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What are the most important SaaS marketing metrics to track? In this article, I'll quickly outline some of the most important SaaS marketing metrics to consider. These metrics include conversion rate, cost per customer, and churn rate.
These metrics are important to your SaaS company's success, and they shouldn't get ignored.
What are important SaaS marketing metrics?
There are several important SaaS marketing metrics you should track for your business. These metrics are designed to help you understand and track the health of your customer base.
For example, you should know how many customers you have lost in a month and what their average value is.
Getting this information can help you decide how to best allocate your marketing dollars. Here are three examples of SaaS marketing metrics you should track.
Once you've learned these, you can take action.
First, you must monitor your customer engagement and health scores. If you're not happy with how many customers are engaging with your platform, you can make necessary improvements to improve the experience.
Another crucial SaaS marketing metric is the monthly recurring revenue (MRR).
This number serves as your primary benchmark for growth and serves as your ultimate measurement of success. It measures how many people buy from you each month and how many leave each month.
Most important metrics for SaaS companies to track:
- LTV and CAC
- Signups and conversion rates
- Churn rate
- Net Promoter Score (NPS)
- Annual contract value
- Monthly recurring revenue (MRR)
- Annual recurring revenue (ARR)
- Marketing sourced revenue (MSR)
- Top of funnel leads by source
- Active trials
- Lead velocity rate
What is customer acquisition cost (CAC) for a SaaS business?
In order to calculate the costs of acquiring new customers, companies use one of two methods: either they take a percentage of new ARR and apply it to total sales or marketing expense, or they divide it by the number of new customers acquired.
For example, if you have $100M of ARR, 40% of it will be new customers.
New ARR includes expansion revenue and new customers. While most companies say they should include expansion ARR in their customer acquisition cost calculation, some will exclude this data.
As an example, if you are selling your SaaS solution to large enterprises, you should define "New Customer" to include free trial and freemium customers.
It is important to note that this customer may have multiple international offices and divisions. Consequently, your customer acquisition cost should be higher than the cost of maintaining one new customer.
What is a conversion rate for SaaS businesses?
As a SaaS marketer, you probably know how important it is to optimize your conversion rate. This metric measures how well your website or product converts visitors into paying customers.
The higher the conversion rate, the more revenue and profit your company will earn.
First, you should focus on improving your website. Consider factors like vague messaging, ineffective communication of value proposition, cluttered layout, poor SEO, lack of urgency, and more.
A short landing page copy is associated with higher conversion rates. However, simplification doesn't seem to increase conversions in industries like cybersecurity or infrastructure. In other words, the more complex your website is, the lower the conversion rate.
A higher ARPA will result in higher monthly revenue. But a lower ARPA (Average Revenue Per Account) may be difficult to grow if churning is high. Another important SaaS marketing metric is the customer lifetime value. Customer lifetime value indicates the average value of a customer.
If your ARPA is high, it means your customers are loyal to your brand and your product. If your customer lifetime value is high, your customer loyalty is high and they're likely to buy from you again.
What is a customer churn rate?
A good benchmark for a SaaS churn rate falls between 5% and 7%.
The percentage varies by customer segment, so calculating the churn rate for a specific segment can be a challenge. But by aggregating the data from a number of studies, the average SaaS churn rate can be calculated.
Despite the limitations of aggregated data, the 5%-7% range is generally a good benchmark.
An effective SaaS churn rate strategy will demonstrate your strengths to customers. Remind your customers that your service is better than competitors and explain to them what they will lose if they cancel.
This way, customers will feel that they are better off with you. Once you've established your product's superiority, you can then list down your advantages and market them to existing customers.
One method of measuring churn in a SaaS product is to divide the number of new subscribers by the number of subscribers who cancel during a specific period. In other words, if a software company has 500 customers at the beginning of a quarter, it may lose 50 over the course of that period.
Divide that number by the number of subscribers at the beginning of the period, and you'll see that your churn rate is 10%.
What is a Net Promoter Score (NPS Score)?
There is no single "holy grail" net promoter score. Scores vary from industry to industry.
In general, any score above 0 means a high level of customer satisfaction. By global NPS standards, any score of 50 or above is considered good, while a score of 70 or above is exceptional.
While such a score is not common, it is a valuable way to compare your company's overall customer satisfaction with competitors.
When used correctly, the NPS survey provides a quick and easy way for businesses to measure customer satisfaction. Customers who are most satisfied with a brand's service have a high score. In contrast, if customers have low ratings, they're less likely to return.
If you want to increase your NPS score, consider implementing a CEM program. There are many ways to measure the health and loyalty of a company, and this is a valuable KPI to track.
In a survey, customers' Net Promoter Score is calculated by subtracting the number of detractors from the number of promoters. The result is a scale from -100 to 100.
A score of 6 would indicate a low Net Promoter Score. Conversely, a score of 9 or 10 indicates a high Net Promoter Score.
For businesses implementing Net Promoter Score programs, the NPS can help you improve customer satisfaction and grow your business.
What is a customer retention rate?
A high-touch SaaS company may need to acquire 5000 new customers a year to maintain its current customer base. For a low-touch SaaS company, a higher retention rate is a better strategy.
For a SaaS company, the monthly churn rate is one way to track customer loyalty. This metric is especially useful when measuring customer retention.
A high churn rate translates to lower customer acquisition costs and higher profitability. The churn rate can be quite high for a SaaS startup, but you can still use it as a benchmark to compare against.
Another way to improve retention is to optimize your pricing strategy. Pricing is a lever that can drastically impact your success or failure. While most companies spend a few hours on this part of SaaS marketing, pricing provides levers to improve customer retention.
Moreover, avoid giving customers discounts, because this lowers their SaaS lifetime value by 30%, and you have a double churn rate when you give discounts.
What is annual contract value?
Annual contract value (ACV) breaks down total recurring revenue into an average per-year value. This metric allows financial teams to understand the value of a single customer over the course of their subscription.
Another important metric to track is ARR (Annual Recurring Revenue), which measures a subscription's annual revenue.
Though not specific to SaaS, ARR is used in many industries. ACV can also be compared to CAC (customer acquisition cost) in order to understand the health of a business over its entire lifespan.
ACV is a key metric for evaluating the effectiveness of sales and marketing campaigns. Although this metric is vital, most managers don't explore its potential.
They may not understand how to calculate it or how to use it to its full potential.
What are marketing qualified leads (MQLs)?
Using buyer personas to define ideal customers for your SaaS product can help your marketing team determine what type of leads to nurture.
Buyer personas are semi-functional representations of potential customers, and they are used to test the effectiveness of different lead qualification criteria.
Think of buyer personas as pilot projects. But what is the difference between sales and marketing qualified leads? This article will outline the key differences and how to get the most out of each.
Unlike sales-qualified leads, Marketing Qualified Leads aren't yet ready to purchase. While they've expressed an interest in your product, they aren't ready to make a purchase yet.
However, they've shown an interest in your marketing efforts and have taken some action. They're not quite ready to buy just yet, but are open to learning more. Those are the best leads to pursue.
What is average revenue per user?
If you sell subscription software, the average revenue per user (ARPU) metric is essential to your business.
This metric measures how much each active user spends on a SaaS subscription. While it is often viewed as a vanity metric, it actually offers valuable insights into the health of your business.
To calculate the ARPU, you need to know how many active users you have and the monthly recurring revenue that comes from each user.
But remember: ARPU can be misleading. It may increase even if you're losing customers or your revenue is declining.
The average revenue per user should be used in tandem with other metrics to accurately measure the profitability of your SaaS.
For example, if you have a wide range of pricing for your product, your ARPU could be lower than expected. And if your ARR is low, you're not charging enough.
What are sales qualified leads?
What is a sales qualified lead? In your marketing funnel, you should have a sales funnel that converts your sales-qualified leads into buyers. Sales-qualified leads are the bottom of the funnel.
They have requested a demo, estimate, or proposal, and they are ready to move to the next step in the buyer's journey.
This process should start by engaging the leads with relevant content. Once they have read your content and feel comfortable with you and your business, you can move them to the next step.
Marketing qualified leads have certain characteristics, such as a specific job title or industry. They've downloaded assets and attended specific events. Sales-qualified leads require more detailed information, such as company name or annual revenue.
To determine whether a lead is sales-qualified, your lead qualification program should generate both marketing and sales qualified leads. However, marketing and sales qualification should never conflict.
When evaluating your marketing and sales funnels, remember that you should use a lead qualification program that produces both.
What is marketing sourced revenue?
Marketing-sourced revenue is the portion of a sales funnel that comes from marketing. Marketing efforts can help generate revenue from a given segment of a market. Revenue sourced from marketing should be compared to the amount generated from sales.
To determine marketing's contribution to sales, the ACV should be calculated and compared to sales'. The difference between the two should be ascertained by measuring each component's success rate.
In order to measure marketing's contribution to a particular sales pipeline, one needs to define the term "marketing sourced".
Inbound marketing leads are considered marketing-sourced if they have a higher than 20% chance of converting into a paying customer.
These opportunities can be compared to total revenue to see which sources have the highest ROI. Once identified, marketing-sourced opportunities can be tracked in attribution reports and compared to total revenue.
Questions from SaaS marketers.
What's the difference between activation and sign ups?
The debate over whether or not SaaS marketers should track signups or activations is raging. Now, I'm not completely dismissing signups. Signups indicate a high level of interest in your offering. Signups, on the other hand, will yield no money if no one uses your product.
In SaaS, the terms "activations" and "signups" are used interchangeably.
Put in your activations. For all the pirates among us, the second A in AARRR. Activations differ every product, but they are essentially the first time someone uses your product in a way that demonstrates they value it.
In comes PQL or product-qualified leads.
PQLs, or product qualified leads, are another term for activations. Why? Because activations can occur whether or not someone has paid for your product. Perhaps your product has a freemium version or a trial period. Because they haven't purchased from you yet, someone can still activate in your solution, making them product qualified leads.
Activations are also a great statistic to use when scaling paid advertising. By doing so, you're not focusing on how much each sign-up costs you in terms of ad expenditure, as many businesses still do.
You're instead designating an activation as a conversion target. This metric may be fed into your sponsored marketing algorithms. This manner, your ad system focuses on attracting individuals who will eventually invest in your product and profit from it, rather than those who simply sign up and do nothing.
What is a lead velocity rate (LVR)?
The lead velocity rate is the final measure on our list of key SaaS marketing KPIs to keep an eye on.
Of course, your definition of a lead in your demand or lead creation activities will influence this. It's also known as the consumer velocity rate (CVR). What we're truly interested in is velocity.
Lead velocity rate formula.
[Total number of MQLs from Month B – Total number of MQLs from Month A] LVR percent / [Month A's total number of MQLs] 100 times
You may spot growth patterns in your SaaS marketing activities and establish standards for next quarters by determining the MOM velocity of the amount of leads your marketing team is bringing in.
What is a customer success team?
Customer success teams are focused on assisting customers in achieving their objectives. They increase the worth of their organization in the eyes of customers by providing them with helpful materials and dependable assistance.
What's the role of a customer success team?
Typically, the customer success team will care about customer churn and retention rates.
Your customer success organization's main goal is to assist your customers discover value, show obvious ROI, and earn (more) money from their current business. Your company's CSM should have a quota.
What is a lead to customer rate?
The lead-to-customer conversion rate, also known as the sales conversion rate or lead conversion rate, is the percentage of qualifying leads that turn into real sales for a SaaS business.
The measure is crucial for determining how well a company's sales funnel is doing.
What other SaaS metrics are important to track?
Consider any metric that is important to your business growth, a metric you should care about. Look at your SaaS Business Model to determine this. For example, if you provide payments processing. Then metrics you could care about would be GMV or Gross Merchandise Value.
What are the best tools to track SaaS metrics?
Google analytics is one of the most popular tools to track marketing strategies and their effectiveness.