For companies in the Saas sector, many KPIs must be taken into account to determine the performance of their business. The SaaS business model has the particularity of requiring a significant investment upstream of the marketing of a product. SaaS companies need some time to recoup their initial outlay, as payments are typically recorded monthly.
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Indeed, subscriptions constitute their basic resource and the evaluation of these revenues allows them to know the performance of their offer.
The 18 SaaS KPIs to follow absolutely
- The MRR (Monthly Recurring Revenue)
- The ARR (Annual Recurring Revenue)
- ARPA (Average Revenue per Account)
- PRCA (Average Revenue per Customer)
- ARPU (Average Revenue per User)
- The customer acquisition cost (CAC)
- The LifeTime Value (LTV)
- the churn or attrition rate
- The number of upsells
- The number of reactivations
- new business
- customer churn rate
- Customer retention rate
- The MRR retention rate
- The average duration of the purchase cycle
- The annual contract value (ACV)
- Cost per lead (CPL)
- The conversion rate
Revenue-related SaaS KPIs
Thanks to revenue indicators, SaaS companies have a macroeconomic overview of their financial performance.
The MRR, or monthly recurring revenue, is the performance indicator that allows SaaS companies to monitor the development of their business. This is a key metric for companies that have a subscription-based business model. MRR is the total recurring revenue generated each month. More specifically, it is the monthly revenue related to the use of software by customers under a paid subscription. The MRR, an essential indicator, allows companies to anticipate their income and monitor the profitability of their activity.
To calculate the MRR, there are two possibilities:
- multiply the number of customers by the average amount of a subscription;
- sum all the monthly income received.
The ARR, or annual recurring revenue, is an indicator used to determine the revenue of companies with subscription contracts whose duration is at least equal to 1 year. This is the value of recurring revenue generated over a period of one year. The ARR allows companies to know their current revenues, but also to anticipate their future revenues. It is calculated in different ways:
- by multiplying the MRR by 12, i.e. the number of months in a year: ARR = MRR * 12;
- or by multiplying the number of customers by the cost of the annual subscription
In French, the acronym ARPU means average revenue per user. This KPI therefore designates the average revenue made by a company for a user during a given period. It is usually calculated on a monthly basis. ARPU is obtained by dividing the MRR by the total number of users, which gives the following formula:
- Total Monthly Recurring Revenue / Total Users
For SaaS companies, ARPU is an essential performance indicator to measure the development of their business.
The ARPA, in French average income per account, corresponds to the average monthly income made for a single account, an account which can include several users. The formula for calculating this indicator is as follows:
- ARPA = MRR / Total Accounts.
ARPC, or average revenue per customer, is the average monthly revenue a business makes with one customer. This KPI is calculated using the following formula:
- ARPC = MRR / Total Customers.
Growth SaaS KPIs
The effective growth of a SaaS company stems from a balance between the following two performance indicators: the cost of customer acquisition and the LifeTime Value.
The customer acquisition cost (CAC)
Customer acquisition cost, or CAC, refers to the amount spent to acquire a new customer. For companies seeking to define the profitability of their investments, the CAC is the performance indicator to follow imperatively. This KPI is particularly essential for measuring the effectiveness of a marketing campaign. To calculate the cost of customer acquisition, proceed according to the following steps:
- add up all the marketing and sales expenses to obtain the sum of the expenses invested with the objective of acquiring new customers over a given period;
- then divide this sum of expenses by the number of customers acquired over the same period.
The LifeTime Value (LTV)
LifeTime Value, also known as Customer Lifetime Value, is the strategic extension of customer acquisition cost. This SaaS indicator consists of estimating the profits made with a customer over the entire duration of their relationship with a company. To calculate the Customer Lifetime Value, it is necessary to base oneself on two elements: the average lifespan of the customer and the theoretical evolution of his purchases. This KPI is calculated as follows:
- LTV = (Purchase Frequency * Average Basket) * Average Customer Lifetime.
For investments in customer acquisition to be productive over the long term, the LTV must be at least equal to the CAC. The rule is that an LTV 3 times higher than the CAC is a very good omen.
SaaS KPIs related to MRR
For SaaS companies, the MRR sub-metrics are a good way to get important insights into their revenue stream.
The churn, also called attrition rate, is a KPI that allows SaaS companies to assess the loss of customers or subscribers over a given period. This indicator is essential to assess the sustainability of their subscription offers. Here is the formula to use to calculate the attrition rate:
- Number of lost customers / Number of initial customers * 100
The evolution of upselling
This performance indicator corresponds to the increase in revenue linked to existing customers. This added value is mainly achieved by upgrading to higher plans or more expensive offers.
The number of reactivations
This SaaS KPI is used to gauge the number of formerly active customers returning to a paid plan.
This KPI refers to the amount that new customers spend when switching to a paid plan.
SaaS KPIs related to customer loyalty
customer churn rate
This indicator allows companies to assess the percentage of customers who unsubscribe over a specific period. To calculate it, use the formula below:
- Unsubscribed customers over the given period / Number of customers at the start of the period
Many free tools (like a CRM for example) can help you keep an eye on these KPIs.
Customer retention rate
The customer retention rate gives SaaS companies an indication of their ability to build customer loyalty. It is used to measure the rate of customers who renew their subscription over a given period. This KPI also allows companies to have a clear idea of the quality of their products. The formula for calculating customer retention rate is as follows:
- [(Nombre total de clients à la fin de la période – Nombre de clients acquis durant cette période) / Nombre de clients au début de la période donnée] x100
The MRR retention rate
This indicator is used to measure the percentage of the MRR that renews monthly.
SaaS KPIs related to sales
SaaS sales metrics allow companies to gauge their sales effectiveness.
The average duration of the purchase cycle
Average purchase cycle time is the average number of days it takes businesses to convert leads into customers.
The annual contract value (ACV)
The ACV, or Annual Contract Value, is one of the SaaS indicators to monitor. It designates the amount of average annual revenue per customer contract.
SaaS KPIs to use to measure lead acquisition
Cost per lead (CPL)
The cost per lead corresponds to the sums invested to acquire a commercial contact or a prospect. This performance indicator allows SaaS companies to measure the effectiveness of their marketing actions in terms of lead acquisition. The CPL is calculated as follows:
- CPL = amount spent on acquiring new prospects / number of leads acquired
The conversion rate
To evaluate the performance of their actions, SaaS companies must measure the conversion rate of visitors into leads and leads into customers. A visitor is a person who views a website. This one becomes a prospect when it carries out an action in direction of the company, like to communicate its coordinates. Different inbound marketing techniques can be used to convert a visitor into a prospect: free trial, white paper download, newsletter subscription, etc. When this prospect takes out a subscription, he then becomes a customer.
Here is an example to understand how to calculate the conversion rate of visitors to leads and leads to customers.
- For a website that gets 200 leads out of 5,000 visits, the visitor-to-lead conversion rate is 4%.
- Of the 200 leads generated, 20 become customers; the prospect/customer conversion rate is therefore 10%.
- We then obtain a visitor/customer conversion rate of 0.4%.
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