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19 SaaS Metrics to Look Out for in 2023

Perry Steward
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October 25, 2022
19 SaaS Metrics to Look Out for in 2023

Not sure where to start with SaaS metrics? You’re not the only one.

And you don’t want to waste your time analyzing data and metrics that (a) don’t matter to your business and (b) don’t provide you with insights to work on.

As a SaaS SEO and link-building agency, we have worked closely with SaaS companies to bring you a list of 20 important SaaS metrics that are tied closely to SaaS business growth. We’ll also provide you with all the information you may need, including why you should track these digits, how to calculate each metric, and how to define your ideal percentages.

What we'll cover:

What is a SaaS metric?

For a SaaS business, it’s not enough to have a stream of leads. You need to convert them, retain them, upsell, and in the meantime, keep attracting more customers. SaaS businesses depend on the growth rate of their user base. Otherwise, they risk falling out of grace with their audience. Research by SaaS Capital proves the same. It states that a $2-million SaaS company needs to grow more than 90% year-on-year to be in the top 25% of its peers.

How do you meet your growth goals if you don’t measure for key success factors? That’s why SaaS metrics are so important! 

A SaaS (Software as a Service) metric is tailored to measure the effectiveness of three key areas in a SaaS business — marketing (for example, marketing sourced revenue), sales (for example, monthly recurring revenue), and customer success (for example, customer satisfaction score). 

A SaaS metric will help you get the answers to crucial questions like: 

  • Will my SaaS business continue to grow in the future? 
  • Is tracking the number of leads enough?
  • What about the conversions, churn rates, and overall revenue?

How is SaaS success measured?

Without going into the finer details, you must first define your success KPIs.

Because success for a SaaS company may mean a lot of things. For example, it could mean growing the user base of your product. It might also mean that your customers can make use of the product on their own without needing help from an account manager. Most SaaS businesses may try to implement some type of product-led growth model into their existing business plan. 

Here’s another more general way of measuring important metrics for your niche. For example, if you have attended some investor rounds or attended seminars, you might have noticed that there are a few metrics that are considered more important in your niche. Buzzwords like scale and velocity may be thrown around. Take note of those! Tracking them will help you measure SaaS business success moving forward.

How many SaaS metrics are there?

Businesses use many SaaS metrics and variations to track their performance today. While we won’t touch upon every one of them in this article, we bring to you the 20 most important ones that should be tracked regularly to keep your business healthy.

You can opt to either calculate these manually with the formulas we share in the coming section or you can also make use of tools that do the work for you.

Without much further ado, let’s get started.

19 Key SaaS metrics

Finding out how your SaaS business is progressing can be tricky. You may be getting a lot of leads but no conversions. Or you may be getting great conversions but at a very high cost. The following SaaS metrics will show you the real picture of your business and how you can improvise the same.

1. Lead to Customer Rate

The ultimate goal of any SaaS business is to turn leads into customers. The lead-to-customer rate shows you how well you’re able to generate sales-ready leads and convert them over a period of time.

For example, if you had 50 leads in the last month which resulted in 5 customers, your lead-to-customer rate for that month becomes 10%.

Why is this metric important?

- Shows how well your sales team can convert the people showing interest in your product into customers.

- Can evaluate the performance of your company’s sales funnel

- Helps you strategize for the future. For example, if you know you have a 10% LCR and you want to achieve a target of getting 100 customers in the next month, you can give your marketing team the target of getting you 1000 leads.

Ideal rate

The average lead-to-customer rate for a SaaS business is 7%. But this will change depending on the niche you’re in.

2. Customer Lifetime Value

One of the most popular SaaS metrics, the customer lifetime value (CLTV) shows how much money your business expects to receive from a customer over the lifetime of that account. The longer a customer continues using your product, the greater the lifetime value.

Why is this metric important?

- Can set priorities for customers who have a high CLTV. This helps your team tend to important customers in a better way.

- You can create/modify customer engagement strategies depending on the CLTV of various customers.

- Identify issues that can boost customer loyalty and retention.

Ideal value

This value will depend on the niche you’re in. There’s no general benchmark as such for the industry.

3. Customer Acquisition Cost

You may be getting a lot of new customers. But have you ever wondered, “How much is it actually costing my business?” That’s what customer acquisition cost (CAC) measures.

While some SaaS businesses include everything from salaries to the tools they use in their “expenses”, some prefer to just include the ad spend and salaries. Whichever approach you take, make sure you stick to it in the long run.

Why is this metric important?

- By measuring how much money it is taking you to acquire a customer, you can then formulate the most cost-effective acquisition strategy

- Determine the profitability of your business

- Can find out if you need to make a pricing change. For example, if your CAC is $40 and your annual plan starts from $50, you can consider raising prices.

Ideal cost

Depends on the niche you’re in.

4. LTV-to-CAC Ratio

What if you’re spending more to acquire customers than the revenue you’re able to generate over a customer’s lifetime? This means that even if your monthly revenue keeps increasing yearly, you’re not going to make money.

An LTV-to-CAC ratio helps you calculate that. It calculates the value of a customer compared to all the costs you’re taking to acquire them.

The formula to calculate it:

Why is this metric important?

- Shows the state of your marketing program so you can strategize and change campaigns that are costing too much but not generating any revenue.

- It helps you determine the ideal amount you can spend on marketing and sales.

- Can show you how profitable a customer can be over their lifetime.

Ideal ratio

The ideal LTV to CAC ratio for a SaaS company should be 3:1. Any lower (say 1:1), you’re spending too much money. A lot higher (say 5:1), you’re spending too little and missing out on many conversions.

5. Customer Retention Rate

Customer retention is as important to a SaaS business as customer acquisition. 

The customer retention rate shows how many customers have continued using your product or service. A good retention rate affects many other metrics, such as LTV and revenue.

Here’s how to calculate it:

This rate also gives you an idea of how satisfied your customers are with your current product and customer service.

Why is this metric important?

- Depending on the resulting retention rate, you can optimize or improve different channels like customer support and product features to encourage more customers to stick to your tool.

- If your monthly revenue is more or less the same month after month, this rate may show you the reason. For example, if the retention rate is good, the problem lies in new customer acquisition. If the retention rate is average, you may want to modify your retention strategies.

Ideal rate

A minimum of 35% or above should be the target. A great rate is above 93%.

6. Customer Attrition

Also known as customer turnover, this measures the rate at which you lose customers over time.

Here’s how to calculate it:

This metric shows you if there’s a rise in customer dissatisfaction. It could be due to no product developments or improvements, unsatisfactory customer service, or other hidden reasons.

Why is this metric important?

- You can uncover customer dissatisfaction problems

- Can make plans for the future. For example, if many of your customers are leaving because of the unavailability of a product feature, you could prioritize that moving forward.

Ideal rate

Depends on the niche you’re in.

7. Customer Churn Rate

Many SaaS businesses confuse the churn rate with the attrition rate. While the attrition rate considers the total number of customers, the churn rate considers the number of customers at the beginning of the period.

How to calculate churn?

Let’s understand the difference with an example.

Suppose you had 1000 customers in January. In the same month, you lost 100 customers but gained 50 more customers.

The attrition rate would be 100 (lost customers) / 950 (net total customers) = 10.52%

The churn rate would be 100 (lost customers) / 1000 (customers at start) = 10%

Why is this metric important?

- Identify and analyze issues related to customer satisfaction

- If you have run any campaigns during the period, you can understand their effectiveness and if they had an impact on the churn rate. If it positively impacted the same, you can run such campaigns in the future too.

- Gives you a deeper insight into the health and future of your business.

Ideal rate

For the SaaS industry, a good annual churn rate is anywhere between 5-7%

8. Customer Satisfaction Score

The customer satisfaction score is based on real customer feedback. It’s measured based on how customers rate or talk about their experience with the company.

Here’s how the CSAT score is calculated:

The first step in calculating this score is designing your CSAT survey. This survey can consist of questions like, “How satisfied were you with our service?” or “How would you rate your experience with us?”

While many businesses opt for a simple “Good/Bad” rating, a few offer a 1-5 point scale.

Why is this metric important?

- Allows you to track customer sentiment and improve business based on their feedback.

- When customers know you value their feedback, they’re likely to stick with you in the long run.

- You can make use of the CSAT survey to find individual problems which otherwise would not have been possible. 

Ideal score

A good CSAT score will fall between 75-85%, whereas a poor score will be anywhere below 40%.

9. Net Promoter Score

The Net Promoter Score (NPS) measures the likelihood of your customers recommending your product to other people or companies.

It is calculated based on a survey that is usually shown to customers as a pop-up in the app or website.

The survey shows a point scale of 0-10.

The values between 0-6 are considered detractors, 7 & 8 are passives (not displeased but not happy enough to recommend actively), and any above that are promoters.

Here’s how to calculate the score then:

Why is this metric important?

- A standardized measure of customer success, loyalty, and satisfaction

- You can deploy this survey after you have made some updates or feature additions and see how they impact customer satisfaction.

Ideal score

For SaaS, the average NPS is about 41. Anything above 50 will be considered good.

10. Free Account Signups

Most SaaS businesses offer a free trial these days. With the increasing competition, it’s a sure-shot way to get your leads hooked on your product before they change their mind. 

The free account signups metric measures how many new free users you onboarded in a given period. Usually, most SaaS businesses will track their traffic to a free account conversion rate. 

Why is this metric important?

- Shows how many users are showing interest in your product

- If you’re running a marketing campaign that is inviting users to subscribe to your free trial, this is a great metric to measure the campaign’s effectiveness.

The ideal rate should be around 5%. But this will depend on the amount of PR and overall traffic that flows to your site.

11. Free Account to Paid Conversions

The free account to paid conversion rate, as the name suggests, measures how many free users you successfully converted to paid users.

Most free trial signups are done on their own, with the intent to purchase your tool in the future possibly. 

Thus, this becomes a cost-effective way to capitalize on increasing your customer base. A reason why you should regularly track this metric.

Why is this metric important?

- Gives you valuable insights into whether users like the free version of your tool or not. If you see a low free trial to paid conversion rate, it could be because of two reasons (a) your free trial is not attractive enough for the users, which is why they won’t spend money on your tool, and (b) the free trial is too attractive, and the user doesn’t need to spend money on the paid version.

Ideal rate

Depending on the product category, this rate may vary. But for many SaaS businesses, the aim should be to reach somewhere above 25%.

12. Activation Rate

The activation rate shows the percentage of your customers that go from newly acquired to performing an activity that shows they are using the software.

This activity could be subscribing to an additional feature or designing 3 posters, or adding a project to a project management tool.

Why is this metric important?

- You might have many users that have signed up for your product but never used it in a meaningful way. It’d be difficult to retain such users or push them to upgrade to the paid versions. This metric helps you see the number of such users and how you can encourage them to gain success with your tool.

Ideal rate

The top product-led growth companies in SaaS maintain an activation rate between 20% and 40%. But this might vary for your niche.

13. Engagement Rate

Your website can be the first impression of your SaaS business. The engagement rate measures the percentage of your engaged sessions to total sessions. 

An engaged session in this metric means any of the following: the user stayed on a page for more than 10 seconds, viewed more than 1 page, or triggered a conversion event.

Why is this metric important?

- Greater engagement impacts the search engine ranking of your website in a positive way. 

- If you find out you have a low engagement rate compared to the industry standard, you can then deploy variations to your website and check which one fares better.

Ideal rate

This rate should be above 63% for B2B websites and above 71% for B2C websites.

14. Monthly Active Users

Monthly Active Users show the number of unique users who use your application in a given month. This mostly excludes the users on free plans and those who are making use of the free trial.

Why is this metric important?

- This will help you track the users that are paying for your product but not using them. These users are at risk of churning, and you’ll have to deploy re-engagement strategies to bring them back to your tool. 

Ideal number

There’s no ideal number as such. You’ll have to figure out the one that works for you and how you can keep on increasing it.

15. Engagement Score

Have you ever wondered, “How long will a customer stick to us?” The customer engagement score will get you the answer to this question.

It shows you how engaged a customer is with your product. This could be noted through the number of times they log in to your software, the number of actions they take, what they’re using the software for, and a number of other such metrics.

After creating this list, you can add weights to these metrics and then calculate the score like this:

Why is this metric important?

- You can predict in advance which customers are likely to churn and strategize to retain them.

- You can persuade the customers who are already engaged to upgrade to your higher-priced plans.

Ideal score

A score between 41-70 equals somewhat engaged, 71-100 equals highly engaged, and more than 100 signifies power users.

16. Revenue Churn Rate

You might have lost just 10 customers in the past month. But what if 8 of those 10 customers were enterprise customers paying you $500 monthly? That would be a huge setback to your revenue. A reason why you should calculate revenue churn rate along with customer churn rate.

Because most SaaS businesses have varying price plans, you need to watch for the impact some customers might have over others.

Why is this metric important?

- Even if you might not have lost many customers, many of them might have shifted to your lower-priced versions. This metric helps you keep track of that.

- Provides a better indicator of your business’s health

- You can track which pricing plan’s customers you are mostly losing. If you see that most customers are opting out of the basic pricing plan, you might want to make it more attractive for customers to stick to it.

Ideal rate

Depends on the niche you’re in.

17. Monthly Recurring Revenue

Monthly recurring revenue (MRR) tracks the amount of revenue you get from your customers on a monthly basis.

Make sure you don’t add any one-off services like consultation, setup fees, or any non-recurring payments to the monthly billing amount.

Why is this metric important?

- Knowing how much you can expect customers to pay every month helps your business predict growth and strategize for the same

- You can look at the MRR values for individual customers and see how it is shaping over time. If you find that the values tend to decrease over a period of time, you should be digging deeper and finding out the reasons for that.

Ideal revenue

Depends on the niche and growth stage you’re at.

18. Annual Recurring Revenue

Annual recurring revenue (ARR) shows you the amount of money your customers will spend in a given year.

Why is this metric important?

- Allows you to forecast the company’s future cash flow and budget. Depending on that, you can then allot specific investments to different strategies like social media, paid ads, and so on.

- You can easily compare how your business is growing compared to the last year’s financial numbers.

Ideal revenue

Depends on the niche and growth stage you’re at.

19. Average Revenue Per User

The average revenue per user (ARPU) measures the average revenue you earn from each active user.

Many SaaS companies make the mistake of taking total users in the calculation. That gives you a skewed number. The reason is that free users don’t contribute to your revenue, and since ARPU is based on revenue, you need to take those users out of your calculation.

Why is this metric important?

- Gives you insight into your company’s ability to scale and its long-term viability. For example, if you have an ARPU of just $4, you’ll have to be dependent on getting a large volume of customers. You’ll also have to spend a lot on having a team to handle that many customers. Instead, you can think about how you can increase the value of your product to bring it to $20 or $30.

- Gives you insight into whether you need to start upselling or make pricing changes.

Ideal revenue

Depends on the niche and growth stage you’re at.

Final thoughts

Now that you know how to calculate these metrics make sure you perform these calculations as accurately and consistently as possible. You also need to spend some time every month or quarter analyzing these metrics and what they mean for your business. After all, just calculating the numbers won’t do anything for your business unless you base your strategies on these numbers.

If you want to take this a step further, you can go through the following as well:

What are the best books to read on SaaS metrics? 

Before you leave, here are the top 4 books that will help you make better SaaS decisions:

  1. Lean Analytics: Use Data to Build a Better Startup Faster
  2. Customer Success: How Innovative Companies are Reducing Churn and Growing Recurring Revenue
  3. Scaling Lean: Mastering the Key Metrics for Startup Growth
  4. The Essential SaaS Metrics Guide: How to Grow Your Subscription Business By Measuring Business the Right Way

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