SaaS metrics: What are they & how to measure them

The global software-as-a-service (SaaS) industry is experiencing remarkable growth. It’s projected to reach $1,228.87 billion by 2032—an impressive compound annual growth rate of 18.4%.

But here’s the million-dollar question: in this gold rush of cloud-based solutions, how do you ensure your SaaS company isn’t just another speck of dust?

The answer lies in metrics, also known as key performance indicators (KPIs). 

Why should you care about these numbers?

Because they tell the story of your business through cold, hard facts. They cut through the noise and show you exactly where you’re killing it and where you need to step up your game.

Most importantly, they give you insights into your organization’s past, present, and future.

If you’re not already tracking numbers, now is the time to start. They can help you navigate the competitive landscape and make your subscription-based idea a success.

In this blog post, we’ll explore the world of SaaS metrics in depth.

We’ll examine the most crucial KPIs, explain their significance, and provide guidance on how to measure them effectively. 

What are SaaS metrics?

SaaS metrics are key performance indicators used by software-as-a-service companies to measure growth, customer health, and financial performance.

They help businesses make data-driven decisions to improve operations and achieve success.

The Importance of measuring SaaS KPIs

SaaS KPIs are vital for long-term success.

They provide a holistic view of a company’s health, helping make informed decisions and stay competitive.

By harnessing the power of KPIs, brands like yours can:

• Make informed decisions based on real-time data.
• Allocate resources more effectively.
• Identify and rectify issues proactively before they escalate.
• Capitalize on growth opportunities swiftly.

With the subscription-based software industry set to quadruple in less than a decade -according to the previously mentioned report–, tracking the right metrics is now more crucial than ever.

To succeed in this growing market, companies need both great products and a strong understanding of their key SaaS metrics.

Most important SaaS metrics

There’s no shortage of key SaaS metrics you could track.

The sheer number can be overwhelming, which is why you must only focus on those that are directly relevant to your organization.

To help you navigate this data-rich landscape, we’ve curated and grouped the most important SaaS metrics into four key categories:

1. Sales metrics: these measure the effectiveness of your sales team and revenue generation processes.
   
   
2. Marketing metrics: these assess the performance of your marketing campaigns and lead generation efforts.
   
   
3. Financial metrics: these track the financial health and overall profitability of your SaaS brand.
   
   
4. Performance metrics: these evaluate product performance, user behavior, and customer satisfaction.

Note: some KPIs may appear in multiple categories.

This overlap occurs because key SaaS metrics offer valuable insights for multiple areas of the organization.

For instance, customer acquisition cost (CAC) applies to both sales and marketing, while customer lifetime value (CLTV) impacts sales, marketing, and financial aspects.

That cleared, let’s dive deep into each category, exploring the specific metrics that fall under them, why they matter for your SaaS business, and how to measure them.

SaaS sales metrics

They provide insights into customer acquisition, retention, and earning growth.

The most crucial sales metrics for a SaaS company are:

Customer acquisition cost (CAC)

CAC is basically how much you’re shelling out to bring in a new customer.

The lower the cost, the happier your company wallet will be.

Why it matters: 

If your CAC is higher than the value a customer brings, you’re in trouble. It’s like spending more to acquire a customer than they’re worth—not a great deal.

How to measure it: 

CAC = (Total Sales and Marketing Expenses) / (Number of New Customers Acquired).

For example, if you spent $10,000 on marketing and got 50 new customers, your CAC is $200 per customer.

Average revenue per user (ARPU)

ARPU helps you find out how much money you’re making from each customer. It shows you the average value each customer adds to your business.

That said, please note that this KPI doesn’t factor in customer acquisition costs or churn, so it paints only half the picture.

Why it matters: 

A higher ARPU means each of your customers is contributing more to your bottom line. 

How to measure it: 

ARPU = Total Revenue / Total Number of Users. For instance, if you made $12,000 in a month from 1,000 users, your ARPU is $12.

Customer churn rate

This is another key SaaS metric that tracks the percentage of users who cancel their subscription within a given period. It’s among the primary indicators of customer satisfaction (CSAT) and product stickiness. 

Why it matters: 

High churn means you’re losing customers faster than you’re acquiring new ones.

This can significantly impact your gains and growth.

How to measure it: 

Customer Churn Rate = (Number of Customers Lost / Total Number of Customers at the Beginning of the Period) x 100.

For example, if you started with 100 customers and lost 10, your churn rate was 10%.

Customer lifetime value (CLTV)

CLTV is the total amount of money a customer will spend with you over their entire lifespan.

It helps you understand the long-term value of your subscribers and can guide decisions on how much to invest in acquiring and retaining them.

Why it matters: 

A high CLTV means your customers are sticking around and spending more. It positively influences other important metrics like net promoter score (NPS) and gross return.

How to measure it: 

CLTV = (Average Revenue per User * Gross Margin%) / Churn Rate.

Let’s say your earning per user is $1,200, gross margin is 8% and churn rate is 1.5%. In this case, the CLTV is $64.

Average deal size

This metric tracks the average amount of money you (or your team) bring in per deal. It assists you in optimizing guide pricing and sales strategies.

Why it matters: 

A higher average deal size means you’re making more money per customer.

It’s a good indicator of your pricing strategy and upselling/cross-selling effectiveness.

How to measure it: 

Average Deal Size = Total Revenue from Won Deals / Number of Won Deals.

If your total income from 20 deals is $100,000, your average deal size is $5,000.

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SaaS marketing metrics

You need them to measure the effectiveness of your marketing efforts and optimize existing strategies.

The most important marketing KPIs for a SaaS business include (but aren’t limited to):

Marketing qualified leads (MQL)

MQL is the number of leads generated through marketing efforts that meet certain criteria indicating they are more likely to become customers.

Why it matters: 

It indicates the effectiveness of your marketing efforts in generating interest.

How to measure it: 

Count the number of leads that meet your qualification criteria based on behavior (e.g., website visits, content downloads, email engagement).

Conversion rate

You can use this performance indicator to identify what percentage of website visitors are taking a desired action. It could be anything from signing up for a newsletter to making a purchase.

Why it matters: 

A high conversion rate means your website is effective at persuading visitors. It can boost other metrics like gross revenue and acquisition costs.

How to measure it: 

Conversion Rate = (Number of Conversions / Total Number of Visitors) x 100.

For example, if 100 people visited your site and 10 signed up, your conversion rate is 10%.

Cost per acquisition (CPA)

CPA is the cost of acquiring a new customer through a specific marketing channel.

Why it matters: 

It helps you understand which marketing channels are most cost-effective, allowing you to optimize your marketing budget allocation.

How to measure it: 

CPA = Total Cost of Acquisition / Number of Customers Acquired.

Let’s assume you spent $1,000 on a Facebook ad campaign and acquired 50 customers. In this case, your CPA is $20.

Click-through rate (CTR)

This KPI reflects the percentage of people who click on a specific link or call to action.

Why it matters: 

A high value indicates that your content or ad copy is compelling and relevant to your audience.

It can help drive up your brand’s conversion rates, engagement, and online reach.

How to measure it: 

CTR = (Number of Clicks / Number of Impressions) * 100.

For example, you’re running an email campaign and the email was opened 100 times. Out of these 100 people, 10 clicked on a link. So, your CTR is 10%.

Return on marketing investment (ROMI)

ROMI is the ultimate boss of SaaS marketing metrics.

It gives you a clear picture of the returns your business is generating from all marketing investments.

Why it matters:

It helps you justify your marketing expenses and allocate budget effectively.

This, in turn, lowers your organization’s burn rate and increases overall profit margins.

How to measure it: 

[(Revenue Attributed to Marketing - Marketing Investment) / Marketing Investment] * 100.

For example, if your marketing generated $10,000 in revenue at a total cost of $5,000, your ROMI is 100%.

SaaS financial metrics

You need these to understand the health and sustainability of your business.

Some of the key financial metrics for a SaaS brand are:

Monthly recurring revenue (MRR)

MRR is the lifeblood of any SaaS business. It’s the total revenue generated by your product or service through all active subscriptions in a month.

Why it matters: 

It measures your company’s health and growth, enabling you to forecast future revenue and make data-driven decisions.

How to measure it: 

Sum up the monthly fees paid by all active customers in a month.

Annual recurring revenue (ARR)

It is the yearly version of MRR, representing the value of your recurring revenue normalized for one year.

Why it matters: 

It’s useful for long-term planning, investor presentations, and comparing your business to others in the industry.

How to measure it: 

Multiply your MRR by 12.

CLTV to CAC ratio

We’ve already touched on CLTV and CAC, but their ratio is crucial. It shows how much revenue you generate for every dollar spent acquiring a customer.

Why it matters: 

A high LTV to CAC ratio means you’re acquiring profitable customers. It also helps determine the overall effectiveness of your sales and marketing efforts.

How to measure it: 

Divide your customer lifetime value by your customer acquisition cost.

Burn rate

It tracks the rate at which your company is spending its cash.

A high burn rate indicates you’re consuming cash quickly, and you might need to adjust spending or find new revenue sources, especially for young startups.

Why it matters: 

A healthy burn rate allows you to invest in growth initiatives like product development and marketing.

However, an uncontrollably high value can lead to cashflow problems and hinder long-term sustainability.

Check out these seven reasons why every business owner should embrace cashflow forecasting.

How to measure it: 

Burn Rate = (Total Cash Outflows - Total Cash Inflows) / Specific Time Period (e.g., Month, Quarter).

For example, if your company spent $100,000 in a month and brought in $70,000 in revenue, your burn rate would be $30,000 per month.

Revenue churn rate

This metric focuses on the percentage of recurring revenue lost over a specific period due to customer cancellations and downgrades. It’s the financial counterpart to customer churn rate.

Why it matters: 

A high revenue churn rate indicates you’re losing valuable recurring income.

Understanding this metric helps you identify areas for improvement in customer retention strategies and pricing models.

How to measure it: 

Revenue Churn Rate = (Monthly Recurring Revenue Lost / Beginning of Month Recurring Revenue) x 100.

Let’s say your business lost $5,000 in recurring revenue in a month, where you started with $100,000 in recurring revenue.

Your revenue churn rate for that month would be 5%.

Gross margin

It’s the percentage of revenue left after deducting the cost of goods sold (COGS).

For SaaS companies, COGS typically includes hosting, customer support, and software licensing costs.

Why it matters: 

Gross margin indicates the profitability of your core product or service. It reflects how efficiently you can deliver your service—crucial for long-term profitability.

How to measure it: 

Gross Margin = (Revenue - Cost of Goods Sold) / Revenue * 100. Imagine your SaaS brand generated a revenue of $100,000 in a month.

The COGS for the month was $20,000. So, your gross margin is 80%.

Net profit margin

This is the share of revenue that is left over after deducting all expenses, including operating costs, taxes, and interest.

Why it matters: 

Net profit margin provides a more comprehensive picture of your overall profitability compared to gross margin.

How to measure it: 

Net Profit Margin = (Revenue - All Expenses) / Revenue * 100

Cashflow

The amount of cash generated or used by your organization over a specific period.

Why it matters: 

Positive cashflow means you have enough money to operate your business. It’s crucial for day-to-day operations and long-term sustainability.

How to measure it: 

Calculate the difference between cash inflows (revenue, investments) and cash outflows (expenses, investments).

Are your investors happy? Is your SaaS business yielding enough returns for them? Learn what return on equity (ROE) is and why it matters so much.

SaaS performance metrics

They are crucial for understanding how well your SaaS product is meeting user needs and driving engagement.

You can gain deeper insights into user behavior, satisfaction, and the overall health of your product by tracking specific performance metrics.

Product adoption rate

This measures the percentage of new clients who become active users of your product within a specific timeframe.

Why it matters: 

It indicates how well your product onboards new users and delivers initial value. A high adoption rate suggests that users find your product easy to understand and valuable from the start.

How to measure it: 

Product Adoption Rate = (Number of New Active Users / Total Number of New Users) * 100. Imagine your project management software acquired 100 new users in the first week.

Out of those 100, 70 users actively used a new feature that was rolled out the same week. So, the product adoption rate is 70%.

Daily active users (DAU)

This KPI represents the number of unique users who engage with your product on a daily basis.

Why it matters: 

DAU is a key indicator of your product’s stickiness and how well it fits into users’ daily workflows.

It helps you understand how many of them find your product valuable enough to use every day.

How to measure it: 

Count the number of unique users who log in or perform a key action in your product within a 24-hour period.

Monthly active users (MAU)

This SaaS statistic lets you measure the total of one-of-a-kind users who engage with your product at least once in a month.

Why it matters: 

MAU provides a broader view of your user base, including less frequent but still engaged users. It’s useful for understanding your product’s overall reach and long-term engagement trends.

How to measure it: 

Count the number of unique users who interact with your product within a 30-day period. Interaction could involve logging in, completing a task, or using a specific feature.

Net promoter score (NPS)

This metric goes beyond basic customer satisfaction and taps into brand loyalty based on how likely users are to recommend your product to others.

Why it matters: 

NPS helps you gauge overall customer satisfaction and can be a predictor of growth through word-of-mouth referrals. It also provides valuable feedback for product improvements.

How to measure it: 

Survey users with the question: “On a scale of 0-10, how likely are you to recommend our product to a friend or colleague?”

Then, calculate NPS by subtracting the percentage of detractors (0-6) from the percentage of promoters (9-10).

Customer effort score (CES)

This performance indicator focuses on how easy it is for users to achieve their goals within your product. It measures the friction of your SaaS product from the user’s perspective—if it’s a smooth ride or full of bumps.

Why it matters: 

CES helps you understand the user experience and identify areas for optimization. A lower effort often correlates with higher satisfaction and loyalty.

How to measure it: 

You can use surveys to ask users to rate the effort required to complete specific tasks on a scale (e.g., very easy to very difficult).

Customer satisfaction score (CSAT)

This KPI gauges user satisfaction with a specific interaction or aspect of your product. It covers everything—product, feature, customer support, self-service, and more.

Why it matters: 

CSAT helps you identify areas for improvement based on user feedback on specific experiences.

How to measure it: 

Use surveys or pop-up messages after key interactions (e.g., completing a support ticket) to ask users how satisfied they are on a scale (e.g., very satisfied to very dissatisfied).

Before we wrap up this section, please keep in mind that these SaaS metrics are most effective when analyzed together.

By weaving them into a cohesive narrative, you gain a comprehensive view of your product’s performance and user sentiment. This empowers you to make data-driven decisions that propel your brand towards long-term success.

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