As a SaaS business, we're constantly tracking our SaaS metrics and regularly dive into 7 to 10 key SaaS KPIs that matter most to keep a strong growth momentum.
Because the only way you can really know if you're on the right path towards growth and where you need to optimize your strategies, is by analyzing your customer data.
Amongst all your SaaS KPIs - growing loyal customers, generating profit, and reducing churn are likely to be at the top of your list for creating a healthy and sustainable business. To measure this, there are multiple SaaS metrics that you can use as company-wide compasses for success.
We'll walk you through the top 10 SaaS metrics you need to monitor, and put all of them together into a downloadable infographic at the end of this article.
📘 Definition: Net Monthly Recurring Revenue (MRR) Growth Rate is the percentage increase or decrease in your net MRR, month over month.
Net MRR Growth includes: new business MRR, expansion MRR (increase in MRR From an existing customer), and churn MRR (MRR when a customer cancels their subscription).
💥 Why it's useful: Knowing your Net MRR Growth rate is one of the most important SaaS metrics. It's a key indicator for your growth trajectory and the health and sustainability of your business, based on how quickly you're growing.
For example, if you're a new SaaS company, you can use it to calculate how long you have to achieve profitability as it accounts for all revenue changes - new customers, expansions, churn, contractions, and reactivations.
A healthy Net MRR Growth Rate ultimately depends on the stage of your company and type of SaaS business, but here's what Jason Lemkin, the founder of SaaStr, has to say:
"Double digits (in terms of % Month-over-Month, on average) is always good until you hit some amount of traction. 10% a month growth is a good target until you get to $20M ARR (Average Recurring Revenue) or so when simply doubling is going to be your goal. There's no precise answer here or even any perfect playbook until $1-$1.5M in ARR. But after that, there is. Then, >=20% MoM is an outlier. 15% MoM is Frickin' Awesome. 10% MoM is strong."
💯 How to calculate Net MRR Growth rate:
Net MRR = ($) Existing MRR + ($) New business MRR + ($) Reactivation MRR + ($) Expansion MRR - ($) Churn - ($) contraction
Net MRR Growth Rate = ( (Net MRR Month 2 - Net MRR Month 1) / Net MRR Month 1) * 100
As an example, let's use the following dummy data for our PixelMe SaaS company:
Now we can calculate the Net MRR and Net MRR Growth rate:
This means that we have a 21.6% month-to-month Net MRR Growth rate.
📘 Definition: Net MRR Churn Rate looks at the percentage decrease in your net MRR from churn (customers who cancel their subscriptions) and contraction (account downgrades or discounts), month over month.
Net MRR Churn gives a full picture of your revenue loss, as it sums your cancelations and account downgrades and subtracts this from your expansion and reactivation MRR.
💥 Why it's useful: Similar to Net MRR Growth rate, Net MRR Churn rate is another crucial SaaS metric that gauges the health of your business, though it's the opposite of growth. Your Net MRR Churn rate should be monitored closely as it can tell you if you're on the right path towards Product-Market fit, based on the monthly rate at which you lose MRR.
For example, even if you have an amazing 20% Net MRR Growth Rate, when you factor in a high churn rate, it can slow growth drastically, leave your SaaS business unprofitable, and be destructive in the long term.
There's a number of SaaS leaders who agree on the following SaaS industry benchmarks:
Sixteen Ventures: "An acceptable churn rate is in the 5 – 7% range ANNUALLY, depending upon whether you measure customers or revenue." From a Pacific Crest SaaS survey: "Roughly 70% of SaaS companies in their survey had annual churn in the < 10% range, with 75% of those at 5% or under."
Cobloom: "5 - 7% annual churn is a great benchmark to aim for - if you're an established, mature SaaS company, primarily targeting the enterprise. If you're earlier-stage, or targeting SMBs, expect churn to be closer to 5% per month."
💯 How to calculate Net MRR Churn rate:
Net MRR Churn Rate = ( (Net MRR Churn + Net MRR Contraction) - (Expansion MRR + Reactivation MRR) / MRR at start of period) * 100
📘 Definition: Gross Monthly Recurring Revenue (MRR) Churn Rate looks at the percentage decrease in revenue from cancelations and contractions, month over month.
It calculates the total revenue loss only, unlike Net MRR Churn Rate which factors in both expansion and reactivation MRR.
💥 Why it's useful: Like its cousin Net MRR Churn rate, Gross MRR Churn rate is a leading SaaS KPI for measuring your SaaS company's health.
Whereas Net MRR Churn rate will account for expansion and reactivation MRR and give you a more complete view of growth, Gross MRR Churn rate gives a direct look into your revenue losses only. Both are important for understanding any blockers to your company's success.
When it comes to Gross MRR Churn benchmarks, here's what Klipfolio shares:
"Best in class MRR churn for enterprise companies is 1% per month. For small and mid-size focused businesses, that number is between 2% and 2.5%. At 5% annually, you're losing half of your subscription revenue every year."
💯 How to calculate Gross MRR Churn rate:
Total MRR Churn = ($) Churn MRR + ($) Contraction MRR
Gross MRR Churn Rate = ( Total MRR Churn this month / MRR at the start of the month) * 100
📘 Definition: Expansion MRR is the increase in MRR from an existing customer. This can come from either upselling (e.g. upgrading a plan) or cross-selling (e.g. adding another subscription).
💥 Why it's useful: For growing SaaS startups, Expansion MRR can greatly impact your revenue. Upselling and cross-selling can both be major levers for increasing revenue after someone becomes a customer, and Marketo has found that 90% of a customer's value can come after the initial sale.
For upselling, an example at PixelMe would be sending rules-based emails to customers on our Growth plan who've been actively using our product for at least 3 months, to tell them about the additional benefits they get by upgrading to the Scale plan.
For cross-selling, New Relic is a leading software analytics company for web apps, who's seen tremendous gains by lasering in on cross-selling products. Zuora's captured their unique billing model, where additional products are sold as standalone monthly subscriptions. It gives more flexibility to their developer audience to easily opt-in as they can pay small amounts for add-ons without committing to a huge bundled plan. And it's led New Relic to see 20% of MRR come from non-core products and 15% of customers paying for multiple products.
💯 How to calculate Expansion MRR rate:
Expansion MRR rate = ( ($) Total expansion MRR at end of month - ($) Total expansion MRR at start of month ) / ($) Total expansion MRR at start of month ) *100
📘 Definition: Net MRR Movement is the change in Net MRR from one month compared to the previous month.
💥 Why it's useful: It's a great way to check-in on how close you are at achieving any north star MRR metrics you've set on a monthly, quarterly, half, and/or annual basis.
We report on this on a weekly basis, as it's a quick gauge for tracking and forecasting how far along we're progressing towards our MRR goals.
💯 How to calculate Net MRR movement:
Net MRR Movement = ($) Net MRR Month 2 - ($) Net MRR Month 1
📘 Definition: Customer acquisition cost (CAC) is the total cost spent on acquiring a new customer.
Looking at your CAC per channel (e.g. Facebook Ads, Google Ads, webinars) can help inform how to optimize costs across your programs, as they'll likely vary channel to channel.
For accurate CAC calculation, it's a good idea to include all expenses for acquiring customers, from marketing & sales costs, to overhead and outsourcing costs, to salaries.
💥 Why it's useful: Considering all other SaaS KPIs, your cost of customer acquisition is really the holy grail metric for telling you if you're on a profitable path, as it feeds into other important metrics like ROI and LTV.
By knowing your CAC, ROI, and LTV, you can better plan for how much budget to allocate across marketing campaigns to still be profitable. As well as which efforts results in the highest ROI.
Your CAC can also be an important lever for increasing your Net MRR Growth rate, if you're able to find ways to decrease it.
For healthy SaaS businesses, your CAC needs to be lower than your customer lifetime value (LTV). More on this below!
💯 How to calculate CAC:
Customer Acquisition Costs = ($) Total costs / Total number of customers acquired
📘 Definition: Lifetime Value measures the amount of revenue from each customer over their entire lifecycle with your business.
💥 Why it's useful: Understanding your customer LTV across different channels and customer segments is key to growing your business. The longer a customer sticks around with you, the higher the lifetime value they bring in, and the healthier it is for your business.
Insights LTV provides:
LTV goes hand-in-hand with CAC, as both are the basis for calculating your ROI - the key metric for showing you which marketing efforts convert best.
As a general rule of thumb, a LTV:CAC ratio of 3:1 is a healthy industry benchmark.
💯 How to calculate LTV: In its most basic form, LTV is your total lifetime customer revenue minus lifetime customer costs.
Customer Lifetime Value = ($) ARPA / Customer Churn Rates
Customer Lifetime Value = ($) ARPA x Average customer retention time in months
📘 Definition: Average Revenue Per Account (ARPA), also called Average Revenue Per User (ARPU), is the average revenue each customer brings in.
💥 Why it's useful: ARPA can let you forecast and optimize revenue. You can build a growth strategy and optimize your pricing plans based on how much revenue different types of customers (e.g. SMB vs. Enterprise) and industries bring in, and compare ARPA between new vs. existing customers.
While ARPA is an important SaaS KPI, it's important to weigh this with your Net Growth MRR rate and compare other growth trends to ensure it's an accurate representation of your customer base.
We've experienced this first-hand, as there may be some months where you have a few huge account wins which may skew your ARPA. So just keep any outlier factors in mind so you can create a sustainable ARPA based on your core target audiences.
💯 How to calculate ARPA:
ARPA = ($) MRR / Total number of monthly customers
ARPA is typically is calculated over a monthly or annual time period. To drill further into your customer data, you can calculate ARPA by acquisition channel, industry, and business size, to track the makeup of accounts that bring in the highest ARPA.
📘 Definition: Website conversion rates from free trials, are the percentage of website visitors who signup for a free trial (or paid trial).
💥 Why it's useful: If you provide free trials like many SaaS companies, it's key to regularly track how well your website traffic converts into free trialists (visit-to-signup rates), as this is the goal of your homepage and landing pages.
If your free trial rates are low or decreasing month-to-month, it could mean any combination of the following:
We're also big believers at PixelMe in real-time customer support. Live chat has been a big lever in quickly and more effectively onboarding new trailists, understanding customer pain points, and ways we can optimize our site and product offerings.
💯 How to calculate free trial rates:
Free trial conversion rate = (Total number of signups / Total number of website visitors) * 100
We monitor this on a weekly basis, and you can compare your signup rates week-to-week or month-to-month to spot and improve trends over time.
📘 Definition: If your SaaS company is like many others who offer a free trial (or paid trial or even a freemium product), your signup-to-subscriber rate is the percentage of people who signup for a free trial and then opt into a paid subscription plan.
💥 Why it's useful: Your signup-to-subscriber rate is a key SaaS KPI for showing how valuable people find your products and are willing to pay for them.
This is the ultimate conversion metric you'll want to track across your acquisition campaigns, to see how effective they are at bringing in paying customers.
There are a number of SaaS leaders who've seen average conversion rates for free to paid customers range from 3%-5%, but the rates can vary widely from 3% up to 25%, based on your SaaS product and target customers.
💯 How to calculate free trial to paid customer rates:
Paid subscriber rate = (Total number of subscribers / Total number of free trial signups) * 100
Similar to our free trial rate, we monitor our paid subscriber rate on a weekly basis and compare trends month-to-month to understand how we can optimize the signup to subscriber flow.
Now that you have the most important SaaS metrics to keep an eye on, here are our favorite tools for measuring KPIs.
Download the cheat sheet below and start measuring these important SaaS KPIs to grow your business!
Note: Just right-click on the image and select "Save Image As".
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