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- Tracking the appropriate SaaS KPIs and metrics is the prerequisite to making data-based decisions. You may even want to create KPI reports to help track the evolution of your venture – whether things are going in the right or wrong direction.
- Engagement metrics such as average page visits, average duration spent on the website, the number of comments, etc. can provide clarity on the quality traffic as well as on the content you produce for your website.
- Not all SaaS companies provide self-service features or free trial. Some will even compel you to speak with their sales team prior to trialing their solutions. Nevertheless, self-service remains the most effective way of reducing customer acquisition costs.
- PQL enables SaaS companies to rate prospects based on how they use their products. In a freemium SaaS Business model, qualified marketing lead will be the PQL.
- Determining your LVR can help you estimate the number of leads you will need to exceed your revenue target.
- It is convenient to estimate your traffic volume, customers coming in from paid and organic traffic sources, as well as what portion of that traffic converts.
- The CR is a great parameter to know if you are doing an excellent job of converting your leads to clients—the higher your conversion rate, the higher your revenue.
- A best practice is to estimate ARPA for your current and new clients distinctively so you can know how your ARPA is changing, or if new clients are showing different behaviors compared to the old ones.
- Recurring revenue is referred to as the heart of a SaaS business. This is a single and recurring figure you need to track regardless of the number of billing cycles and pricing plans.
A lot of SaaS companies find it hard to grow their revenue while other SaaS businesses struggle to attain profitability. It is not enough to disrupt your software framework and expect quick output.
You need to implement data-driven steps as far as your marketing, customer success endeavors, and sales are concerned.
Tracking the appropriate SaaS KPIs and metrics is the prerequisite to making data-based decisions. You may even want to create KPI reports to help track the evolution of your venture – whether things are going in the right or wrong direction.
What’s the relevance of data to your business?
The business model of SaaS typically rely on recurring revenues compared to the enterprise software companies, which depend on huge, upfront fees to generate a quick influx of cash.
SaaS revenue relies on a lump sum sale, paid incrementally. This is where efforts in sales, marketing, and customer success are challenged. You need to devise means of finding and attracting quality leads in high volume and then enhance this volume over the years with a set budget.
Not only that, you need to discover approaches to increase the efficiency of the sales team so they can secure more deals each time. Every investment in productivity impacts the return in a positive way – at least that’s the goal. And usually, you may not always have the means of hiring top-notch talent to assist you in figuring all this out.
Customer success is another expense you must take care of – regardless of your budget constraints.
While it is tasking to scale a SaaS, it’s not an impossible endeavor. Many others have braved the waters before – Hubspot, Marketo, Buffer, Salesforce, Zendesk – some of these pioneers shared strategies as well as their playbook on how to successfully grow your SaaS business.
Vital metrics that lead to success have also been disclosed – that’s what we’re here to talk about.
Eight SaaS metrics and KPIs you should be tracking
1) Monthly new visitors
This is the sum of new clients – well potential clients – that visited your site in a particular month. If they visit the site more than once, the user won’t be counted again – however a new session will be logged in the analytics.
This metric reflects the size of your accumulated audience, and it also shows the overall effect of your marketing efforts. Not only that, you can estimate the volume of unique visits per source and can determine the impact of your marketing across the different channels you use.
You should also examine engagement metrics such as average page visits, average duration spent on the website, the number of comments, repeat visits, email subscriptions, downloaded content, etc.
These engagement metrics can provide clarity on the quality traffic as well as on the content you produce for your website.
You can employ tools such as Google Analytics to track website engagement metrics. If fact, most websites tend to use Google Analytics to help them assess website performance – it would be ill advised to not use this free tool yourself.
2) Number of signups
Not all SaaS companies provide self-service features or free trial. Some will even compel you to speak with their sales team prior to trialing their solutions. Nevertheless, self-service remains the most effective way of reducing customer acquisition costs.
Therefore, for SaaS enterprises that offer self-service, signup numbers are a significant metric to track.
It does not matter if you provide your customers with a free trial opportunity; your fundamental marketing objective is to increase signups. Under normal conditions, a customer can get familiar with the software by using it themselves, and derive sufficient value that ensures a seamless conversion to a paying client.
You can adopt several means of boosting signups. You can write educational and helpful content for visitors and current users. You can also optimize your site for conversion with the help of well-developed landing pages.
3) Product-qualified leads (PQLs)
These are your potential clients who have used your products and are satisfied and also attained some pre-defined triggers that qualify them as paying clients.
PQL enables SaaS companies to rate prospects based on how they use their products. In a freemium SaaS Business model, qualified marketing lead will be the PQL.
You can define PQL parameters based on the number of time spent on the platform, frequency of use, number of features utilized. You can then run experiments on how to scale the PQL volume.
4) Lead velocity rate (LVR)
The next thing to estimate after your PQL is to determine the number of new PQLs needed each month.
Determining your LVR can help you estimate the number of leads you will need to exceed your revenue target.
It would make sense if you could increase your lead volume at the snap of a finger. However it’s not that easy. Devise the means of increasing the volume each month so you can hit your yearly target with a plan.
Why do you need to prioritize LVR?
It indicates your future sales achievement.
You can use this formula to calculate your LVR:
For instance, let’s say you generated 2,100 qualified leads this month and 2,000 last month. Your LVR is growing at 5%.
Peradventure your lead quality is static; you can utilize your average sales cycle in forecasting the revenues from new sales in the subsequent month.
5) ROI from organic-to-paid traffic
Organic traffic indicators incorporate visitors who visited via a non-paid listing on SERP. While paid traffic indicators factor in those, who checked in from search outcomes such as pay-per-click (PPC) ads.
The results you seek and how soon you should be expecting them could be defined by how much you are spending on marketing.
If you want quick results and you can finance it, the right option is paid search.
If you do not seek quick outcomes, channel your energy and fund on developing quality content to facilitate a steady growth of your organic traffic through SEO efforts.
Growing your organic traffic is what puts you in the business for the long haul. However, if you have what it takes to do both, why not? However, do not squander your marketing fund. Ensure you are converting the traffic you generate.
It does not matter the option you choose; it is convenient to estimate your traffic volume, customers coming in from paid and organic traffic sources, as well as what portion of that traffic converts.
Here’s what you need to measure the performance of your organic and paid sources:
- Analytic tools such as Google Analytics to measure traffic, client acquisition volume by source;
- SEO tools such as Semrush, Ubersuggest, Ahrefs, Moz. These tools will help you with keyword research and allow you to create content that ranks with your intended audience;
- You will also need to link up with your ad manager (Google Ads or Facebook Ad manager) to have an overview of the performance of your paid search granularly.
6) Conversion rate of visitors
Based on how you have defined the procedures for your sales and marketing – what defines a lead – will in essence allow you to keep track of conversion rates. For instance, you may have:
- Users who only subscribed to your newsfeed or blog;
- Leads who filled forms on your site to download ebooks;
- Users who have interacted with the site, and you know about them as well as their enterprises. These are called marketing-qualified leads;
- And those who are using your products freely.
Your definitions may even incorporate all of the above. It is not enough to track the volume of PQLs that become paying clients; you also need to estimate new visitors who end up as paying clients. For instance, you can determine your PQLs to Client conversion as the total percentage of PQLs that became paying clients.
This is the formula:
Regardless of how you categorize your leads, ensure you have a proper definition of the types of lead you want to attract and diligently calculate the conversion rates.
The CR is a great parameter to know if you are doing an excellent job of converting your leads to clients—the higher your conversion rate, the higher your revenue.
7) Average revenue per account (ARPA)
ARPA or Average Revenue per unit or user estimates the revenue you generate per user (usually estimated per month as most subscription-based models use by-month calculations). However, you can estimate it per year or quarter based on subscription plans your business offers.
You can estimate your ARPA by calculating the aggregate MRR generated by the month-end and divide the result by the total number of active users at that period.
A best practice is to estimate ARPA for your current and new clients distinctively so you can know how your ARPA is changing, or if new clients are showing different behaviors compared to the old ones. Some business owners will estimate this as their average sales price or ASP in a bid to distinguish the effect of upselling from the actual price at the start of closing a new client.
8) Monthly recurring revenue (MRR)
Recurring revenue is referred to as the heart of a SaaS business. This is a single and recurring figure you need to track regardless of the number of billing cycles and pricing plans.
How do you estimate your MRR?
You need to summarize your revenue received from all paying clients each month. Another means of calculating this metric is to multiply the aggregate number of paying clients by your average revenue per unit or user.
For instance, let’s assume there are five paying clients. Two of them are paying $150/month; two are paying $200/month while the last client is paying $960/year. Your MRR, in this case, will be:
(2*$150)+ (2*$100)+ $80=$580.
When you divide the outcome by the total number of paying clients, you will get $116, which is your ARPU in this case.
While you may find this estimation to be simple, you have to calculate several MRR figures, based on your business complexities. For instance, every SaaS enterprise should estimate churned MRR and new MRR in calculating net MRR.
While incorporating a pricing and brand strategy that makes you generate extra income from your current clients, you will also need to calculate your add-on MRR and include it in your net MRR.
These are the MRR figures you need to estimate:
- New MRR generated in a particular month by new clients only.
- Add-on MRR or what is called expansion MRR from current clients( adding new customers, account upgrades, purchasing additional products, etc.)
- Churn MRR- the monthly income lost due to downgrades and Revenue lost per month.
- Net New MRR or aggregate MRR, which is the aggregate recurring income at the month-end calculated from add-on and churn.
If you derive a higher churn rate than the new MRR, it means you are losing a lot of clients as each month goes by. This must be resolved asap, or you could be running the risk of encountering financial troubles.
Mindaugas Skurvydas is an SEO wunderkind at Whatagraph with over five years of digital marketing experience. He has a strong understanding of content development techniques, onsite and offsite SEO knowledge and continues to hone those skills every day.