Every SaaS business is looking for growth. Whether you’re at an early stage and recently funded or you’re further down the road, it’s essential to recognize what change looks like.
This is where having a handful of KPIs to keep track of is extremely useful. However, due to the wealth of data that SaaS businesses have at their disposal, it’s challenging to decide which KPIs to track.
This article will give you an overview of 7 KPIs that are an absolute must and serve as the foundation for your own KPI dashboard.
Conversion rates keep track of how what percentage of users, visitors, or leads end up completing a conversion event. Sales conversions are what most people typically think of when the term is mentioned. However, you can track conversions at every stage of the customer journey.
Here are some non-sales conversion events for you to consider tracking:
- Marketing Qualified Leads Conversions (MQL conversions): These will be a good indicator of the effectiveness of your marketing efforts.
- Content Marketing Lead Conversion: This KPI would help you determine the effectiveness of your investment in content marketing.
- Email conversion rate: Email is one of the most critical channels for every SaaS. Keeping track of how many of your subscribers end up converting to sales leads is an excellent indicator of this channel’s value.
Bonus tip: Use conversion rates to improve your forecasts and models. For example, set a scenario that accounts for an increase in conversions, based on improving your sales process. Or factor in moving more visitors/leads through your funnel, at the same conversion rate (increasing sales).
Customer Acquisition Cost (CAC)
Keeping track of your customer acquisition cost is vital to ensuring that you have a sustainable business model. The CAC is an excellent indicator of how much funding you’ll need to reach your growth goals. Additionally, tracking your CAC per marketing channel will give you a clear picture of where you should focus your marketing efforts.
Here are three ways to improve your CAC:
- Improve conversion metrics: Every time you optimize your website or your paid ads campaigns to convert better, you’ll see an improvement in your CAC
- Use a CRM: Relying on a CRM to manage your customers throughout their journey to becoming a client is essential. This goes back to the adage of if you can’t measure it, you can’t improve it.
- Run periodical A/B tests: The only way to know if something will work is to test it. Companies that have a culture of constantly trying, often find ways to make a significant improvement on their CAC and other metrics.
Note: Another aspect here is the cost of your “goods.” Material and manufacturing costs aren’t line items, but SaaS companies have costs to produce your product/serve.
Monthly Recurring Revenue (MRR)
Your monthly recurring revenue lets you know exactly how much revenue you can expect to come in every month. Since most SaaS businesses rely on a subscription model of some sort, tracking your monthly recurring revenue gives you insight into the effectiveness of your business model.
Here are three reasons why you should track your MRR:
- It gives you the ability to forecast your cash flow.
- Changes in MRR can give you insight into how satisfied your customers are with your service.
- It shows potential investors how healthy your business is from a financial perspective.
Customer Lifetime Value (CLTV)
Customer lifetime value is the measure of how much money a customer will generate for your business from the moment you onboard them to the point they stop paying you for your services.
These are the two main reasons why you need to track your CLTV.
- It gives you a definite number on how high you can go on your CAC.
- It allows you to come up with an accurate projection on your cash flow when used in conjunction with your number of active users.
Note: If your CLTV isn’t where you want it, try improving your pricing. Start with a pricing analysis, to see where others in your space land.
Churn rate is defined as the number of users that you lose in a given time frame. It’s natural for businesses to lose customers at some point. It can even be for reasons that you can’t control.
Here are three things that your churn rate can help you identify.
- The overall satisfaction of your users with your service.
- The effectiveness of your customer service team in retaining customers.
- When measured against your customer acquisition, churn can serve as an indicator of growth.
Number of Active Users
This KPI is pretty self-explanatory; nonetheless, it’s critical to keep track of. Once combined with the other KPIs in this article, it can give you the last piece of insight needed to understand where you’re at concerning the goals you had set for your Saas.
- If you multiply your active users by your Customer Lifetime Value, you’ll know how much cash flow to expect.
- If you combine it with your churn rate, you’ll have an idea of how many customers you’ll have by a specific date.
Burn rate measures how quickly you are going through your funding. Your burn rate lets you know how much time you have left until you need to become profitable or secure additional financing.
- Burn rate gives investors a clear idea of how efficiently you’re running your business.
- It gives you a definite date by which certain things need to happen to plan accordingly.
Important: Burn rate is one of the most important accounting metrics for a SaaS. Whether you’re bootstrapped or funded with VC dollars, that money may run out if you don’t track it carefully.
It All Ties into Finances
In SaaS, there’s never a shortage of data to track. And each one of the metrics listed, in this article, comes back to your company’s finance performance (directly or indirectly). This connection is why it’s important to work with an accounting solution that understands fast-growing startups, like Founder’s CPA.
The experts at Founder’s CPA track the metrics that mean the most to your business, deliver reports that give you a true snapshot of performance and offer advice that allows you to grow even faster.