In the world of modern business, especially in the tech industry, success is a complex concept. Becoming a unicorn—i.e., getting a $1 billion valuation—is seen as success. And yet, fewer than 1% of those unicorns generate $1 billion in revenue or cash .
Traditionally, profitability has been the yardstick for success, but today startups are losing out in their quest for disruption or explosive growth. With evolving business models and new investment structures, growth and success are being redefined.
In this world, the metrics you choose serve as your north star and your goal. In this blog post, we’ll discuss some of the most important SaaS metrics you can use to guide your journey to success.
What are SaaS metrics?
Software as a Service (SaaS) metrics are key performance indicators (KPIs) for organizations that build and sell software in the cloud.
Definition and Importance of SaaS Metrics
Unlike traditional KPIs, SaaS KPIs are designed based on the needs, business models, and growth of subscription-based businesses. They are important for:
Performance measurement : Milestone maps across dimensions such as revenue, profitability, customer satisfaction, product development, etc.
Monitoring business health : Using metrics such as operating cash flow, burn rate, cash conversion cycle, etc. to monitor your ability to pay receivables and manage investments.
Driving the strategy : Verifying market acceptance and appropriately defining the product roadmap.
For example, if the turnover rate is high, it the benefits of hungary phone numbers for marketing probably means that the product is not delivering on its promises, requiring a change in marketing strategy or product features.
Drive for Growth : Understanding the current state of the business to guide sales, marketing, product and customer success teams toward shared goals.
Essentially, SaaS metrics play a powerful role in navigating an organization’s path to success. Here are some tried and tested SaaS metrics to choose from.
Key SaaS Metrics to Track
Before you choose a metric, know your business goal. An early-stage startup might set customer acquisition and average revenue per customer as its primary goals. On the other hand, an organization preparing for an IPO or sale might have goals related to cost efficiency, recurring revenue, or customer lifetime value.
Below are important SaaS metrics that organizations commonly use. Choose what is right for you based on product type, business model, cost, development stage, etc.
1. Monthly recurring revenue
The main goal of any business is to make money. Monthly Recurring Revenue (MRR) helps you track exactly that. It measures the sales/cash generated by the Business on a monthly basis.
**How to calculate MRR?
MRR is calculated by multiplying the number of users by the average monthly amount they pay. Depending on the payment plans offered, you may want to calculate annual recurring revenue (ARR) instead.
MRR = Number of Active Accounts x Revenue / Subscription per Account
If you are a SaaS calendar app and you sell it to 100 customers on a $10/month subscription basis, your MRR = 100x$10=$1000
If you charge $2 for each event scheduled in your calendar, your MRR will be the number of events in the month x $2
And if you sell annual plans, divide the fee by 12 to get the MRR
ClickUp Dashboard
Monthly Revenue Dashboard Using ClickUp
**Why calculate MRR?
The SaaS model is based on acquiring a customer once and earning from them for a long time. MRR is therefore a key indicator of the financial stability of a SaaS company.
If an organization is able to consistently generate MRR, it is considered successful and worth investing in. MRR on an upward trajectory represents organizational growth.
Over time, this trajectory helps in accurately forecasting revenues and effectively planning investments, hiring, marketing budgets, etc.
**How to improve MRR?
The easiest way to increase MRR is to acquire more Custom Customers. However, if you have a usage-based pricing model, you can also leverage customer success initiatives to help drive product usage to increase MRR.
2. Average revenue per user
Average Revenue Per User (ARPU) or, in some cases, Average Revenue Per Account (ARPA) is the average amount each customer/account pays to a SaaS company.
**How to calculate ARPU?
ARPU = Total Revenue / Number of Users
ARPA can be calculated for any period. Most Businesses do this monthly to align with MRR.
**Why calculate ARPU?
ARPA can mean different things depending on your business model. Here's what it looks like for different types of SaaS Business.
Subscription Model : In a typical subscription-based business for users, the ARPU will be consistent and therefore not as revealing. For example, if you have a single $10 subscription plan for all users, the APRA is $10.
Despite its simplicity, this number can be useful. This data can be used to adjust subscription fees, redesign subscriptions, offer additional tiers, and more.
Enterprise Customers : If you are serving Enterprise customers, ARPA is more significant than ARPU. For example, for an Enterprise with 100 users, each paying ARPU of $8 per month, the revenue from that account will be $800. Another Enterprise with 200 users will generate $1,600 in revenue, even if ARPU remains the same.
You can use this indicator to strategically approach your market entry.
You can select Enterprise accounts with more users per instance. Or, you can focus your account-based marketing (ABM) efforts on increasing share of wallet.
ClickUp Dashboard for Customer Portal
configurable customer portals for ABM and delivery tracking_
Usage-based pricing : Usage-based pricing is charging for each activity instead of a flat subscription. If you charge $2 for each event scheduled on your calendar, ARPU can vary by user/user type.
Average revenue per user helps you verify your pricing model and build a strategy for increasing user activity in your product.
**How to improve ARPU?
There are two common ways to increase ARPU:
Price increase : Simply increase the subscription for each user
Increase Usage : Set a usage-based pricing model and encourage customers to use your product more often
3. Lifetime customer value
Customer Lifetime Value (CLTV or LTV) measures revenue generated along the customer axis, not the time axis.
**How to calculate CLTV?
CLTV = ARPA x Average Customer Lifetime Expectancy
For example, if a customer remains active for five years, with an ARPA of $120 per year, then CTLV = $120 x 5 = $600.
**Why calculate CLTV?
CLTV is particularly important in SaaS for a variety of reasons. Before diving into it, it’s important to understand another related SaaS metric: Customer Acquisition Cost.
4. Customer acquisition cost
Customer Acquisition Cost (CAC) is the amount a company spends to acquire each new customer. This includes all sales and marketing expenses incurred during a given period
