SaaS stands for software as a service, and it's a technology taking over business practices in the past few years. The SaaS market is expected to reach $164.30 billion by 2022, as more and more businesses adopt cloud-based software solutions.
SaaS tools generate a ton of data that can help improve operations and increase revenues. But which SaaS metrics are the most significant, and how can they help improve your business? Stay with us as we take you through the most essential SaaS metrics to focus on.
Importance of Data for SaaS Companies
Data is the currency of the 21st century. It's an essential part of every modern business operation, and it can tell you how your business performs on the markets. Data provides the most accurate way for finding weak spots in operations and identifying new business opportunities.
Whenever a business introduces a current SaaS solution into their operation, they want to see how it helps improve business processes. SaaS utilizes real-time user-generated data to improve platforms and develop modern tools. Data can tell you how effective your marketing campaigns are, what your customers want, and provide you with accurate revenue calculations. There are many other metrics you can use to improve various processes, so let's take a look at the most important SaaS metrics to consider.
1. Customer Lifetime Value or CLTV
CLTV is one of the essential SaaS metrics you should track at all times. It tells you which business channel attracts the most customers for the lowest price. It's a valuable metric because it allows you to predict the future of your marketing campaigns.
The key of every marketing strategy is to attract as many customers as possible for the lowest price. You want to minimize the cost of acquiring new customers. Many methods can help you increase customer lifetime value, and these metrics can help you find the best one. The CLTV is a key metric used to measure company health. Higher CLTV means that you have to spend less money on customer acquisition, taking a smaller chunk out of your revenues.
2. Customer Acquisition Costs or CAC
CAC tells you how much money you have to spend to acquire a new customer. The number largely depends on the price of your product. It's an important SaaS metric because it allows you to calculate customer value and compare it to the total marketing and research costs. If you spend too much money on acquiring customers, you won't be able to make money on revenues.
CAC metrics include all marketing, product development, and support costs per customer. If you manage to measure your CAC and CLTV accurately, you can create better marketing strategies in the future. The goal is to reduce CAC by creating better-performing marketing campaigns that attract more customers for the same price.
3. Customer Retention Rate or CRR
CRR is another significant metric that tells you how long a customer is loyal to your brand. Longer customer relationships lead to a higher lifetime value and more sales. CRR SaaS metrics largely depend on the quality of your customer support, as well as customer loyalty.
You can increase CRR by building stronger relationships with your customers. Use your social media pages to address your customer's issues and show that you really care about their needs. As long as you provide high-quality customer service at a fair price, and you address customer inquiries as quickly as possible, your CRR will go up. Be honest with your customers and deliver your promises on time, and they will reward you by making more purchases in the future.
4. Churn Rates
The churn rate SaaS metric is one of the most important KPIs when you're running a subscription service. But before we can explain why it is so important, we have to explain what the churn rate is. Whenever a customer unsubscribes from your services, they make a churn.
Therefore, the churn rate is the percentage of customers you've lost. Most businesses calculate churn rates every month, but some do so more frequently. Churn can help you understand your customer's sentiments. You will have a better idea about what factors affect customer satisfaction the most. That's definitely one of the most essential pieces of information you can get when running a recurring payment model.
Churn rates are an early warning sign of how new changes affect your customers. If the churn rates are going down, the changes you introduced are increasing customer satisfaction. On the other hand, if the churn rate is rising, you should adjust your offer to keep existing customers. Remove the causes of churn, and your conversion rates will spike.
5. Conversion Rate
The conversion rate is probably one of the SaaS metrics every business owner tracks in real-time. It tells you the percentage of traffic that results from a lead or a sale. It's one of the critical marketing metrics because it tells you how effective your campaigns are. If your website gets traffic, but your visitors aren't converting, you're missing a pivot.
You can increase your conversion rates with new, more engaging copy and better offers. You can use methods such as price monitoring, customer monitoring, and keeping a close eye on your competitors. Adjust your offer according to the trends and your customer's needs, and your conversion rates will improve. The ideal conversion rate is between 6 and 8 percent.
6. Return on Investment or ROI
Return of investment or ROI helps you calculate the total value of your marketing efforts. You want it to achieve the highest ROI as you can to return the money you've invested into marketing. However, calculating ROI for SaaS solutions is not that easy, since you don't have full control over the software.
You can, however, get a rough estimation of its impact on your ROI, but you can't get an accurate calculation.
7. Net Revenue Retention or NRR
Many marketers confuse revenue retention with customer retention rates, but the two SaaS metrics are very different. Revenue retention tells you how much revenue you retained from existing customers over a specific period. It's a metric that tells you if your business is healthy or not.
Net revenue retention gives you insight into recurring revenue changes in specific customer groups. It calculates all revenue and retracts churn and income from upsells. It's one of the essential indicators that tell you if your product fits with the market needs. If your NRR exceeds 100%, your products are doing excellent. On the other hand, if it's close to 0%, you should consider improving products according to your customer's feedback.
The SaaS metrics we covered above are just some of many metrics that can help you improve your business and increase sales. It doesn't matter if you're a new business owner or have been running a company for years, SaaS metrics are always worth tracking. You can learn a lot about your customer using these metrics, which will help you tune your efforts according to their needs.
Remember to keep a close eye on SaaS metrics at all times to improve your marketing efforts even further. Try to reduce your CAC and churn rates, while increasing CLTV and ROI to get the best results.