = 10% User churn rate

Monthly Recurring Revenue (MRR)

Combined value of all paid subscriptions per month. If customers are paying for more than one month up front you divideamount paid for the subscription by the number of month of thesubscription period.

MRR = TotalnumberofcustomerxAveragerevenuepercustomer(ARPC)

You should exclude one-time payments and metered charges. MRR is affected by your subscriptions, downgrades andcancelations. Successful SaaS startups tend to grow theirMRR by 10—15% monthly.

3. Revenue Metrics

500customersx$90ARPC = $45.000MRR

Revenue Churn Rate

Revenue churn is most basically defined as resources lost or the rate of those resources lost in a given period of time.

If your Revenue Churn is high (above 2% per month) it is an indicator that you have to take action. At 2% monthly churn, you are losing about 22% of your revenue every year. That is nearly a quarter of your revenue!

Revenue churnrate = (uvvB+(**+Q+I%$,AQC(/JA%JCBA*#+%(uvv-.QAU(A$+ ) x 100

3. Revenue Metrics

( $V....uvvB+(*$MV....uvv-.QAU(A$+) x 100 = 11,1% Revenue churn rate

Average Revenue Per Customer (ARPC)

The average MRR across your paying customers.

ARPC should not be less than 20$ per month. If users won’t pay more, then you’re not solving a big enough problem or aren’t solving it in a way that provides enough value… or you just need a whole lot of users ;-)

ARPC = PTC"xu+@ABBU+&,J&(*+?C,(yuvvG&?HC,+@AJ*#fCJ&(*+?C,(

3. Revenue Metrics

$45.000sumofcustomerszMRR500activecustomers = $90ARPC

Customer Lifetime Value (LTV)

The lifetime value of your customer is the total amount of moneyyou’re likely to make off a given customer over the life of theiraccount.

LTV is a prerequisite to calculate CAC and thus, tells you what you can spend to acquire new customers. Rule of thumb: your LTV should be at least 3 times higher than your CAC.

LTV = kv|jx(C,JT&,%

3. Revenue Metrics

$}.kv|jR.%x(C,jT&,% = $900 LTV

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