Top 10 SaaS Metrics You Need To Be Tracking
When running any type of business, you need to be tracking metrics. For an eCommerce business this could be your leads-to-sales ratio, inventory delivery times, or number of eBook downloads among others. SaaS is no different in that regard, but a SaaS comes with its own specialized metrics.
Since you’re running a software, you can collect highly-specific data without interfering with customer experiences. It’s easy to track customer interactions with your business, as everything they do occurs within the software. You can set up screen recordings through services like Crazy Egg to track how customers are using your software. Everytime they click on a part of your software, there can be an opportunity to track that action. The more you can track, the more data you’ll have, and the better business growth decisions you can make.
Let your competitors guess how to improve their software and scale their business; you can rely on cold hard data to back your decisions and increase your chances of success.
On the other side of the coin, because the service you are providing is software, it’s vital that it works properly. If you have bugs or glitches, then your business could be hemorrhaging money and even lead you to failure if you don’t fix the problems. That makes tracking specific metrics to maintain your SaaS business vital to its survival.
After reading this article, you could give yourself the goal to start tracking at least one of these metrics and see how it helps you improve your business and your service.
Of the many metrics you can track for your online business, here are 10 we feel all SaaS owners should track.
1. Customer Churn
We’ve listed this metric at number one because if you don’t keep on top of your customer churn, it can make or break your business. It is a measure of how many customers you lose and is usually tracked monthly by most small-to-medium sized businesses, though large firms may track weekly churn.
Customers churn for many reasons, including no longer needing your software or not having the budget to keep using it. Investigating why customers churn can give you insight into the health of your business. If customers are churning after two months because they no longer need your software, then you’ll need to dig into how customers are using the software to see if they’re using it to its fullest potential. A software service should be useful over a long term by design, longer than most other online services in fact.
You can uncover why customers leave quite easily with exit surveys and following up with lost customers via email. The most important information in your business comes from your customers. The more customer info you can gather, the more effectively you can run your business.
2. Revenue Churn
This metric indicates how much revenue you are losing from customer churn, since your customer churn rate doesn’t always correlate with lost revenue. If you have various pricing packages or your costs are based on customer usage, then some customers are going to be worth more to your business than others.
If your bigger-ticket clients are churning on the regular, the only real way to find out why is to ask them through exit surveys. Some reasons could include: they’ve outgrown your software, they no longer have a need for your software, or, in a worst case scenario, your software isn’t functioning as it should be.
You want to pay special attention to your big-ticket clients to keep on top of your revenue churn.
3. Customer Engagement
This is a measure of how much your customers engage with your software. How often are they logging in? How many features do they use regularly? Essentially, this metric signals how healthy your SaaS is.
Every software is unique in its functionality, so most of the metrics you track here will be based on what features you offer. That said, the general metrics to keep an eye on are the number of login sessions, length of sessions, and number of features used.
Customer engagement will also help you understand how your customers use your software and what’s important to them. If you discover that one of your features is largely redundant, you can remove it while focusing on making other features more usable. However, the main reason this is an important tracking metric is because if your customers aren’t using your software, then you’ll likely experience a lot of churn and refund requests, which carry massive costs with them.
4. Monthly Recurring Revenue (MRR) vs. Annual Recurring Revenue (ARR)
Some SaaS owners may think it’s worthwhile to offer annual plans while aggressively promoting them. The idea makes sense on the surface: promote an annual plan, get a huge amount of cash upfront, and increase your net profit, right?
ARR isn’t nearly as predictable, and therefore reliable, as MRR. Getting customers to renew an annual membership is a much bigger task than getting them to renew a monthly membership, as doing so requires considerably more money and commitment. So compare your annual revenue to your monthly revenue, as well as their renew rates. A large drop-off rate for annual subscriptions might be costing you.
5. Qualified Marketing Traffic
As you are tracking login sessions for customer engagement, you can look at the traffic stats on your website. All businesses should track their traffic levels but they’re especially important for SaaS companies. Your customers will revisit your website to use your service, so you want to make sure you are separating their traffic figures from that of new visitors.
You could be experiencing a jump in traffic, but if you’re also experiencing an increase in your customer base it will cause figures to skew, giving an inaccurate reflection of marketing campaign effectiveness and how well your site converts visitors into customers.
6. Leads by Life Cycle Stage
Overall, there are three types of leads that nearly all business owners track (sorted from the least likely to most likely to become a customer): leads, marketing qualified leads (MQLs), and sales qualified leads (SQLs). For SaaS businesses though, leads aren’t that simple.
The sales process that turns leads into customers can take anywhere from a few days to over a year, depending mainly on what your SaaS does and how much effort it would take for the lead to sign up to your software. Such commitments should not only be tracked based on the type of lead they are, but also based on how long they take to go through the sales process.
Tracking this metric will help you understand where you need to improve your marketing or sales processes, helping leads get through the funnel and become a customer faster.
7. Support Requests
You should keep track of how many bugs and software issues your customers face to ensure your software isn’t driving them away. Since the most important thing for your whole business is that your software works, monitoring recurring support requests and fixing them as quickly as possible is essential for maintaining the health of your business.
8. Feature Usage
Support requests won’t always be for bugs. If customers have to ask you how to use your software, then it isn’t easy enough to use, or you aren’t providing enough educational material to your customers.
Some large SaaS companies, like Hubspot, have created courses on how to use their software. You should offer free educational materials for your software, and if you choose to offer something like a paid advanced course, then you can add another revenue stream to your business.
Depending on how you have built your software, you may be able to track customer usage of individual features/tools within your software. If you can, make sure you’re keeping an eye on this and see if your customers know the benefits of using your software’s features. There could be tools that would make their life easier but they don’t even know you offer them.
9. Customer Satisfaction
This metric ties into support requests and feature usage, analyzing how happy customers are with your service and how much they need it. A question you might want to ask yourself is how hard would it be for my customers to live without my software?
To track customer satisfaction, ask for feedback regularly, at least once a month. So many SaaS owners fail to do this and wind up with unnecessary churn because waiting until customers want to leave is too late.
Simple email surveys go a long way toward determining customer satisfaction levels as does asking former customers why they left. If you spot recurring themes, something needs to change.
When you’re regularly asking your customers for feedback and making improvements to your software, that’s when your business grows.
10. Pricing Model
Whatever your customer base is, there will always be one thing at the forefront of their minds…
Justifying the price of your software is often the main pinch point preventing customers from subscribing. This is particularly true if your service is new to the market and you haven’t fully established yourself yet. A good SaaS pricing model can help with this.
Charging the right price for your SaaS is essential to its success. Charge too little and you won’t make enough profit to scale. Charge too much and you won’t get any customers. Test and iterate your prices until you find your sweet spot.
Keep track of popular pricing tiers too. If your lowest tier is seeing a low number of sales, think about removing it to focus on the higher pricing tiers.
When you’re tracking the performance of your SaaS business, you’re not just making your business stronger and more scalable, you’re also creating a highly-valuable asset.
Business Investors Want To Buy Your SaaS
The SaaS business model is desirable to investors because customers tend to stay loyal to software they use. Most software becomes an integral part of how a business operates, making migration to a new software solution difficult. Your SaaS is also desirable because of its monthly recurring income, which is largely unique to SaaS and subscription-type businesses.
The benefits for customers make SaaS businesses desirable too. Since scaling up the number of users or the size of an operation is relatively easy, there are many opportunities for a buyer to scale such a business and take on bigger-ticket customers more easily than with most other business models.
How You Can Sell Your SaaS Business
Selling your SaaS business is relatively straightforward. The main thing to consider is whether you own the software itself. If it was coded by another developer, then the buyer of your business needs to know who actually owns the rights to the source code. After that, it’s a case of transferring the payment service you use for the business along with all the other assets needed to run it.
If you don’t know where to start, you won’t have to worry with Empire Flippers. We have full teams dedicated to every stage of selling an online business, so we can guide you through the whole process and even handle the transaction for you, including migrating your business to the buyer.
This is a service that no other online business brokerage offers.
Tracking performance metrics doesn’t just help you scale your business faster, it also helps prevent your business from heading in the opposite direction. Listed above are the metrics we feel you should absolutely be tracking to maintain your SaaS business.
When you’re collecting data by tracking metrics, you’re readying yourself to scale your business more easily and with less risk instead of guessing, which many failed entrepreneurs do.
If you’re intrigued by the idea of selling your SaaS business one day, why not see what it’s worth right now? Give our free valuation tool a try.
SaaS businesses sell for more than any other business type on our marketplace, so go on and see how much more your SaaS is worth than other business models your size.