In Software as a Service (SaaS), your success depends on understanding and optimizing your Key Performance Indicators (KPIs). These metrics provide invaluable insights into the growth of your SaaS business. You can make data-driven decisions that drive profitability and customer satisfaction by tracking and analyzing the right KPIs. We know that it is challenging to start a SaaS business. On the one hand, you have to handle issues that often emerge when launching the service; on the other hand, you have to work to win people’s hearts to trust you and use your Software. 

In this article, we will describe the top 10 SaaS KPIs you should measure to predict your business growth. 

What Are KPIs?   

Before exploring the most important Saas, KPIs, it is essential to understand KPIs. So, let’s start without further ado.  KPIs, or Key Performance Indicators, are essential business metrics that provide crucial insights into your company’s performance. While some of these metrics are universally applicable across various industries, many are specific to SaaS and other subscription-based businesses. Concentrating on industry-specific KPIs allows you to streamline your data analysis and derive more actionable insights from your information.

Whether SaaS companies operate in the B2B or B2C space, they must choose KPIs that reflect their progress in expanding market share and shed light on areas requiring enhancement.

Areas That Your SaaS KPIs Should Cover

You need to track metrics across different areas to grow your business successfully. While some areas show a broader view of your success, others show actionable insights that help you make well-informed decisions. Saas businesses should focus on three areas, which are as follows: 

Revenue & Growth 

Growth is the most important reason for a business to track data. KPIs help you see how your revenue has changed over time. They also help identify trends in sales and let you know whether you need to worry about fewer sales in a particular month or if it is normal for that time of year. This information gives you a complete insight into your company’s revenue compared to a simple ledger entry. 

Monthly Recurring Revenue (MRR), ARPA, and Number of New Customers are good examples of this category.

Marketing & Sales 

It is nearly impossible to grow a business without effective marketing and a skilled sales team. However, you can not grow a business by spending too much on marketing and sales, especially if you are doing it more than your income. Similarly understanding the dollar value associated with a customer and the expenses incurred in acquiring those customers is essential for optimizing your overall revenue flow.

These KPIs can let you know how effective your marketing and sales strategy is and give an idea about return on investment. This way, you can easily optimize your spend.  

CAC (Customer Acquisition Cost) is a good example of this category.

Customer Success 

Churn is the primary enemy of any SaaS business, and unhappy customers are likelier to churn than happy ones. Therefore, prioritizing customer success should be a fundamental objective of every SaaS company. When users efficiently use your Software, their satisfaction levels increase, resulting in higher retention rates.

NPS (Net Prompter Score), Customer Lifetime Value (CLTV), and  Churn Rate are good examples of this category.

10 SaaS KPIs You Should Track 

These key performance indicators (KPIs) cover the four previously mentioned areas, providing a comprehensive overview essential for the growth of your SaaS business.

Let’s look at the top 10 KPIs you should measure for the efficient growth of your SaaS business.  

Churn Rate 

The first KPI is perhaps the most obvious one. However, SaaS companies do not give it the attention it deserves. The customer’s churn rate is paramount for a SaaS provider or any business working with subscribers because it describes the percentage of subscribers or customers lost. 

Unfortunately, many Saas companies overlook this KPI and pay attention to other, more detailed metrics, which is a significant mistake. Every SaaS company’s top priority is retaining existing customers while bringing in new ones. If your typical customer does not stay long enough for you to recoup the cost of acquiring them (CAC), then it can cause trouble. The logic is straightforward here: If you want to increase revenue growth, it is equally important to retain your existing customers as it is to acquire new ones. 

You can calculate the churn rate by using the following formula: 

Churn rate = Users who left / users at the start of the month * 100

Number of New Customers

This KPI is the total opposite of Churn Rate, it reflects how many new paying customers are acquired during a specific period of time,  monthly time period is a decent way of measuring it. This KPI is very important and relevant to Startup SaaS companies, nevertheless, it remains important to even matured companies as well. This KPI has a direct relationship with the monthly revenue of the company. When it comes to SaaS performance dashboards, this KPI is a top candidate to be part of it.

Monthly Recurring Revenue (MRR)

Monthly recurring revenue (MRR) represents the revenue you generate every month. It is a simple but powerful metric that helps you track new sales, renewals, upsells, and churn every month. Now, you do not need to count the hours you have worked for your clients manually; MRR can do it for you. SaaS companies in their growing period often forget to give attention to a stable monthly revenue and prioritize other metrics like overall revenue figures and bookings. However, such companies must have the substantial advantage of Monthly Recurring Revenue. 

Prioritizing MRR growth is a solid foundation to build a growing SaaS business. It helps companies focus on the present and track business growth. Additionally, tracking MRR empowers these companies to prioritize long-term contract-based sales over short-term, less predictable ones.

Revenue Churn Rate 

Tracking revenue churn rate is more important than tracking customer’s churn rate. This KPI measures your company’s revenue loss and analyzes the differential impact specific customers may have on others. 

This KPI becomes especially critical when your business operates with a variable subscription pricing model tied to the number of licenses a customer purchases. Observing correlations between customer churn rate and monthly revenue churn rate is essential. However, high-revenue-generating customers may likely exhibit variations in behavior compared to others. It shows the importance of simultaneously tracking MRR and churn rate to focus your efforts on retaining your most valuable customers.

You should at least conduct quarterly tracking of your revenue churn rate. However, for optimal revenue optimization, the aim should be to calculate this monthly KPI.

Annual Recurring Revenue (ARR) 

Annual recurring rate or ARR is an extension of MRR, or we can say it is a yearly version of MRR. This KPI helps SaaS companies forecast their forthcoming income, assuming that their business will remain stable in acquiring new customers and churn. You can calculate your ARR by multiplying your MRR by 12. 

You should set quarterly goals and reduce the churn rate to improve your annual revenue. 

Committed Monthly Recurring Revenue (CMRR) 

Committed Monthly Recurring Revenue (CMRR) is a modified version of Monthly Recurring Revenue (MRR). While MRR reflects the total expected monthly revenue from customers, CMRR is related to new bookings, cancellations, and downgrades. CMRR aims to predict a SaaS company’s future revenue if it stops sales and marketing efforts, making it a valuable tool for forecasting and financial assessment.

To calculate CMRR, start with your existing MRR (from the previous month), add new known bookings, and subtract known cancellations and downgrades. Unlike MRR, CMRR considers anticipated churn, providing a more accurate financial snapshot. Depending on your specific goals, you can choose between MRR and CMRR for a high-level revenue overview.

This metric can be adjusted to calculate Committed Yearly Recurring Revenue (CARR) for SaaS businesses offering annual subscriptions.

Average Revenue Per Account (ARPA) 

The average revenue per account, also known as average revenue per user (APRU), is a key performance indicator measuring the average revenue generated from each customer within a specific time frame. ARPA is particularly relevant for SaaS and subscription-based businesses, as it helps assess the financial health of the customer base and the effectiveness of pricing strategies.

The formula for calculating ARPA is as follows:

ARPA=CompanyTotalRevenue​/Average Number of Paying Users  

By tracking ARPA, SaaS companies can find the impact of pricing changes or promotions on their average revenue per account and make data-driven decisions to optimize their monetization strategies.

Customer Acquisition Cost (CAC)

CAC is a critical KPI for SaaS companies in their early growth stages. It is the amount of money a company spends on acquiring new customers, including marketing, sales, and onboarding expenses. The lower the CAC, the more profit your business can earn. 

For SaaS businesses, optimizing customer acquisition costs for a better profit is crucial. You can calculate CAC by dividing the total cost of getting new customers by the number of new customers.  If you want to improve your CAC, you should focus on optimizing your landing page design and mobile optimization. You can also optimize user value by using CRM. 

Customer Lifetime Value (CLTV) 

Customer LTV estimates the total revenue a customer brings throughout their entire relationship with your SaaS business. A SaaS business should focus on one of the most critical KPIs. A high CLTV shows strong business retention and the ability to generate recurring revenue. 

Calculating CLTV can help SaaS businesses determine the value of investing in customer acquisition. 

To calculate CLTV you need to create a few metrics first as follows 

Average Purchase value = Total revenue over a time period ÷ Number of Purchases over the same period of time 

Average Purchase rate = Total # of purchases over a period of time ÷ Total # of customers during the same period 

Now we have two base items to calculate the customer value over a specific period of time 

Customer Value = Average Purchase Value  x  Average Purchase Rate

To derive a Customer Lifetime value we would need to calculate the Average customer lifespan, which is as follows

Average Customer Lifespan = Average # of years a customer stays active and paying ÷ Total # of Customers

Now multiple Customer values with Average customer lifespan are as follows.

CLTV = ( Customer Value x Average Customer Lifespan) 

You can increase CLV by encouraging your customers to pay annually and making your products irresistible by increasing their value.  

Net Promoter Score (NPS)

NPS or net promoter score helps you know what your customers think about you. With this KPI, you can predict customers’ sentiments and determine their perception and belief in your brand. It serves as a fundamental tool for comprehending the customer experience. It involves asking customers a specific question and analyzing their responses to assess their satisfaction and loyalty towards your brand.

  There is no formula for calculating NPS, but you can take customer feedback by asking different questions and allowing them to rate your business on these questions. For example, you can ask a customer how likely you are to recommend our brand to a friend. Customers can rate you on a scale from 0 to 5. 

SaaS companies can improve NPS by providing their customers with what they promise and with the help of robust customer support. 

Conclusion

In conclusion, the success of any SaaS business hinges on the effective measurement and analysis of key performance indicators (KPIs). These metrics provide invaluable insights into various aspects of the business, from revenue and growth to customer satisfaction and retention. SaaS companies can make data-driven decisions that drive profitability and sustainable growth by focusing on the right KPIs.

We have highlighted ten essential SaaS KPIs that every SaaS company should measure. Based on where a SaaS company is in its journey, some KPIs are more relevant than others, like for a startup company, one should more focus on short term visibility KPIs like MRR, CMRR and the Number of New Customers acquired, and relatively fewer care about the long term KPIs CLTV  and  ARR, ARPA. Similarly, a mature SaaS product, that already has straightened out initial survival challenges, should focus more on long-term value KPIs, like CLTV, Churn rate, NPS, and ARR, etc. Each of these KPIs plays a crucial role in assessing different aspects of a SaaS business, whether evaluating customer retention, optimizing revenue streams, or understanding customer sentiment.

By diligently tracking and analyzing these KPIs, SaaS companies can navigate the competitive landscape, retain customers, acquire new ones, and ultimately thrive in the ever-evolving world of Software as a service. Success in the SaaS industry begins with insightful data-driven decision-making; these KPIs are your compass for that journey.