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The Ultimate Guide to SaaS Benchmarking in 2024

Toni Koraza
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January 25, 2024
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The Ultimate Guide to SaaS Benchmarking in 2024

Your SaaS business may be experiencing growth in various metrics like customer acquisition cost, retention rate, lifetime value or conversion rate

But could you be growing faster? 

That's the beauty of SaaS benchmarking. But with wide varieties of business models, pricing and cost strategies and revenue drivers, the process isn’t as easy as you might think.

Well, you're in luck. Welcome to the definitive guide on SaaS benchmarking, tailored for the dynamic SaaS landscape of 2024. As a SaaS SEO agency, we know benchmarks like the back of our hand. In this guide, we’ll show you how to select the right benchmarks and the common mistakes you should avoid.

A graphic of a man holding his phone. A cloud with "SaaS" written on it

What We'll Cover:

What is SaaS Benchmarking?

SaaS benchmarking involves evaluating and comparing the performance of SaaS applications against industry standards or competitors. 

Benchmarking gauges a SaaS solution's performance by measuring key performance indicators. These indicators could be response time, uptime, and user satisfaction. 

It also enables organizations to identify areas for improvement, optimize resource allocation, and make informed decisions to enhance their SaaS performance. Businesses can align their SaaS investments with industry best practices by establishing benchmarks. This ensures they remain competitive, adapt to the evolving landscape, and deliver high-quality services to users. 

A graphic of a cloud with "SaaS" written on it and some gears and a bunch of other shapes

How to Select the Right Benchmarks?

With so many SaaS metrics, choosing the right ones to evaluate can be challenging. After all, you don’t want to overburden your team by including too many metrics to track. 

So, what's the key to selecting the right benchmarks? It's understanding the unique needs of your business and whether the benchmark will help optimize your performance. 

Here are five factors that will help you make the correct decision.

Business Objectives and Strategy

Your benchmarks should reflect two things: 

  1. Your specific business objectives
  2. The strategic priorities of your SaaS company

This ensures that performance measurements are relevant to the intended outcomes. In other words, it allows for a more accurate assessment of SaaS effectiveness. It enables businesses to identify benchmarks that impact key performance indicators tied to their core strategies. 

Prioritize metrics that contribute to your business's unique value proposition, competitiveness, and long-term success. This way, you measure technical performance and gather actionable insights for improving business outcomes and driving strategic success.

A graphic of a cloud in a two tone color, with a gear and a wrench.

Company Size and Stage

Company size and stage are crucial. It tailors the benchmarks you select and its evaluation to the specific needs and challenges of the organization. Smaller companies might prioritize cost-effectiveness and scalability. Larger enterprises may focus on complex integrations and robust security. 

Whether you're a startup, a mid-sized firm, or an established corporation, your company's development stage influences its technology requirements and growth trajectory.

Benchmarks need to align with these factors to provide meaningful insights. For example, startups may focus on rapid deployment and flexibility. A mature company may prioritize optimization and efficiency. 

Tailoring SaaS benchmarks to company size and stage ensures that performance evaluations are realistic, relevant, and reflective of the unique circumstances and goals of the organization.

A graphic of multiple things like a rocket, a light bulb, a clock, and two people with the one on the right holding a wrench

Industry and Market Segment

Different sectors and market segments will have distinct operational demands and regulatory requirements. Industries also vary in compliance standards, data sensitivity, and workflow intricacies. 

Tailoring benchmarks to the specific needs of an industry ensures that the performance metrics align with that sector's unique challenges and goals. Moreover, market segments within an industry may have diverse user expectations and technological landscapes, requiring benchmarks that reflect those differences. 

This approach helps you choose benchmarks that address the nuanced demands of the industry and market segment in which you operate.

Data Availability and Accuracy

Data availability and accuracy ensure the reliability and relevance of performance evaluations. Inaccurate or incomplete data leads to flawed conclusions, hindering the effectiveness of benchmarking efforts. 

Real-time and comprehensive data availability gives you a holistic view of SaaS performance. Accurate data enables businesses to make informed decisions, identify areas for improvement, and track progress. 

By prioritizing data accuracy and availability, you can trust the benchmarks to provide meaningful insights. These insights foster a more accurate understanding of your SaaS applications' strengths and weaknesses and facilitate data-driven strategies for optimization and innovation.

Competitor Analysis

Competitor analysis is essential for gaining a competitive edge and understanding market positioning. Benchmarking against competitors allows organizations to identify relative strengths and weaknesses. This comparison enables informed decision-making and strategic planning. 

Analyzing your competitors' performance against selected benchmarks gives insight into industry best practices and customer expectations. It also helps you set realistic performance goals and differentiate yourself by addressing gaps or surpassing industry standards. 

You can take a proactive approach to market changes, allowing your SaaS business to adapt your tool to stay ahead in a dynamic landscape. This helps maintain competitiveness and meet evolving customer demands.

8 Essential SaaS Benchmarking Metrics

Benchmarking metrics can drive strategic decision-making and business success. It also helps you gauge customer engagement, revenue streams, and company health. But which metrics should you choose?

Your list will depend on two things:

  • The kind of performance you want to analyze
  • How you are planning to optimize your present product, service, or way of working

Here’s a list of eight essential SaaS metrics every SaaS company should follow.

#1 Monthly Recurring Revenue (MRR)

Formula for monthly recurring revenue (MRR)

MRR is a key benchmarking metric. It represents the predictable and recurring income generated from subscription-based services on a monthly basis. You calculate MRR by adding up the monthly subscription fees from active customers.

This metric gives SaaS companies a reliable indicator of their ongoing financial performance. It helps forecast revenue streams, check customer retention, and assess the health of a SaaS business. 

This metric is crucial for decision-making, allowing companies to make informed choices about scaling operations, adjusting pricing strategies, optimizing customer acquisition efforts, and giving insights into the sustainability of their business model.

#2 Customer Acquisition Cost (CAC)

Formula for Customer Acquisition Cost (CAC)

CAC represents the total expenses incurred to acquire a new customer. You calculate CAC by dividing the total sales and marketing costs by the number of new customers acquired within a specific period.

CAC is essential for evaluating the efficiency and sustainability of customer acquisition efforts. The lower your sales and marketing expenses per new customer, the more return you can generate when you onboard a new customer or client. 

By comparing this benchmark against your previous performance or competitors, you can understand; 

  • Whether you need to optimize your sales and marketing efforts,
  • If you need to allocate resources better
  • Whether you can improve operational efficiency

Most SaaS companies aim to lower their CAC. Here are a few strategies that can help you achieve this. 

10 strategies to lower customer acquisition costs

#3 Churn Rate

Formula for Churn Rate

Churn Rate measures the percentage of customers who cancel or stop using a service within a specific time period. You calculate the churn rate by dividing the number of lost customers by the total number of customers at the beginning of the period.

This rate reflects customer retention and the health of a SaaS business. High churn rates signal issues with your SaaS product, customer support, or competitive pressures. Monitoring and reducing churn is crucial for sustaining revenue growth, as acquiring new customers costs more than retaining existing ones. 

Are you seeing higher churn rates than the industry average or your previous number? Here are some strategies we recommend implementing, depending on the cause:

  • Enhance product features or solve present issues
  • Optimize your customer support experience
  • Differentiate your product from the competition
  • Revamp your pricing strategy

#4 Customer Lifetime Value (CLTV)

Formula for Customer Lifetime Value (CLTV)

CLTV is the total revenue a business expects to generate from a customer throughout their entire relationship. To calculate it, multiply the average revenue per user by the average customer lifespan.

CLTV is essential for assessing the long-term profitability and sustainability of customer relationships. SaaS companies want to maximize this metric. You want the revenue generated from a customer to exceed the CAC and ongoing service delivery. 

Monitoring CLTV helps businesses make strategic decisions about pricing, customer retention, and marketing investments. If your CLTV value is low, aim for service expansions, customer engagement, and focused strategies to upsell and cross-sell to your existing customers.

#5 Net Promoter Score (NPS)

A scale for Net Promoter Score (NPS) from promoters to detractors

NPS is a key customer satisfaction metric for SaaS businesses. It gauges the likelihood of customers recommending a product or service to others. Based on a simple survey question asking customers to rate their likelihood of recommending the product on a scale of 0 to 10, NPS categorizes respondents into promoters, passives, and detractors. 

You can calculate your NPS score by subtracting the percentage of detractors from the percentage of promoters. A positive NPS indicates a higher likelihood of customer advocacy and satisfaction. 

SaaS companies use NPS to measure customer loyalty, identify areas for improvement, and refine their products and services based on customer feedback. A strong NPS contributes to customer retention, brand reputation, and business success.

#6 Average Revenue Per User (ARPU)

Formula for Average Revenue Per User (ARPU)

ARPU denotes the average monthly or annual revenue generated per customer. You can calculate this by dividing the total revenue by the number of active users within a specified period.

It helps you monitor the financial health and performance of a SaaS business. Because this metric changes depending on the growth stage, niche, pricing model, and geography you’re targeting, avoid comparing it against other businesses.

If you see a falling number, it may point not only to churn but also to the churn of your highest-spending clients. You can optimize your ARPU by;

  • Increasing customer spending through upsells and cross-sells
  • Introducing higher-tier subscription plans
  • Focusing on customer retention
  • Training your team to implement account expansion strategies

#7 Gross Margin

Formula for Gross Margin

Gross margin is a SaaS benchmarking metric that measures the profitability of a SaaS company’s core operations. You can calculate it by subtracting the cost of goods sold (COGS) from total revenue and expressing it as a percentage. 

It reflects the proportion of revenue retained after accounting for direct production costs. For SaaS, COGS includes expenses related to hosting, infrastructure, and customer support. A high gross margin shows your efficiency and scalability in delivering services. 

By comparing this metric to your past numbers or other companies in the industry, you can get an idea of where you stand in your market. It shows you the financial viability and sustainability of a SaaS business.

#8 Customer Retention Rate

Formula for Customer Retention Rate (CRR)

Customer retention rate measures the percentage of customers retained over a specific period. You calculate this by subtracting the number of customers you have at the end of a specific period from the starting number and dividing it by the starting number.

It helps you gauge customer loyalty, customer satisfaction, and the effectiveness of a SaaS business in retaining its user base. A high retention rate is crucial for sustainable growth. It signifies the customers like associating with your business; this reduces the need for constant customer acquisition. 

A strong retention rate contributes to long-term customer relationships, increased customer lifetime value, and a greater predictability of the future. Here are some strategies you can use to increase your retention rate.

8 strategies ti improve customer retention

How to Avoid Benchmarking Pitfalls?

As we said in the intro, the benchmarking process isn't as straightforward as it would appear. Here are some pitfalls we've observed in SaaS companies and how you can avoid them:

  • Before starting, define clear objectives. Then, select benchmarks aligned with your specific goals, whether they relate to performance, efficiency, or customer satisfaction. 
  • Ensure the benchmarks are relevant to your industry, company size and development stage. 
  • Use consistent and accurate data sources to prevent misleading conclusions and flawed benchmarks.
  • While it’s a good practice to compare your metrics, be cautious of over-relying on competitors as benchmarks. Their strategies and contexts may differ. 
  • Reassess and update benchmarks to reflect changing industry standards and technology landscapes. 
  • Stay aware of the potential for bias and ensure a balanced selection of benchmarks. 
  • Interpret benchmark results in the context of your unique business circumstances. Avoid making decisions solely based on data without considering the broader organizational strategy and objectives.

[Image Guide] Road sign with warning symbols denoting common pitfalls in SaaS benchmarking, with alternative routes indicating best practices.

Set Your Benchmarks Today

SaaS benchmarking provides valuable insights to guide business strategy and decisions. By calculating benchmark metrics, you can position yourself ahead of the competition in the ever-evolving SaaS landscape.

But always be careful to select metrics that make sense for your business instead of getting lost in a web of metrics that waste your time and energy.

If you need help improving your marketing metrics, reach out to our team at MADX. 

We can guide you with SEO and content marketing strategies that make an impact on your core KPIs.

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