Determining which KPIs (key performance indicators) to track for your software-as-a-service (SaaS) business can be challenging. You must track the right KPIs for SaaS to accurately measure your business's success. Decision makers at startups or tech companies should understand and act upon performance indicators critical for success. Analyzing the right set of KPIs is invaluable for monitoring progress over time.
This article explains which KPIs you should measure for your SaaS business and the insights they provide.
KPIs for SaaS Company Growth
You can use KPIs to track different aspects of SaaS application products, visualize performance, and identify potential problems quickly. KPIs help you understand what’s working and what needs fixing. When used correctly, they provide insights into customer behavior, pinpoint areas of success, and measure the effectiveness of different initiatives.
KPIs also provide information on improving user and product engagement and retention strategies. SaaS metrics help you focus on the areas in your SaaS product or service that need immediate attention. They provide information on the adjustments necessary to support SaaS business goals.
SaaS KPIs to Track
There isn’t one universal KPI framework that applies to every organization. Many SaaS companies rely on various KPIs — including customer success, net promoter score, sales, churn rate, monthly unique visitors, and recurring revenue — to gauge the health of their business. Let's dive into how these SaaS KPI metrics measure product success.
Monthly Unique Visitors
Monthly unique visitors help you understand potential customer visits. This KPI measures the number of unique visitors who visit your website or use a SaaS application in a month. It provides insight into potential customers interested in your product or service.
This metric helps you understand the size of your customer base and measures the effectiveness of marketing campaigns. It gives your marketing team an idea of how many visitors your website attracts multiple times a month. Page views, frequency, session duration, and recency of visits provide you with more accurate insights into customer behavior.
Customer Success
Customer success is an essential KPI for SaaS businesses because it impacts customer retention rate, lifetime value, and customer acquisition costs. When customers have a successful experience using your product, they will likely stay with you and recommend your product to others. Thus, customer success should be an important KPI for SaaS businesses.
You measure customer success by tracking various metrics, such as customer satisfaction, usage rates, engagement, and product adoption. These measurements help assess how well your product meets customer needs and expectations. It provides insights into how customers interact with your product and what features can be improved to increase customer satisfaction. Moreover, customer success allows you to identify and address customer issues proactively. You can develop better product features that drive customer success by understanding customer problems.
Churn Rate
Churn rate is among the key metrics for a software-as-a-service business and is a measure of loss of revenue due to customer attrition. It is calculated by taking the percentage of customers who have either canceled their subscriptions or stopped using your product within a given period. The higher the customer churn rate, the lower the conversion rate, which is a red flag for businesses. An annual churn rate of 2%-8% for SaaS businesses is acceptable.
By understanding your customers’ attrition rate, you gain insights into the success or failure of your business model. You can identify which products are not performing well and why customers leave. It allows you to take the necessary steps to address any issues and reduce loss of revenue. Additionally, you can use this rate as a benchmark for comparison with other SaaS companies.
Monthly Recurring Revenue
Monthly recurring revenue (MRR) is a key performance indicator used to measure the financial health of a SaaS business. It is the monthly revenue you receive from subscription-based services and recurring products. MRR represents the money billed to customers for monthly subscription costs, upgrades, and new sales. It is a good indicator of future revenue growth and can be used to predict the annual growth rate.
You can use MRR to measure customer retention and engagement, as it shows the average revenue per customer over time. Tracking changes in MRR offers insights into customer purchase behavior and product demand. Analyzing its data helps make informed decisions on pricing, marketing, and customer service initiatives.
Cash Reserves
Cash reserve is a crucial measure of cash flow for SaaS companies. It helps monitor cash surplus and cash deficits. Maintaining cash reserves for SaaS businesses is vital, providing you with the necessary cushion during cash shortfalls.
Cash reserves are good indicators of the health of a business and provide early warning signs if cash levels start to drop. A good cash reserve should cover the company's expenses for three to six months.
Active Users
Active users are those who engage with SaaS products or services. You can measure active users by monitoring daily active users (DAU) and monthly active users (MAU). DAU is the number of users who utilize the product daily within a given time frame. MAU is the number of users who use the product during a 30-day time frame.
The higher the number of active users, the better the SaaS business. These numbers help determine the impact of critical initiatives, such as new marketing channels, sales strategies, and product improvements.
Sales
Sales are among the SaaS KPIs that every decision-maker should monitor. It is a metric that defines the success of a product or service, and it’s essential to measure sales performance. The sales team tracks sales, allowing them to measure their sales efforts' success. It involves finding the number of product-qualified leads (PQLs) and sales-qualified leads (SQLs).
This metric provides insights into how many leads convert into paying customers and the conversion rate. You need a competent SaaS developer to create a sales dashboard for real-time monitoring.
Net Promoter Score
Net promoter score (NPS) is a KPI used to measure customer loyalty and satisfaction. It involves conducting feedback surveys, asking customers how likely they are to recommend a product or service to friends and family. Customers respond on a scale of 0-10, with promoters (score 9-10) most likely to share their experience and detractors (score 0-6) unlikely to do so. NPS is the difference between the percentage of promoters and detractors.
SaaS organizations identify unsatisfied clients by measuring NPS. Whether you receive positive or negative feedback from your customers, you may save significant money that would have been lost to customer attrition. It helps you make the necessary product improvements before it is too late.
Hire the Right Team for Your SaaS Company
Measuring the right KPIs is vital for SaaS companies to understand how their product performs and what needs fixing. They help track progress, identify potential problems, and measure the effectiveness of initiatives. Using the above metric enables you to make data-driven decisions supporting your goals and improving the customer experience. You should hire the right engineering team for your SaaS business to ensure success.
Revelo is a talent platform that connects technology companies in the US to experienced software engineers in Latin America. Our pre-vetted network of remote developers helps you scale your engineering team quickly and cost-effectively. Contact us today to learn more about how we can help your SaaS business succeed.
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