Ten SaaS metrics startups need to track

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Growing a business is not easy, regardless of what business you are running. SaaS companies largely depend on future revenue. They have the added need to sustain growth and retain customers over a long period of time. In this post, I am going to cover ten Saas metrics startups need to track, thrive, and shine.

In a non-subscription business models, the majority of the revenue is collected at the time of purchase and retention (recurring revenue) makes up only a small percentage. For SaaS companies, revenue must be spread over a long period of time. High performing SaaS companies are growing at a rapid pace, averaging 57% Year over Year. SaaS IPOs have more than doubled within the last 12 years and the industry is expected to grow.

Subscription business relies on continuous cash flow or often called as recurring revenue, which means that these businesses need to continually ensure that their customers are happy and with healthy margin. These ten subscription metrics are key to making decisions that will support strong growth.

Monthly Recurring Revenue (MRR)

MRR is the most basic and a valuable metric for subscription to understand the growth of your business. The revenue a business can generate a monthly basis, includes all invoiced recurring charges, credits, and fees from active subscriptions. MRR typically excludes one-time charges such as setup, taxes, and other variable fees.

MRR = \mathbf {\sum}

Average Revenue per Account or ARPA = \mathbf {\frac{Revenue\;in\;this\;Time\;Period}{Total\;Users\;Last\;Period}}

CAC = \mathbf {\frac{Sales\;and\;Marketing\;Cost\;this\;Period}{New.\;of\;Customers\;this\;Period}}

Customer Retention Rate = \mathbf {\frac{Existing\;Users\;this\;Period}{Total\;Users\;Last\;Period\;}}

Customer Churn Rate = 1 – Customer Retention Rate

Customer Life Time Value = \mathbf {\frac{ARPA}{Cust\;Churn\;Rate}}

Keep a Close Eye on the these five SaaS Metrics

Most product-led businesses closely monitor and analyze the following set of SaaS metrics –

  • AARRR – also known as pirate metrics. Its stands for Acquisition, Activation, Retention, Referral, and Revenue. These metrics track your sales growth and customer success rates. The AARRR is a start up method create by Dave McClure, a venture capitalist, angel investor, founder of startup accelerator 500 Startups. Acquisition tells us “Where are our Customers coming from”. Activation tells us “How good was the customer’s first experience”? Retention answers “How many customers have you retained and why are you loosing the others”? Referral answers “How can you turn your customers into your advocates”? Last but not the least, Revenue – “How can you increase revenue”?
  • ARPA or Average Revenue per Account- is the average amount of a periodic revenue that you receive per user. It is a broad metric that can tell you the overall profitability of your subscription business.
  • CLV or Customer Lifetime value – is one of the most important metric in SaaS to understand. CLV tells you how well your activation and retention works, the effects of loosing customers, and how changes to product features affect the total revenue you can expect to bring from a user.
  • Churn Rate or Customer Churn – measures how much business you’ve lost within a certain time period. To drive meaningful information out of Churn rate, you should track net revenue churn rather than customer churn, revenue churn shows how much money you’ve lost after accounting for new, expansion, or reactivated revenue.
  • CAC or Customer Acquisition Cost – shows how much it costs to acquire new customers and how much value they bring to your business. CAC rates help companies manage their growth and gauge the value of customer acquisition journey.

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