What are SaaS metrics, and why are metrics so important for SaaS companies and Startups?
If you want to grow and be successful as a SaaS company or Startup, it is necessary to keep track of your numbers. Metrics are essential in all parts of your funnel, whether in marketing in the acquisition phase or in sales in the revenue phase. If you don't track your numbers, you will not know if you are moving closer to your goal or further away.
Only measuring your metrics will help you improve and adjust your journey of growth. This article will guide you through the labyrinth of SaaS metrics by showing you all the definitions and helping you understand, which metrics to measure and how to calculate and improve each of them.
Only measuring your metrics will help you improve and adjust your journey of growth. This article will guide you through the labyrinth of SaaS metrics by showing you all the definitions and helping you understand, which metrics to measure and how to calculate and improve each of them.
Without tracking metrics, you are flying blind and trusting your gut. I don't know of any pilots that successfully flew their planes blind, nor CEOs that successfully scaled their SaaS business without tracking the right metrics on a regular basis.
Alexander Theuma
Founder, SaaStock
Why you should not measure everything & how to find the right metrics that move the needle for your company
There are different metrics to measure for every part of your sales funnel, but not all metrics are essential to achieve your goal. There are over 50 SaaS / Startup metrics. However, tracking all of them is not helpful, and if you want to monitor them all, you will easily get lost. These four steps help you find the metrics that affect your business success:
1. Define your companies' goal
2. Define what metrics will help reach this goal
3. Rank metrics based on business impact and viability
4. Create action steps to improve the underlying metrics
Monitoring the right metrics requires a sound business strategy. First, ask yourself what your companies' goal is. Here it is vital to be as precise as possible. For example, "increasing revenue" is a poorly drafted goal since everybody has a different opinion of what increasing revenue means. However, if you state it like "increase this years' revenue by 3%, compared to last year", it is clear what you are trying to achieve.
Based on your overall goal, start creating key performance indicators. Key performance indicators (KPIs) represent the most critical metrics in your company and help you measure your growth. This goal may be to increase sales, reduce costs, or expand into a new market. KPIs are metrics that move the needle, therefore keep them limited.
After you have defined your KPIs, ask yourself what underlying metrics will help you reach your goal. For example, your goal could be to increase customer lifetime value by 2% by the end of this year. A possible underlying metric that directly influences this goal is the average order size per customer.
Once you have a list of underlying metrics, start prioritizing these metrics based on impact and viability. For instance, if you measure the effectiveness of your e-mail campaign (which directly affects your sales), it is crucial to measure the open rate, click-through rate, and click-to-open rate. Yet, only the overall conversion rate shows you if you are moving closer to your goal. So keep in mind to prioritize the metrics that support your companies' success.
1. Define your companies' goal
2. Define what metrics will help reach this goal
3. Rank metrics based on business impact and viability
4. Create action steps to improve the underlying metrics
Monitoring the right metrics requires a sound business strategy. First, ask yourself what your companies' goal is. Here it is vital to be as precise as possible. For example, "increasing revenue" is a poorly drafted goal since everybody has a different opinion of what increasing revenue means. However, if you state it like "increase this years' revenue by 3%, compared to last year", it is clear what you are trying to achieve.
Based on your overall goal, start creating key performance indicators. Key performance indicators (KPIs) represent the most critical metrics in your company and help you measure your growth. This goal may be to increase sales, reduce costs, or expand into a new market. KPIs are metrics that move the needle, therefore keep them limited.
After you have defined your KPIs, ask yourself what underlying metrics will help you reach your goal. For example, your goal could be to increase customer lifetime value by 2% by the end of this year. A possible underlying metric that directly influences this goal is the average order size per customer.
Once you have a list of underlying metrics, start prioritizing these metrics based on impact and viability. For instance, if you measure the effectiveness of your e-mail campaign (which directly affects your sales), it is crucial to measure the open rate, click-through rate, and click-to-open rate. Yet, only the overall conversion rate shows you if you are moving closer to your goal. So keep in mind to prioritize the metrics that support your companies' success.
What is the suitable benchmark for SaaS metrics?
Especially when you start, it isn't easy to know what growth numbers are reasonable and what goal you can achieve. There is little sense in setting arbitrary goals without further exploration. Instead, research industry benchmarks in your area to get a feeling, what numbers make sense, and what goal you can set for your company.
If we look at revenue growth for example, according to SaaS-capital, "a $2 million SaaS company needs to be growing at over 90% year-over-year to be in the top 25% of its peers.” However, do not be scared off by those numbers. These benchmarks are good to get the first indication for growth.
Yet, it is more important to measure your own numbers and compare them to your companies' results. For example, track your key metrics for February and compare them to January's results to see what growth rate is realistic for your firm.
If we look at revenue growth for example, according to SaaS-capital, "a $2 million SaaS company needs to be growing at over 90% year-over-year to be in the top 25% of its peers.” However, do not be scared off by those numbers. These benchmarks are good to get the first indication for growth.
Yet, it is more important to measure your own numbers and compare them to your companies' results. For example, track your key metrics for February and compare them to January's results to see what growth rate is realistic for your firm.
How to monitor your metrics
Once you know which metrics impact your business and which metrics to track, monitor the KPIs in a dashboard. Keeping an overview is easier this way, and you can share it with your team regularly, so everyone is on the same page. To make the most out of your dashboards, keep these two steps in mind:
Group similar KPIs and metrics:
Grouping similar metrics in your dashboard has the advantage that you can use the dashboard in a task-oriented way. For example, if you focus on the acquisition phase and want to get people on your website, group metrics like organic reach, visits, traffic sources, etc.
Suppose you focus on the Retention phase and want people to continuously visit your website, grouping metrics like returning visitors or logins might go well together.
Suppose you focus on the Retention phase and want people to continuously visit your website, grouping metrics like returning visitors or logins might go well together.
Make it easy to understand:
One of the prime mistakes of creating a dashboard is making it too complicated to assess the situation immediately. To avoid this, make sure only to use the important metrics and provide them in a comprehensible way that can be interpreted easily.
Let's have a look at the metrics that are valuable to measure:
Let's have a look at the metrics that are valuable to measure:
Conversion Rate (CR)
Conversion Rate is one of the most valuable metrics to measure your marketing efforts' performance and see if you are heading in the right direction. The Conversion Rate is the percentage of customers that complete the desired goal. Depending on your overall business goals, this could mean making a purchase, signing up for the newsletter, using an online chat, creating an account, or downloading your lead magnet. The more people that perform the desired action, the higher your Conversion Rate is.
There are many ways customers can interact with your content, but not every activity is considered a conversion. For example, if you run an e-mail campaign and want to see how effective your e-mails are, you can measure how many people click on the e-mail link and get to your website. However, make sure to describe the e-mail clicks as click-through-rate rather than conversion rate. See the conversion rate as the final goal a customer should achieve.
If we think of the e-mail example, the Conversion Rate could describe the number of people who open the e-mail, click on the link to your website, and download the free gift you offer on your website. This will give you better insights into your metrics than considering every step of the user journey as a conversion.
There are many ways customers can interact with your content, but not every activity is considered a conversion. For example, if you run an e-mail campaign and want to see how effective your e-mails are, you can measure how many people click on the e-mail link and get to your website. However, make sure to describe the e-mail clicks as click-through-rate rather than conversion rate. See the conversion rate as the final goal a customer should achieve.
If we think of the e-mail example, the Conversion Rate could describe the number of people who open the e-mail, click on the link to your website, and download the free gift you offer on your website. This will give you better insights into your metrics than considering every step of the user journey as a conversion.
How to calculate Conversion Rate
To calculate, for example, your website's Conversion Rate, divide the total number of conversions by the total number of sessions.
Conversion Rate = Total number of conversions / Total number of sessions
For instance, if you offer a free gift on your website and 200 people downloaded the offering, while 400 people visited your page, your Conversion Rate is 50% (200 / 400 * 100)
Conversion Rate = Total number of conversions / Total number of sessions
For instance, if you offer a free gift on your website and 200 people downloaded the offering, while 400 people visited your page, your Conversion Rate is 50% (200 / 400 * 100)
How to increase your Conversion Rate
Depending on your goals, there are different ways to increase your Conversion Rate. Always ask yourself what the desired goal is that your customers have and how you can help them achieve their goals.
How to increase the Conversion Rate for your website:
• Use trust signs (testimonials)
• Design engaging call to action buttons
• Remove any unnecessary cluster
• Make sure you communicate your value
• Use wording that your customers resonate with
• Make your website mobile responsive
• Make it easy for your customers to reach their desired goal
How to increase the Conversion Rate for e-mails:
• Make e-mails personal
• Communicate benefits, not features
• Time e-mails based on customer behavior
• Give every e-mail a clear call to action
Download the free metrics CHEAT SHEETHow to increase the Conversion Rate for your website:
• Use trust signs (testimonials)
• Design engaging call to action buttons
• Remove any unnecessary cluster
• Make sure you communicate your value
• Use wording that your customers resonate with
• Make your website mobile responsive
• Make it easy for your customers to reach their desired goal
How to increase the Conversion Rate for e-mails:
• Make e-mails personal
• Communicate benefits, not features
• Time e-mails based on customer behavior
• Give every e-mail a clear call to action
Customer acquisition cost (CAC)
Customer acquisition cost describes the total amount you spend to acquire a customer, including all marketing and sales expenses like salaries, headcount-related fees, charges for running ads, creating content, technical costs, etc. To get a decent understanding of whether your company will fail or succeed, compare your customer acquisition cost to the customer lifetime value.
A good rule of thumb is to have a CLV to CAC ratio of 3:1. If this ratio is closer to 1:1, that means you are not making any profit on customers. If it is closer to 5:1, think about ways to invest in new opportunities to get more customers and not miss out on new marketing opportunities.
As Michal Sadowski, Founder & CEO of Brand24 puts it, "We knew we needed to keep CLV to CAC ratio above 3. Preferably even higher. This is how we realized how much in CLV we need to aim for and therefore what should be our monthly pricing."
A good rule of thumb is to have a CLV to CAC ratio of 3:1. If this ratio is closer to 1:1, that means you are not making any profit on customers. If it is closer to 5:1, think about ways to invest in new opportunities to get more customers and not miss out on new marketing opportunities.
As Michal Sadowski, Founder & CEO of Brand24 puts it, "We knew we needed to keep CLV to CAC ratio above 3. Preferably even higher. This is how we realized how much in CLV we need to aim for and therefore what should be our monthly pricing."
CAC is one of the key metrics we use at Brand24. We used it to determine our pricing, we use it to determine the profitability of potential & existing campaigns. It helps us to keep track of performance from marketing team members. Interestingly, in the beginning of our global expansion, we used it to figure out our pricing. We tried to use Google Ads to get an initial exposure for a strategic keyword linked to our industry. This allowed us to discover the price per click. Mixed with conversions from users to trials and from trials to paying customers - this gave us CAC for Google Ads as a channel. We knew we needed to keep CLV to CAC ratio above 3. Preferably even higher. This is how we realized how much in CLV we need to aim for and therefore what should be our monthly pricing. Obviously, you take into consideration more data such as competitive landscape, etc. - but CAC was a key metric here.
Michal Sadowski
Founder & CEO, Brand24
Since there are various marketing channels to get new customers, monitor the costs for each of your marketing channels and find the one with the lowest CAC and the highest return.
A great framework to reduce your marketing efforts and to let you focus on marketing channels that can get meaningful results is the Bullseye Framework. When you constantly reduce your customer acquisition cost, you will see higher profits and be able to invest in new marketing opportunities to speed up growth.
A great framework to reduce your marketing efforts and to let you focus on marketing channels that can get meaningful results is the Bullseye Framework. When you constantly reduce your customer acquisition cost, you will see higher profits and be able to invest in new marketing opportunities to speed up growth.
How to calculate the CAC
Calculate the customer acquisition cost by dividing all marketing and sales expenses by the number of new customers acquired in the period you spent the money.
Customer acquisition cost = Cost of marketing and sales / Number of new customers acquired (in the same period).
For example, if you spend €200 on marketing and sales in a month and acquired 50 new customers in the same month, your CAC is €4 (€200 / 50).
Customer acquisition cost = Cost of marketing and sales / Number of new customers acquired (in the same period).
For example, if you spend €200 on marketing and sales in a month and acquired 50 new customers in the same month, your CAC is €4 (€200 / 50).
How to reduce your CAC
• Inbound marketing
• Referral programs / Word-of-mouth
• Improve the Conversion Rate for your service (website, app)
• Add additional value to your service
• Build strong ad-campaigns
• Use marketing automation
• Optimize your sales funnel
Download the free CHEAT SHEET• Referral programs / Word-of-mouth
• Improve the Conversion Rate for your service (website, app)
• Add additional value to your service
• Build strong ad-campaigns
• Use marketing automation
• Optimize your sales funnel
Customer lifetime value (CLV or LTV)
One of the most critical metrics in the revenue phase is the customer lifetime value. The metric describes the total revenue generated by a customer over their lifetime. This metric shows you how much you can spend on acquiring new customers and if your business model runs profitably.
Customer lifetime value vs. customer acquisition cost
The customer lifetime value shows you how much you can invest in acquiring new customers. If you invest more money in acquisition than what you will eventually get from a customer, your business will fail.
A good rule of thumb is to have a customer lifetime value to customer acquisition ratio of 3:1. To find the channel with the lowest CAC and the highest return, apply the Bullseye Framework, developed by Gabriel Weinberg.
Not all customers are the same, and not all revenue is created equally. Therefore, it is important to find out which customers are most valuable to you. A great framework to find your best customer segment is the PVP index, developed by Allan Dib, author of the 1-Page Marketing Plan.
A good rule of thumb is to have a customer lifetime value to customer acquisition ratio of 3:1. To find the channel with the lowest CAC and the highest return, apply the Bullseye Framework, developed by Gabriel Weinberg.
Not all customers are the same, and not all revenue is created equally. Therefore, it is important to find out which customers are most valuable to you. A great framework to find your best customer segment is the PVP index, developed by Allan Dib, author of the 1-Page Marketing Plan.
The PVP Index helps you find the market segmentation which gives you personal fulfillment, values your work, and drives revenues. Determine each market segment and rate them, based on the PVP Index, on a scale of 1 to 10.
• Personal fulfillment:
How much do you enjoy dealing with this type of customer?
• Value:
How much does this market segment value your work?
• Profitability:
How profitable is the work you do for this segment?
Once you have found your ideal customers, you can use your marketing budget more effectively and improve your revenue quality.
• Personal fulfillment:
How much do you enjoy dealing with this type of customer?
• Value:
How much does this market segment value your work?
• Profitability:
How profitable is the work you do for this segment?
Once you have found your ideal customers, you can use your marketing budget more effectively and improve your revenue quality.
How to calculate LTV
Calculate the customer lifetime value like this:
Customer lifetime value = Average revenue per customer * (1/churn rate)
For example, if your average monthly revenue per customer is €100 and your churn rate is 5%, this means that your customer lifetime value is €2000.
CLV = €100 * (1/0,05)
Be careful not to mix your annual subscriptions with the monthly ones. Otherwise, you might lull yourself into a false sense of security.
Customer lifetime value = Average revenue per customer * (1/churn rate)
For example, if your average monthly revenue per customer is €100 and your churn rate is 5%, this means that your customer lifetime value is €2000.
CLV = €100 * (1/0,05)
Be careful not to mix your annual subscriptions with the monthly ones. Otherwise, you might lull yourself into a false sense of security.
How to improve the LTV
• Raise your prices
• Reward people to upgrade
• Make upgrading to higher plans easy
• Use up-sells and cross-sells
• Create bundles that offer a discount for larger purchases
• Keep customers engaged
• Provide value regularly
• Improve and expand your service
• Reward people to upgrade
• Make upgrading to higher plans easy
• Use up-sells and cross-sells
• Create bundles that offer a discount for larger purchases
• Keep customers engaged
• Provide value regularly
• Improve and expand your service
Months to recover CAC
SaaS companies rely on a monthly or a yearly retainer customers pay to use the service. This results in an enormous investment upfront to gain customers initially. SaaS is a great business model because you don't have to start your sales from zero every month. However, if it takes you too long to get your money back, which you invested in acquiring customers, you will have a hard time.
As we already discussed, the customer acquisition cost is one of the prime metrics that will decide your business fate. If you pay more to acquire a customer than your customer lifetime value, you will not stay in business for long. To get a decent understanding of whether your company will fail or succeed, compare your customer acquisition cost to the customer lifetime value.
A good rule of thumb is to have a CLV to CAC ratio of 3:1. If this ratio is closer to 1:1, that means you are not making any profit on customers. If it is closer to 5:1, think about ways to invest in new opportunities to get more customers and not miss out on new marketing opportunities. With that being said, it is vital to know how long it will take you to recover your initial customer acquisition cost and when you are breaking even.
The metric also gives insights into how much cash you need upfront to sustain the business while trying to get to the break-even point. As time passes by, the risk of churn increases, and it is unlikely that customers stay with you forever. That's why a short payback period helps you to reach the break-even point more quickly and enables your business to grow.
As we already discussed, the customer acquisition cost is one of the prime metrics that will decide your business fate. If you pay more to acquire a customer than your customer lifetime value, you will not stay in business for long. To get a decent understanding of whether your company will fail or succeed, compare your customer acquisition cost to the customer lifetime value.
A good rule of thumb is to have a CLV to CAC ratio of 3:1. If this ratio is closer to 1:1, that means you are not making any profit on customers. If it is closer to 5:1, think about ways to invest in new opportunities to get more customers and not miss out on new marketing opportunities. With that being said, it is vital to know how long it will take you to recover your initial customer acquisition cost and when you are breaking even.
The metric also gives insights into how much cash you need upfront to sustain the business while trying to get to the break-even point. As time passes by, the risk of churn increases, and it is unlikely that customers stay with you forever. That's why a short payback period helps you to reach the break-even point more quickly and enables your business to grow.
How to calculate months to recover CAC
Calculate the months to recover CAC by dividing customer acquisition cost by average revenue per account multiplied by gross margin.
Months to Recover CAC = CAC / (ARPA * GM%)
For example, you spend €1000 to acquire a new customer. This customer pays a monthly fee of €100, which results in a gross margin of €80 per month (80%). It would take you 12,5 months to recover the initial €1000 you invested in getting the customer. If the customer churns before that 12,5 months, this will cause a loss.
Months to Recover CAC = CAC / (ARPA * GM%)
For example, you spend €1000 to acquire a new customer. This customer pays a monthly fee of €100, which results in a gross margin of €80 per month (80%). It would take you 12,5 months to recover the initial €1000 you invested in getting the customer. If the customer churns before that 12,5 months, this will cause a loss.
How to reduce months to recover CAC
• Increase your prices
• Reduce customer acquisition cost by finding new and more effective marketing channels
• Reward people to upgrade to higher plans
• Focus on expansion revenue through up-sells and cross-sells
• Experiment with pricing plans
• Reward people to use annual contracts
• Reduce customer acquisition cost by finding new and more effective marketing channels
• Reward people to upgrade to higher plans
• Focus on expansion revenue through up-sells and cross-sells
• Experiment with pricing plans
• Reward people to use annual contracts
Churn rate
Customer churn is the nightmare of every SaaS company and is one of the key metrics you need to monitor and reduce as early as possible. It is important to understand that most SaaS companies do not fail because of poor customer acquisition but because of customer churn.
Customer churn – also called attrition – is when existing customers stop doing business with a company. For SaaS companies, this shows itself in the percentage of subscribers who discontinue their subscription. Poor customer service, increasing prices, or that customers don't find value in your service are just some of the significant causes for customers to leave.
Understanding what causes customers to stop doing business with you is essential to have a sustainable business.
Customer churn – also called attrition – is when existing customers stop doing business with a company. For SaaS companies, this shows itself in the percentage of subscribers who discontinue their subscription. Poor customer service, increasing prices, or that customers don't find value in your service are just some of the significant causes for customers to leave.
Understanding what causes customers to stop doing business with you is essential to have a sustainable business.
How to fight customer churn
Be aware that customers often decide to churn, even before spending much time with your service. That's why it is central to fight customer churn already in an early phase of your customer cycle, the activation phase. The activation phase is about providing an exceptional customer experience.
Most of the time, the value of your service is not apparent. Therefore, it is important to figure out your products' AHA moment. The AHA moment is when people first realize the value of your service. This moment decides whether your customers engage further or leave forever.
The AHA moment is an emotional event that should happen early in the customer journey - the longer your time to value is, the more likely it is that people will churn.
Most of the time, the value of your service is not apparent. Therefore, it is important to figure out your products' AHA moment. The AHA moment is when people first realize the value of your service. This moment decides whether your customers engage further or leave forever.
The AHA moment is an emotional event that should happen early in the customer journey - the longer your time to value is, the more likely it is that people will churn.
Churn relates to the loss of customers or revenue through subscription cancellations. There are a variety of reasons customers churn. It's important to understand the root causes so that you can begin to address the issues. Ultimately, the best cure for churn is product adoption.
Peter Loving
Founder, UserActive
How to find your services' AHA moment
To find your services' AHA moment, first, reach out to your top customers and ask what is most valuable to them. Even though it is likely that each persona will have an individual journey to their own AHA moment, you will get valuable insights.
After evaluating customer feedback, create a list of behaviors that correlate with customer retention. Next, use this list to define your activation metrics. These metrics are individual and vary from service to service. Examples for activation metrics are "10 app usages per month" or "adding two friends within the first week."
After evaluating customer feedback, create a list of behaviors that correlate with customer retention. Next, use this list to define your activation metrics. These metrics are individual and vary from service to service. Examples for activation metrics are "10 app usages per month" or "adding two friends within the first week."
Ask yourself if customers who regularly use your service
• finish the onboarding process
• interact with the core feature
• connect with other customers
Once you complement your customer feedback with your analytics data, it should be clear where people find value in your service. One of the best methods to bring customers fast to the AHA moment is onboarding.
Another way to fight customer churn is to monitor early warning signs.
• interact with the core feature
• connect with other customers
Once you complement your customer feedback with your analytics data, it should be clear where people find value in your service. One of the best methods to bring customers fast to the AHA moment is onboarding.
Another way to fight customer churn is to monitor early warning signs.
Early warning signs for customer churn
• Infrequent logins
• Taking much longer to complete tasks than average customers
• Shorter visit times
Once you track those metrics, it is easier for you and your team to find the underlying motivation why your customers churn and provide action steps to avoid this.
Customer churn is closely tied to customer satisfaction. Therefore, keep an eye on the Net Promoter Score to complement your insights for customer churn. This approach provides a holistic view of whether customers like your service and whether they would recommend it to others.
• Taking much longer to complete tasks than average customers
• Shorter visit times
Once you track those metrics, it is easier for you and your team to find the underlying motivation why your customers churn and provide action steps to avoid this.
Customer churn is closely tied to customer satisfaction. Therefore, keep an eye on the Net Promoter Score to complement your insights for customer churn. This approach provides a holistic view of whether customers like your service and whether they would recommend it to others.
How to calculate customer churn rate
Calculate customer churn by dividing the number of customers who left in 1 month by the number of customers at the beginning of the month.
Customer churn rate = Customers who left in one month / Customers at the beginning of the month.
For example, if you have 400 customers at the beginning of January and 100 customers stopped doing business with you in January, your customer churn rate is 25%. (100 / 400 * 100 = 25%).
Customer churn rate = Customers who left in one month / Customers at the beginning of the month.
For example, if you have 400 customers at the beginning of January and 100 customers stopped doing business with you in January, your customer churn rate is 25%. (100 / 400 * 100 = 25%).
How to reduce customer churn
• Target the right audience for your service
• Provide an exceptional customer experience, right in the beginning
• Provide value regularly
• Be transparent with customers
• Ask customers for feedback to improve your service
• Learn from churned customers
Get your free SaaS metrics worksheet• Provide an exceptional customer experience, right in the beginning
• Provide value regularly
• Be transparent with customers
• Ask customers for feedback to improve your service
• Learn from churned customers
Revenue churn
Revenue Churn is the lost revenue because of churned customers or downgraded subscriptions. It is expressed as a whole number and one of the most important metrics to assess the health of your SaaS business. Besides customer churn, it is essential to track revenue churn since different customers have a different business impact, especially when companies offer multiple pricing plans.
For example, it is much more severe if you lose customers who are spending €100 every month on your company than customers who spend €10 per month.
Revenue churn can happen because of many reasons. However, downgrades, subscription cancellations, or customers who head to the competition are the primary reasons for revenue churn.
It is indispensable to differentiate between gross revenue churn and net revenue churn when looking at this metric.
Gross revenue churn:
Revenue lost because of subscription cancellations or failed renewals.
Net revenue churn:
Revenue lost due to subscription cancellations or failed renewals, modified by expansion revenue based on upgrades or cross-sells from remaining customers.
Gross revenue churn does not consider any revenue gained from expansion revenue. For example, if you have lost €200 from cancellations but gained €600 from upgrades or cross-sells, this will not be shown in gross revenue churn. It is mandatory to calculate net revenue churn as well, since gross revenue churn only tells you how much you've lost, but not by how much you've compensated the losses.
For example, it is much more severe if you lose customers who are spending €100 every month on your company than customers who spend €10 per month.
Revenue churn can happen because of many reasons. However, downgrades, subscription cancellations, or customers who head to the competition are the primary reasons for revenue churn.
It is indispensable to differentiate between gross revenue churn and net revenue churn when looking at this metric.
Gross revenue churn:
Revenue lost because of subscription cancellations or failed renewals.
Net revenue churn:
Revenue lost due to subscription cancellations or failed renewals, modified by expansion revenue based on upgrades or cross-sells from remaining customers.
Gross revenue churn does not consider any revenue gained from expansion revenue. For example, if you have lost €200 from cancellations but gained €600 from upgrades or cross-sells, this will not be shown in gross revenue churn. It is mandatory to calculate net revenue churn as well, since gross revenue churn only tells you how much you've lost, but not by how much you've compensated the losses.
How to calculate gross revenue churn
Calculate gross revenue churn by dividing the revenue lost because of downgrades and cancellations in one month by the amount of revenue at the beginning of the month.
For example, if you have lost €30 due to downgrades and cancellations and you had €120 of revenue at the beginning of the month, your gross revenue churn is 25%.
Gross revenue churn = €30 / €120 = 25%
For example, if you have lost €30 due to downgrades and cancellations and you had €120 of revenue at the beginning of the month, your gross revenue churn is 25%.
Gross revenue churn = €30 / €120 = 25%
How to calculate net revenue churn
Calculate net revenue churn by dividing the amount of revenue lost because of cancellations minus the expansion revenue (from up-sells and cross-sells) in 1 month by the amount of revenue at the beginning of the month.
Let's make an example: If you have lost €30 due to downgrades and cancellations, but you have gained €10 due to up-sells, and had €120 of revenue at the beginning of the month, your net revenue churn is 16%.
Net revenue churn = (€30 - €10) / €120 = 16%
Let's make an example: If you have lost €30 due to downgrades and cancellations, but you have gained €10 due to up-sells, and had €120 of revenue at the beginning of the month, your net revenue churn is 16%.
Net revenue churn = (€30 - €10) / €120 = 16%
Negative churn – the holy grail
What you want in your business is negative churn. Negative churn happens when expansions, up-sells, or cross-sells exceed the revenue you lose because of churn. For example: people who use a free model of your service upgrade to a premium model or buy another service in addition to their current model. These purchases result in higher revenue, even if some customers churn.
How to improve revenue churn
• Raise your prices
• Reward people to upgrade
• Make upgrading to higher plans easy
• Provide value regularly
• Improve and expand your service
• Reward people to upgrade
• Make upgrading to higher plans easy
• Provide value regularly
• Improve and expand your service
Monthly recurring revenue & annual recurring revenue (MRR & ARR)
Monthly recurring revenue is the revenue a company expects to receive every month. Annual recurring revenue is simply multiplying the MRR by 12. MRR and ARR are represented in € amounts. They are one of the most critical metrics for companies that make revenue on a subscription basis because it helps the company plan and forecast correctly.
Also, this is one of the prime metrics investors look at before investing in a company. Recurring revenue is one of the major benefits of SaaS business models compared to other business models, which need to constantly make sales and have to start from zero every month.
Also, this is one of the prime metrics investors look at before investing in a company. Recurring revenue is one of the major benefits of SaaS business models compared to other business models, which need to constantly make sales and have to start from zero every month.
MRR for SaaS business is their life blood, you have to track it. Even if you don't bill monthly, work out your MRR per customer as well in total. You also need to track your MRR expansion month on month and where it's coming from (existing customers or new customers).
Nick Dunse
Chief Revenue Officer, Shuttle
How to calculate MRR
Calculating the MRR is straightforward, but identifying the different factors that constitute MRR can be more difficult. Calculate the MRR by multiplying the monthly average revenue per user by the total number of monthly users.
For example, if the monthly average revenue per user is €10 and you have 20 monthly users, your MRR is €200.
MRR = €10 x 20 = €200
To get the annual recurring revenue, simply multiply your MRR by 12.
ARR = €200 x 12 = €2400
This calculation, however, only touches the surface of MRR. As your business grows, your MRR is going to change. In every SaaS business, customers churn or expand their existing pricing plans. That's why it is important to keep the different types of MRR in mind:
For example, if the monthly average revenue per user is €10 and you have 20 monthly users, your MRR is €200.
MRR = €10 x 20 = €200
To get the annual recurring revenue, simply multiply your MRR by 12.
ARR = €200 x 12 = €2400
This calculation, however, only touches the surface of MRR. As your business grows, your MRR is going to change. In every SaaS business, customers churn or expand their existing pricing plans. That's why it is important to keep the different types of MRR in mind:
Types of MRR:
• New MRR
• Expansion MRR
• Churned MRR
For better insights, you need to monitor these metrics over time and identify trends. Even though there are benchmarks for a healthy MRR, these standards are only good to get the first indication of growth. It is more important to measure your own numbers and compare them to your companies' results.
• Expansion MRR
• Churned MRR
For better insights, you need to monitor these metrics over time and identify trends. Even though there are benchmarks for a healthy MRR, these standards are only good to get the first indication of growth. It is more important to measure your own numbers and compare them to your companies' results.
SaaS b2b is all about how you make your customers successful. The key metrics every SaaS company should track are Customer Lifetime Value (LTV), Customer Acquisition Cost (CAC), Monthly Recurring Revenue (MRR) or Net MRR Growth, and last but not least Customer Churn Rate. Besides these, one should also focus on expansion revenue. Without tracking and optimising all these factors, your SaaS business is doomed.
Matic Užmah
Founder, LibreBeat
How to improve MRR & ARR
• Raise your prices
• Reward people to upgrade
• Make upgrading to higher plans easy
• Provide value regularly
• Improve and expand your service
• Reward people to upgrade
• Make upgrading to higher plans easy
• Provide value regularly
• Improve and expand your service
Expansion revenue
Expansion revenue is the revenue additionally generated from a customers' initial purchase – mainly in the form of up-sells or cross-sells. During the retention phase, you are making money by keeping your customers but also by enabling them to upgrade to premium plans or by adding additional payment packages to their current plan.
It is much more expensive to win new customers than to keep existing ones, and many Startups fail because of a lack of retaining their customers and not necessarily as a lack of acquiring them. Therefore, it makes sense to focus on retention. Expansion revenue is done through cross-sells, up-sells, or add-ons. This can be by upgrading them to a higher payment plan or by cross-sells, where they get add-ons that further help them succeed.
A healthy SaaS business has at least a customer acquisition cost to customer lifetime value of 1:3. This means that customers bring three times the value they initially cost to acquire. Since customers don't stay with you forever and eventually churn, expansion revenue is a great way to recover your initial investment faster and keeping your customers longer engaged as they receive more value from you.
It is much more expensive to win new customers than to keep existing ones, and many Startups fail because of a lack of retaining their customers and not necessarily as a lack of acquiring them. Therefore, it makes sense to focus on retention. Expansion revenue is done through cross-sells, up-sells, or add-ons. This can be by upgrading them to a higher payment plan or by cross-sells, where they get add-ons that further help them succeed.
A healthy SaaS business has at least a customer acquisition cost to customer lifetime value of 1:3. This means that customers bring three times the value they initially cost to acquire. Since customers don't stay with you forever and eventually churn, expansion revenue is a great way to recover your initial investment faster and keeping your customers longer engaged as they receive more value from you.
How to calculate expansion revenue
Calculate expansion revenue by summing the total new MRR from up-sells, cross-sells, and add-ons within a given period of time. Keep in mind not to include revenue from newly acquired customers.
How to increase expansion revenue
• Make upgrading to higher plans easy
• Reward people to upgrade
• Find out what your customers value most and provide cross-selling to increase the value of your service further
• Think about how your customers evolve and where you can provide additional value
• Offer related products
• Develop additional features based on your customer's needs
Download the free metrics worksheet• Reward people to upgrade
• Find out what your customers value most and provide cross-selling to increase the value of your service further
• Think about how your customers evolve and where you can provide additional value
• Offer related products
• Develop additional features based on your customer's needs
Average revenue per user / Average revenue per account (ARPU / ARPA)
The average revenue per user is all revenue coming in from active users divided by the total number of customers that revenue came from, measured monthly or annually. The metrics are mainly used in subscription models to see the business's profitability and financial stability. The higher your ARPU, the better. The terms ARPU and ARPA are often used interchangeably.
Depending on your business model, this might not be correct all the time. For example, one customer is tracked as a single user but can have multiple accounts simultaneously. In case your business model allows customers to have various accounts, calculate both metrics. Since the user base of SaaS companies fluctuate heavily, using cohorts to find trends and see which customer segment brings the most revenue is essential to build a stable user base.
Your goal should be to consistently increase ARPU, for example, by increasing your prices or motivating people to upgrade to higher plans.
Depending on your business model, this might not be correct all the time. For example, one customer is tracked as a single user but can have multiple accounts simultaneously. In case your business model allows customers to have various accounts, calculate both metrics. Since the user base of SaaS companies fluctuate heavily, using cohorts to find trends and see which customer segment brings the most revenue is essential to build a stable user base.
Your goal should be to consistently increase ARPU, for example, by increasing your prices or motivating people to upgrade to higher plans.
How to calculate ARPU
To calculate ARPU, divide the total revenue for a given period of time by the number of average users.
ARPU = Total revenue in a month / Average users in a month.
For example, if you have 200 customers and your company is generating €20.000 in revenue per month, your ARPU is €100. (€20.000 / 200 = €100).
ARPU = Total revenue in a month / Average users in a month.
For example, if you have 200 customers and your company is generating €20.000 in revenue per month, your ARPU is €100. (€20.000 / 200 = €100).
How to improve ARPU
• Incentivize people to upgrade to higher plans
• Make upgrading to higher plans easy
• Increase your prices
• Improve and expand your service
• Focus on expansion revenue through up-sells and cross-sells
• Experiment with pricing plans
• Make upgrading to higher plans easy
• Increase your prices
• Improve and expand your service
• Focus on expansion revenue through up-sells and cross-sells
• Experiment with pricing plans
Daily active users / monthly active users (DAU / MAU)
Every SaaS company aims to have a growing user base with active and engaged users. Daily active users or monthly active users is the number of unique visitors who interact with your service in a day/month. The metric shows you how valuable your product is to your customers and gives insights into user behavior.
However, it does not reflect how much users are willing to engage with your product. Having daily active users is great, but if they have no business impact, they are worthless. For example, if your business case is a freemium model and people use your product for free without taking further action and upgrading to premium plans, your business will fail. So do not fall into the trap of looking solely on this metric.
However, it does not reflect how much users are willing to engage with your product. Having daily active users is great, but if they have no business impact, they are worthless. For example, if your business case is a freemium model and people use your product for free without taking further action and upgrading to premium plans, your business will fail. So do not fall into the trap of looking solely on this metric.
How to calculate daily active users / monthly active users
Calculating the DAU / MAU depends on how you define active users. Different companies define active users differently, for example, by users who opened the app/service, or users who liked, commented, or shared a post. No matter how you determine the metric, it is vital to keep the business impact in mind. A growing base of active users seems excellent.
Still, if your definition of active users has no business impact, you will lull yourself into a false sense of security, and the metric becomes meaningless. Since different companies define "active users" differently, waste no time looking for comparisons. Instead, create your own benchmark.
Define DAU once, share it with your team, and use it as a benchmark to establish a growth mindset.
Still, if your definition of active users has no business impact, you will lull yourself into a false sense of security, and the metric becomes meaningless. Since different companies define "active users" differently, waste no time looking for comparisons. Instead, create your own benchmark.
Define DAU once, share it with your team, and use it as a benchmark to establish a growth mindset.
How to increase daily active users / monthly active users
• Provide value regularly
• Create a community around your service
• Use push notifications & regular, valuable e-mails
• Create a community around your service
• Use push notifications & regular, valuable e-mails
Viral coefficient
The viral coefficient is one of two important metrics in Viral Marketing. Viral Marketing is a style of promotion that relies on users liking your service so much that they recommend it to others. The viral coefficient represents the number of additional customers you get for each customer. Going viral is the holy grail. Every user you acquire will then bring in at least one other customer. Virality, however, is not something that happens by accident. You always have to engineer it.
There are two different types of virality. First, the well-known word-of-mouth method. Second, the built-in virality. Built-in virality describes features that act like a natural mechanism for existing users to get more users. When speaking of viral marketing, people most of the time refer to built-in features. These built-in features can lead to viral loops.
Viral loops comprise three steps.
1. A customer discovers and uses your service.
2. The customer tells his friend about the service.
3. The friend becomes a customer as well.
Viral Loops work exceptionally well for services that become more valuable the more people use them. Communication and social media platforms like Facebook, Instagram, or Skype already have built-in viral loops. Mainly because it makes little sense if you are the only one to use them. To measure the effectiveness of viral marketing, use the viral coefficient.
There are two different types of virality. First, the well-known word-of-mouth method. Second, the built-in virality. Built-in virality describes features that act like a natural mechanism for existing users to get more users. When speaking of viral marketing, people most of the time refer to built-in features. These built-in features can lead to viral loops.
Viral loops comprise three steps.
1. A customer discovers and uses your service.
2. The customer tells his friend about the service.
3. The friend becomes a customer as well.
Viral Loops work exceptionally well for services that become more valuable the more people use them. Communication and social media platforms like Facebook, Instagram, or Skype already have built-in viral loops. Mainly because it makes little sense if you are the only one to use them. To measure the effectiveness of viral marketing, use the viral coefficient.
How to calculate the viral coefficient
This is how you calculate the viral coefficient:
Viral coefficient = Number of invites sent per customer * Conversion percentage.
For example, if your customers send out 5 invites and 3 people convert, the math is like this: Viral coefficient = 5 * (3/5) = 3
A viral coefficient above 1 signifies exponential growth. Best practices for immense growth are social media share buttons or the famous Dropbox incentive, which rewards you for every friend you invite. Keep in mind that just because these techniques have worked before, they don't necessarily have positive effects on your service as well. Before adding generic social media share buttons, think about how people would like to share your service.
Viral coefficient = Number of invites sent per customer * Conversion percentage.
For example, if your customers send out 5 invites and 3 people convert, the math is like this: Viral coefficient = 5 * (3/5) = 3
A viral coefficient above 1 signifies exponential growth. Best practices for immense growth are social media share buttons or the famous Dropbox incentive, which rewards you for every friend you invite. Keep in mind that just because these techniques have worked before, they don't necessarily have positive effects on your service as well. Before adding generic social media share buttons, think about how people would like to share your service.
How to improve the viral coefficient
• Create a fantastic user experience
• Create a natural mechanism for existing users to get more users
• Make sharing as easy as possible
• Reward people for inviting their friends
• Reward people for accepting the invitation
• Create a natural mechanism for existing users to get more users
• Make sharing as easy as possible
• Reward people for inviting their friends
• Reward people for accepting the invitation
Viral cycle time
Besides the viral coefficient, viral marketing also has a second important component, the viral cycle time. This metric tells you how long it takes a customer to invite another customer. That may take hours, days, or even months. Your viral cycle time begins when a user first discovers your service and starts all over when the invitation has been sent. The shorter the time, the better.
Viral cycle time has a tremendous impact on enabling growth for your service and can help you get the early traction you are looking for. YouTube, for example, does an outstanding job at having a low viral cycle time. When you watch a video, you can share it with your friends and family. Therefore, people can quickly spread the word, which made YouTube the most successful video platform.
One caveat – having a short viral cycle time alone will not make the cut. A temporary peak in users might seem significant, but when your user retention is little, your joy will be short-lived. With that being said, the overall experience you provide will make people continue using your service.
Viral cycle time has a tremendous impact on enabling growth for your service and can help you get the early traction you are looking for. YouTube, for example, does an outstanding job at having a low viral cycle time. When you watch a video, you can share it with your friends and family. Therefore, people can quickly spread the word, which made YouTube the most successful video platform.
One caveat – having a short viral cycle time alone will not make the cut. A temporary peak in users might seem significant, but when your user retention is little, your joy will be short-lived. With that being said, the overall experience you provide will make people continue using your service.
How to shorten the viral cycle time
• Show the value of your service as fast as possible
• Make sharing as easy as possible
• Reward users immediately when they share your service
• Learn from users when and how they want to share your service
• Make sharing as easy as possible
• Reward users immediately when they share your service
• Learn from users when and how they want to share your service
Time to value (TTV)
Time to value shows you how long it takes customers to find value in your service. This moment is often described as the AHA moment and decides whether your customers engage further or churn. The AHA moment is an emotional event that should happen early in the customer journey. Keep in mind that the longer your time to value is, the more likely it is that people will churn.
To find your services' AHA moment, first, reach out to your top customers and ask what is most valuable to them. However, each persona will likely have an individual journey to their own AHA moment.
After evaluating customer feedback, create a list of behaviors that correlate with customer retention. Next, use this list to define your activation metrics. These metrics are individual and vary from service to service. Examples for activation metrics are "10 app usages per month" or "adding two friends within the first week."
Ask yourself if customers who regularly use your service...
• finish the onboarding process?
• interact with the core feature?
• connect with other customers?
Once you complement your customer feedback with your analytics data, it should be clear where people find value in your service. Then think about how you can create a frictionless experience to get people to discover the AHA moment as fast as possible. One of the best methods to bring customers quickly to the AHA moment is onboarding.
To find your services' AHA moment, first, reach out to your top customers and ask what is most valuable to them. However, each persona will likely have an individual journey to their own AHA moment.
After evaluating customer feedback, create a list of behaviors that correlate with customer retention. Next, use this list to define your activation metrics. These metrics are individual and vary from service to service. Examples for activation metrics are "10 app usages per month" or "adding two friends within the first week."
Ask yourself if customers who regularly use your service...
• finish the onboarding process?
• interact with the core feature?
• connect with other customers?
Once you complement your customer feedback with your analytics data, it should be clear where people find value in your service. Then think about how you can create a frictionless experience to get people to discover the AHA moment as fast as possible. One of the best methods to bring customers quickly to the AHA moment is onboarding.
How to reduce time to value
• Reduce any friction and unnecessary steps to the AHA moment
• Use meaningful onboarding
• Use valuable e-mails or SMS to guide customers to the AHA moment
• Personalize the customer's experience
• Use meaningful onboarding
• Use valuable e-mails or SMS to guide customers to the AHA moment
• Personalize the customer's experience
E-mail bounce rate
E-mail bounce rate is the percentage of e-mails that could not be delivered to your e-mail subscribers. Industry benchmarks for e-mail bounces are 0,5% - 2%, but it is recommendable to get the bounce rate as low as possible. This metric indicates how well your e-mail subscriber list is managed/organized.
Since not all bounces have the same reason, it is essential to differ between hard bounces and soft bounces.
Hard bounces:
Hard bounces are severe errors since they represent not a temporary failure but a permanent one. The most common reasons for hard bounces are invalid addresses or if the domain exists no longer.
It is important to remove any e-mail addresses from your list that result in hard bounces to keep an organized e-mail list. Otherwise, you might damage your e-mail reputation. A bad e-mail reputation will increase the chances of being flagged as spam or even being blocked completely.
Soft bounces:
Soft bounces show a temporary delivery failure due to an issue with the receiving server or the subscriber's mailbox being full or inactive. These issues don't require any further action from your side.
Most of the time, soft bounces will be delivered after multiple attempts. But also remember to monitor your soft bounces to keep a clean e-mail list.
Since not all bounces have the same reason, it is essential to differ between hard bounces and soft bounces.
Hard bounces:
Hard bounces are severe errors since they represent not a temporary failure but a permanent one. The most common reasons for hard bounces are invalid addresses or if the domain exists no longer.
It is important to remove any e-mail addresses from your list that result in hard bounces to keep an organized e-mail list. Otherwise, you might damage your e-mail reputation. A bad e-mail reputation will increase the chances of being flagged as spam or even being blocked completely.
Soft bounces:
Soft bounces show a temporary delivery failure due to an issue with the receiving server or the subscriber's mailbox being full or inactive. These issues don't require any further action from your side.
Most of the time, soft bounces will be delivered after multiple attempts. But also remember to monitor your soft bounces to keep a clean e-mail list.
How to calculate e-mail bounce rate
Calculate your e-mail bounce rate by dividing the amount of bounced e-mails by the amount of sent e-mails.
For example, if you sent 200 e-mails and 20 e-mails were not delivered, your e-mail bounce rate is 10%
Email bounce rate = 20 / 200 = 10%
For example, if you sent 200 e-mails and 20 e-mails were not delivered, your e-mail bounce rate is 10%
Email bounce rate = 20 / 200 = 10%
How to reduce e-mail bounce rate
• Use a double opt-in
• Be clear about the content you are sending your subscribers
• Engage consistently with your subscribers
• Give subscribers a chance to opt-out
• Use a known e-mail service provider with an excellent sending reputation
• Don't use words that indicate spam
• Verify your e-mail list
• Remove inactive subscribers
• Be clear about the content you are sending your subscribers
• Engage consistently with your subscribers
• Give subscribers a chance to opt-out
• Use a known e-mail service provider with an excellent sending reputation
• Don't use words that indicate spam
• Verify your e-mail list
• Remove inactive subscribers
E-mail Open Rate
E-mail open rate is the percentage of subscribers who open your e-mail. Sending e-mails to leads is still one of the best ways to reach potential customers and build lasting relationships with them. It is also a proven way to keep your retention rate high and to help customers find value in your service.
Keep in mind that people's inboxes are busy, and your e-mail is just one of many. Your chances of getting people to look at it and open it are naturally low. The key is value. If you do not provide enough value, people will delete your e-mail or even worse – send you straight to spam.
Keep in mind that people's inboxes are busy, and your e-mail is just one of many. Your chances of getting people to look at it and open it are naturally low. The key is value. If you do not provide enough value, people will delete your e-mail or even worse – send you straight to spam.
How to calculate Email open rate
Calculate your e-mail open rate by dividing the amount of unique opened e-mails by the amount of sent e-mails minus bounces. Bounces are the e-mails that could not be sent - for instance, since the e-mail address no longer exists.
If you sent 4100 e-mails, 100 e-mails bounced, and 400 opened your e-mail, your open rate is 10%
Email open rate = 400 / (4100 – 100) = 10%
If you sent 4100 e-mails, 100 e-mails bounced, and 400 opened your e-mail, your open rate is 10%
Email open rate = 400 / (4100 – 100) = 10%
How to improve E-mail open rate
1. Make it personal.
The best way to connect via e-mail is to address customers personally. You can do this by asking for the customers' first names in the sign-up form. Yet, be careful not to ask for too much information up front. Every extra form field increases drop-off rates.
2. Communicate benefits, not features.
Communicating benefits instead of features can help you increase your open rate dramatically. Customers buy benefits, not features. A striking example for this is: "More legroom in an airplane" = feature vs. "A more relaxed travel experience" = benefit.
3. Time e-mails based on customer behavior.
Behavior-based e-mails show your customers that your e-mail is relevant since they directly support them on their journey.
4. Consider the Character-count.
Only if customers can immediately see what the e-mail is about will they open it. Since people often open e-mails on their smartphones, consider the character count before your subject line gets cut. Try to aim for subject lines with less than 40 characters to increase the chances of your subject line not getting cut on mobile devices.
5. Make e-mails mobile friendly
Consider mobile devices first and make sure buttons are easily clickable and that images load fast. Keep in mind that many people have disabled e-mail images on mobile devices to reduce data usage. Ensure that your e-mails look good even if people don't see your pictures and that you use "bulletproof" e-mail buttons because they will be visible even when people have disabled the display of images.
E-mail marketing is a powerful method to reach your customers. Weekly or even daily e-mails may seem tempting as a way to stay top of mind with your product. However, if you start to spam, that is where your e-mails are going to land. Thus, be relevant to your customers and help them reach their goals.
To get a holistic view, whether your e-mail campaign is successful, keep in mind to measure open rate, click-through rate, click to open rate as well as the Conversion Rate. That is significant because ultimately, what counts is not how many people opened the e-mail but how many went through the sales funnel and generated a conversion.
The best way to connect via e-mail is to address customers personally. You can do this by asking for the customers' first names in the sign-up form. Yet, be careful not to ask for too much information up front. Every extra form field increases drop-off rates.
2. Communicate benefits, not features.
Communicating benefits instead of features can help you increase your open rate dramatically. Customers buy benefits, not features. A striking example for this is: "More legroom in an airplane" = feature vs. "A more relaxed travel experience" = benefit.
3. Time e-mails based on customer behavior.
Behavior-based e-mails show your customers that your e-mail is relevant since they directly support them on their journey.
4. Consider the Character-count.
Only if customers can immediately see what the e-mail is about will they open it. Since people often open e-mails on their smartphones, consider the character count before your subject line gets cut. Try to aim for subject lines with less than 40 characters to increase the chances of your subject line not getting cut on mobile devices.
5. Make e-mails mobile friendly
Consider mobile devices first and make sure buttons are easily clickable and that images load fast. Keep in mind that many people have disabled e-mail images on mobile devices to reduce data usage. Ensure that your e-mails look good even if people don't see your pictures and that you use "bulletproof" e-mail buttons because they will be visible even when people have disabled the display of images.
E-mail marketing is a powerful method to reach your customers. Weekly or even daily e-mails may seem tempting as a way to stay top of mind with your product. However, if you start to spam, that is where your e-mails are going to land. Thus, be relevant to your customers and help them reach their goals.
To get a holistic view, whether your e-mail campaign is successful, keep in mind to measure open rate, click-through rate, click to open rate as well as the Conversion Rate. That is significant because ultimately, what counts is not how many people opened the e-mail but how many went through the sales funnel and generated a conversion.
Click-through rate of e-mails (CTR)
Email CTR is the percentage of people who clicked a button, a link, or an image in your e-mail. The click-through rate gives you a good indication if people eventually take action. If people read your e-mails but do not take action, your e-mails will not get you anywhere.
When looking at click-through rate, it is essential to differentiate between unique clicks and all link clicks. Unique clicks are tracked once the subscriber clicks on the link. All link clicks shows the total amount of clicks, even if a subscriber clicked a link multiple times.
When looking at click-through rate, it is essential to differentiate between unique clicks and all link clicks. Unique clicks are tracked once the subscriber clicks on the link. All link clicks shows the total amount of clicks, even if a subscriber clicked a link multiple times.
How to calculate the click-through rate for e-mails
To calculate the e-mail click-through rate, divide the total number of clicks by the number of delivered e-mails.
E-mail click-through rate = Number of clicks / Total number of delivered e-mails.
For example, if you send 410 e-mails, 400 get delivered, and 200 people clicked on your Call To Action, your e-mail click-through rate is 50% (200 / 400 * 100 = 50%).
E-mail click-through rate = Number of clicks / Total number of delivered e-mails.
For example, if you send 410 e-mails, 400 get delivered, and 200 people clicked on your Call To Action, your e-mail click-through rate is 50% (200 / 400 * 100 = 50%).
How to increase the click-through rate for e-mails
• Make your e-mails mobile friendly
• Use a double opt-in
• Use an engaging Call to Action
• Make it personal
• Communicate benefits, not features
• Time e-mails based on customer behavior
• Consider the character count in your subject line
• Write engaging copy text & use engaging images
• Create relevant content for your subscribers
• Use a double opt-in
• Use an engaging Call to Action
• Make it personal
• Communicate benefits, not features
• Time e-mails based on customer behavior
• Consider the character count in your subject line
• Write engaging copy text & use engaging images
• Create relevant content for your subscribers
Click to open rate (CTOR)
The metric shows how many subscribers who opened your e-mail took action and indicates how effective your e-mail message, design, and content are. Taking action could mean clicking a link, a button, or an image in your e-mail. This way, you can take immediate action if you feel that many of your subscribers opened the e-mail but did not take action.
Based on your industry, open rates vary between 20-30%. However, keep in mind to orient yourself on your own benchmarks and use A/B testing to improve your click to open rate.
Based on your industry, open rates vary between 20-30%. However, keep in mind to orient yourself on your own benchmarks and use A/B testing to improve your click to open rate.
How to calculate the click to open rate
Calculate the click to open rate by dividing the number of unique opens by the number of unique clicks.
E-mail click to open rate = Total number unique clicks / Number of unique opens
For example, if 400 subscribers opened your e-mail and 100 clicked on the button within the e-mail, your CTOR is 25% (100 / 400 * 100 = 25%).
E-mail click to open rate = Total number unique clicks / Number of unique opens
For example, if 400 subscribers opened your e-mail and 100 clicked on the button within the e-mail, your CTOR is 25% (100 / 400 * 100 = 25%).
How to improve the click to open rate
• Make your e-mails mobile friendly
• Use an engaging Call to Action
• Make it personal
• Make e-mails scannable
• Put the most important content first, remove any unnecessary information
• Communicate benefits, not features
• Write engaging copy text & use engaging images
• Use relevant content for your subscribers
• Make it easy to click
Download the free metrics worksheet• Use an engaging Call to Action
• Make it personal
• Make e-mails scannable
• Put the most important content first, remove any unnecessary information
• Communicate benefits, not features
• Write engaging copy text & use engaging images
• Use relevant content for your subscribers
• Make it easy to click
Cost per click (CPC) & cost per mille (CPM)
In search engine marketing, the most common pricing models are CPM and CPC. CPC shows how much it costs to buy a click on your advertisement. CPM indicates the cost per thousand impressions. When deciding on the pricing model to use, consider what you want to accomplish with your ad.
For example, if you want to get the word out and gain brand awareness, go for CPM because you will definitely get 1000 impressions. The downside to this is that impressions only mean that people (in the best case) see your ad. It does not mean they click on it. Instead, it might be more advisable to use the CPC model to drive your conversions. That way, you only pay for the ad if people click on it.
The cost of a click depends on your maximum bid, your quality score, and the competition for the keyword you are using. It is crucial to regularly monitor your CPC because costs can add up quickly without giving you the return you are looking for. When you are overpaying, you will soon run out of marketing budget with no return, and worst case, no valuable insights.
Keep in mind that what you are looking for are not cheap clicks but affordable traffic with a reasonable Conversion Rate. Therefore, your success is determined by how much you pay for a click as well as the traffic quality (people who click on the ad).
No matter which pricing model you choose, always track your campaigns to see which design and messaging work best. Test, remove the losers and focus on the winners.
For example, if you want to get the word out and gain brand awareness, go for CPM because you will definitely get 1000 impressions. The downside to this is that impressions only mean that people (in the best case) see your ad. It does not mean they click on it. Instead, it might be more advisable to use the CPC model to drive your conversions. That way, you only pay for the ad if people click on it.
The cost of a click depends on your maximum bid, your quality score, and the competition for the keyword you are using. It is crucial to regularly monitor your CPC because costs can add up quickly without giving you the return you are looking for. When you are overpaying, you will soon run out of marketing budget with no return, and worst case, no valuable insights.
Keep in mind that what you are looking for are not cheap clicks but affordable traffic with a reasonable Conversion Rate. Therefore, your success is determined by how much you pay for a click as well as the traffic quality (people who click on the ad).
No matter which pricing model you choose, always track your campaigns to see which design and messaging work best. Test, remove the losers and focus on the winners.
How to calculate CPC
Your average cost-per-click is calculated by dividing the total cost of your clicks by the total number of clicks.
Average cost-per-click = Total cost of your clicks / Total number of clicks.
For example, if you get 2 clicks on your ad, one costs €1 and the other costs €3, the total costs are €4. Now you divide the total cost €4 by the number of clicks and get an average cost-per-click of €2. (€4 / 2 clicks = €2)
Average cost-per-click = Total cost of your clicks / Total number of clicks.
For example, if you get 2 clicks on your ad, one costs €1 and the other costs €3, the total costs are €4. Now you divide the total cost €4 by the number of clicks and get an average cost-per-click of €2. (€4 / 2 clicks = €2)
How to improve CPC
• Improve your quality score (test and remove the losers)
• Chose a niche topic, rather than high competitive keywords
• Use negative Keywords
• Test different ad positions
• Lower your bids
• Adjust bids by devices or locations
• Chose a niche topic, rather than high competitive keywords
• Use negative Keywords
• Test different ad positions
• Lower your bids
• Adjust bids by devices or locations
Dwell time
Dwell time is the amount of time a visitor spends on a web page before returning to the SERP (Search Engine Results Page). For example, if a visitor clicks on your link on Google and spends two minutes reading your content before returning to Google's search results, the dwell time is two minutes.
The metric is a great indicator, whether your site provides enough value for the visitor to stay and engage with your content. If people visit your site only for a short amount of time, this will hurt your Google ranking since it indicates that your page has little value. Therefore, the higher the dwell time, the better. You want to achieve that people find your content so valuable that they stick with you and take the next step within your page.
It is essential to distinguish between dwell time and time on page. While time on the page shows the amount of time, a visitor stays on your site before going anywhere else (back to the search page or to another page), dwell time only shows the time on your page before returning to Google's search.
It is worth mentioning that you cannot find dwell time on your Google Analytics Dashboard. However, you can see time on page/session duration to get a feeling of how well your website's content and design perform.
The metric is a great indicator, whether your site provides enough value for the visitor to stay and engage with your content. If people visit your site only for a short amount of time, this will hurt your Google ranking since it indicates that your page has little value. Therefore, the higher the dwell time, the better. You want to achieve that people find your content so valuable that they stick with you and take the next step within your page.
It is essential to distinguish between dwell time and time on page. While time on the page shows the amount of time, a visitor stays on your site before going anywhere else (back to the search page or to another page), dwell time only shows the time on your page before returning to Google's search.
It is worth mentioning that you cannot find dwell time on your Google Analytics Dashboard. However, you can see time on page/session duration to get a feeling of how well your website's content and design perform.
How to improve dwell time on your website
• Improve your page speed
• Make your page mobile-friendly
• Show the value of your service immediately
• Use videos to make people engage longer with your content
• Publish quality content that is valuable to your audience
• Use visuals and images
• Use internal links to guide visitors through your page
• Make your page mobile-friendly
• Show the value of your service immediately
• Use videos to make people engage longer with your content
• Publish quality content that is valuable to your audience
• Use visuals and images
• Use internal links to guide visitors through your page
Website bounce rate & Exit Rate
Bounce rate describes a one-page visit where people visit your site and leave without taking action. This metric shows you if you can convince the user to stay on your site and engage with the content. Engagement could be by clicking a link, a button, or navigating to other pages. A high bounce rate might indicate that your page load speed is slow, your website is not mobile-friendly, or that visitors don't find your content fitting for them.
But here is the trick. A high bounce rate is not necessarily alarming. For blog posts or Q&A pages, bounce rates can be increased, even though the content is excellent. The reason is that people find their answers without the need to navigate further within your website - they leave because they got what they wanted.
Therefore, before improving the bounce rate on a specific page, think about what kind of content your visitors like to see. That's why it is important to not solely look at the bounce rate but combine it with metrics like time on page. That way, you will find the pages that are currently underperforming.
Contrary to bounce rate, exit rate represents the number of people who left a specific page, even if they didn't initially land on it. For example, if a visitor visits your page and leaves without further interaction, that is a bounce. However, if a visitor visits three pages before leaving, that is recorded as an exit.
But here is the trick. A high bounce rate is not necessarily alarming. For blog posts or Q&A pages, bounce rates can be increased, even though the content is excellent. The reason is that people find their answers without the need to navigate further within your website - they leave because they got what they wanted.
Therefore, before improving the bounce rate on a specific page, think about what kind of content your visitors like to see. That's why it is important to not solely look at the bounce rate but combine it with metrics like time on page. That way, you will find the pages that are currently underperforming.
Contrary to bounce rate, exit rate represents the number of people who left a specific page, even if they didn't initially land on it. For example, if a visitor visits your page and leaves without further interaction, that is a bounce. However, if a visitor visits three pages before leaving, that is recorded as an exit.
How to calculate website bounce rate
Calculate the website bounce rate by dividing the number of one-page visits by the number of total visits. Keep in mind that you can find the bounce rate in your Google Analytics dashboard, so you don't have to calculate it yourself.
Website Bounce rate = Number of one-page visits / Number of total visits
For example, if 100 people visited only one page on your website and 200 people visited your page, your bounce rate is 50% (100 / 200 * 100 = 50%)
Website Bounce rate = Number of one-page visits / Number of total visits
For example, if 100 people visited only one page on your website and 200 people visited your page, your bounce rate is 50% (100 / 200 * 100 = 50%)
How to improve website bounce rate
• Improve your page speed
• Make your page mobile-friendly
• Show the value of your service immediately
• Publish quality content that is valuable to your audience
• Use internal links to guide visitors through your page
• Use clear call to action buttons
• Make your page mobile-friendly
• Show the value of your service immediately
• Publish quality content that is valuable to your audience
• Use internal links to guide visitors through your page
• Use clear call to action buttons
Quality of leads
Qualifying leads means finding out how ready a prospect is to buy. The higher the lead quality, the more likely they become paying customers. Many businesses try to reach and capture as many leads as possible. But if these leads are low quality and don't generate a sale, your efforts are wasted. It is necessary to segment your leads upfront, to use your marketing budget effectively.
But how much information do you actually need to evaluate the probability of a lead becoming a paying customer? How do we see the customer fit if we haven't spoken to the customer yet?
Let's quickly re-evaluate why qualifying leads is important. If you invest in lead-nurturing campaigns for all prospective customers, you will lose time and money. Therefore, it is valuable to rank leads upfront. The parameters you can use to rank leads differ from company to company. Many companies use parameters like "probable closing time, business size, location or engagement on website" to get a first idea of the closing probability.
One caveat - In the beginning, it is challenging to rank leads because you do not have any experience which parameters directly influence the closing probability for your business. However, the more your business grows, the better you know which leads have a high chance of closing.
But how much information do you actually need to evaluate the probability of a lead becoming a paying customer? How do we see the customer fit if we haven't spoken to the customer yet?
Let's quickly re-evaluate why qualifying leads is important. If you invest in lead-nurturing campaigns for all prospective customers, you will lose time and money. Therefore, it is valuable to rank leads upfront. The parameters you can use to rank leads differ from company to company. Many companies use parameters like "probable closing time, business size, location or engagement on website" to get a first idea of the closing probability.
One caveat - In the beginning, it is challenging to rank leads because you do not have any experience which parameters directly influence the closing probability for your business. However, the more your business grows, the better you know which leads have a high chance of closing.
How to measure the quality of leads
The quality of leads is measured by lead scoring. First, think about the different touchpoints that leads have with your business. That could be by downloading your lead magnet, visiting your website's pricing page, or signing up for your e-mail newsletter. List all the parameters that are crucial for people to buy your service in a spreadsheet. Afterward, list all your potential customers. Once you assign a value to each parameter, you can rank your leads and determine where to invest in lead nurturing campaigns.
The more insights you have and the better your parameters are, the clearer your customer profile becomes. This approach will help you craft personalized messages that resonate with potential customers.
The more insights you have and the better your parameters are, the clearer your customer profile becomes. This approach will help you craft personalized messages that resonate with potential customers.
How to improve the quality of leads
• Tailor your design and messaging to your target audience
• Make form fields required
• Ask for business e-mail on your website
• Listen to your prospects' needs and provide quality content to answer their questions
• Make form fields required
• Ask for business e-mail on your website
• Listen to your prospects' needs and provide quality content to answer their questions
Marketing qualified leads & sales qualified leads (MQL & SQL)
All leads who have shown interest in your brand are marketing qualified leads. For example, they signed up for the newsletter, used your online chat, created an account on your website, or downloaded your lead magnet. It is important to understand that these leads are interested in what you are doing but have not yet decided to buy from you. To stay in your leads' minds and avoid that they forget about you, lead nurturing comes into play.
One caveat – not all leads who have shown interest should be treated the same. Define which leads have the most value to your business and who will most likely buy your service. For example, leads who have created an account on your website did a much higher commitment than people who just signed up for your newsletter.
If you have identified that leads who created an account are much more likely to buy from you, this is where you should focus your efforts. Without those metrics set, you will waste valuable time and money without helping them to make a purchase.
Looking at the user journey, marketing qualified leads turn into sales qualified leads, turning then into customers. The major difference between MQL and SQL is their commitment to buy from you. While MQLs might just have found out about your service but still want to shop around, SQLs already have decided. To define when a lead transitioned to becoming a SQL, first think about the buyer journey.
If Lead A downloaded your lead magnet, created an account afterward, and then bought your service, while Lead B only downloaded your lead magnet without buying from you, you will get insights on where the tipping point is for leads to become SQLs. With your personas in mind and a lead scoring system in place, your sales team will know when to take action.
Understanding when leads turn into SQLs is essential for your business not to waste time writing proposals for leads who are not interested in your service.
One caveat – not all leads who have shown interest should be treated the same. Define which leads have the most value to your business and who will most likely buy your service. For example, leads who have created an account on your website did a much higher commitment than people who just signed up for your newsletter.
If you have identified that leads who created an account are much more likely to buy from you, this is where you should focus your efforts. Without those metrics set, you will waste valuable time and money without helping them to make a purchase.
Looking at the user journey, marketing qualified leads turn into sales qualified leads, turning then into customers. The major difference between MQL and SQL is their commitment to buy from you. While MQLs might just have found out about your service but still want to shop around, SQLs already have decided. To define when a lead transitioned to becoming a SQL, first think about the buyer journey.
If Lead A downloaded your lead magnet, created an account afterward, and then bought your service, while Lead B only downloaded your lead magnet without buying from you, you will get insights on where the tipping point is for leads to become SQLs. With your personas in mind and a lead scoring system in place, your sales team will know when to take action.
Understanding when leads turn into SQLs is essential for your business not to waste time writing proposals for leads who are not interested in your service.
MQLs and SQLs are super important in today’s digital sales & business environments as they help to understand the customers interest and behavior as well as shorten the sales cycle. Both types of leads carry signification information and indicate a certain level of interest in your product.
Mario Boehm
Partner and Alliances Manager, GoCardless
Customer retention rate (CRR)
Customer retention rate shows you the number of customers your company has kept in a given period of time. The metric is expressed as a percentage value and is essential to forecast your business growth. As already stressed, it is much more expensive to win new customers than to keep existing ones, and many Startups fail because of a lack of retaining their customers and not as a lack of acquiring them. Also, loyal customers help you reduce customer acquisition cost by recommending your service to other people.
Therefore, it makes sense to focus on retention. Since companies evaluate retention on an annual, quarterly, monthly, or weekly basis, first think about what time frame makes sense for your business model.
Therefore, it makes sense to focus on retention. Since companies evaluate retention on an annual, quarterly, monthly, or weekly basis, first think about what time frame makes sense for your business model.
How to calculate retention rate
Calculate the retention rate by dividing the number of customers at the end of a period (minus new customers during that period) by the number of customers at the start of the period.
Customer Retention Rate = (Customers at the end of a month - New customers in a month) / Customers at the start of the month.
For example, if you have 200 customers at the beginning of January, you added 40 new customers in the same month and 20 customers churned, you would have 220 customers at the end of the month. Your retention rate would therefore be 90%. ( (220-40) / 200) = 90%
Customer Retention Rate = (Customers at the end of a month - New customers in a month) / Customers at the start of the month.
For example, if you have 200 customers at the beginning of January, you added 40 new customers in the same month and 20 customers churned, you would have 220 customers at the end of the month. Your retention rate would therefore be 90%. ( (220-40) / 200) = 90%
How to improve retention rate
• Provide an exceptional customer experience, right in the beginning
• Learn from churned customers
• Reward people to upgrade
• Make upgrading to higher plans easy
• Provide value regularly
• Improve and expand your service
• Learn from churned customers
• Reward people to upgrade
• Make upgrading to higher plans easy
• Provide value regularly
• Improve and expand your service
Customer health score
Customer health score predicts how your relationship with a customer will change in the future and shows you how likely it is that specific customers churn. As we already mentioned before, building a successful SaaS business is not mainly about customer acquisition but customer retention. That's why your customer health score plays an important role. Even though a prediction will not be 100% accurate, it will help you understand if people like your service and are more likely to upgrade than churn.
Having happy customers will not only keep them for your business, but eventually, they will recommend your service to their friends and family, lowering your CAC significantly.
Having happy customers will not only keep them for your business, but eventually, they will recommend your service to their friends and family, lowering your CAC significantly.
How to calculate the customer health score
Calculating customer health score starts with identifying the different touchpoints customers have with your business. Product usage, customer feedback, website activity, or usage of customer support are just some touchpoints, to name a few. The goal is to identify all metrics that might have either a negative or a positive impact on customer retention.
Keep in mind to only use metrics that help you predict customer behavior regarding the outcome you want to track. Measuring too many metrics for customer health score might dilute the outcome and will not provide you with the accuracy you want.
Once you have identified the metrics that impact customer retention, put those metrics and your customers on a spreadsheet and rate those customers based on those metrics. A good tip is to use segments for your spreadsheet. For example, use a bucket for "Healthy customers", "At risk," and for "Requires attention" customers.
For instance, if customer A uses your customer support regularly and you see him in the "Requires attention" bucket, improve their experience by having a personal call and helping them achieve their goal.
Once you assigned every customer to your health scoring system, you can better predict which customers are happy and which customers need more support.
Keep in mind to only use metrics that help you predict customer behavior regarding the outcome you want to track. Measuring too many metrics for customer health score might dilute the outcome and will not provide you with the accuracy you want.
Once you have identified the metrics that impact customer retention, put those metrics and your customers on a spreadsheet and rate those customers based on those metrics. A good tip is to use segments for your spreadsheet. For example, use a bucket for "Healthy customers", "At risk," and for "Requires attention" customers.
For instance, if customer A uses your customer support regularly and you see him in the "Requires attention" bucket, improve their experience by having a personal call and helping them achieve their goal.
Once you assigned every customer to your health scoring system, you can better predict which customers are happy and which customers need more support.
How to improve customer health score
• Provide value regularly
• Proactively solve problems
• Reduce any friction points your customers are having with your service
• Ask for customer feedback
• Proactively solve problems
• Reduce any friction points your customers are having with your service
• Ask for customer feedback
Net Promoter Score (NPS)
An excellent method to learn how likely customers are to recommend your service is the Net promoter score. The NPS measures customer loyalty and the likelihood of churn and can be used to indicate business growth. Therefore, it is necessary to measure the NPS regularly. When your NPS is high, you have a healthy relationship with customers, making customers recommend your service and eventually reduce your customer acquisition cost.
How to calculate the NPS
Figure out your NPS by asking your customers: "On a scale of 0 to 10, how likely are you to recommend us to a friend?". Then, group the respondents into three categories.
• Promoters 9-10
Happy customers, who are likely to recommend your service.
• Passives 7-8
Customers who will not recommend your service but will also not use negative word of mouth against you. “Passives” have a high potential of becoming promoters. Therefore, it makes sense to find out how you can improve their experience to make them more satisfied.
• Detractors 0-6
Unhappy customers, who will not recommend your service, plan to cancel their business with you or, even worse, will advise against using your service.
NPS is expressed as a number from -100 to 100. When you have more detractors than promoters, your score will be negative.
For example, if 80% of respondents were Promoters and 10% were Detractors, your NPS is 70.
NPS = % Promoters - % Detractors.
It is useful to follow up with open-ended questions about the "Why." For example, "What was the reason for your score? What would have changed your score?". Thanks to this, you will get great insights on how to increase the likelihood of recommendations.
• Promoters 9-10
Happy customers, who are likely to recommend your service.
• Passives 7-8
Customers who will not recommend your service but will also not use negative word of mouth against you. “Passives” have a high potential of becoming promoters. Therefore, it makes sense to find out how you can improve their experience to make them more satisfied.
• Detractors 0-6
Unhappy customers, who will not recommend your service, plan to cancel their business with you or, even worse, will advise against using your service.
NPS is expressed as a number from -100 to 100. When you have more detractors than promoters, your score will be negative.
For example, if 80% of respondents were Promoters and 10% were Detractors, your NPS is 70.
NPS = % Promoters - % Detractors.
It is useful to follow up with open-ended questions about the "Why." For example, "What was the reason for your score? What would have changed your score?". Thanks to this, you will get great insights on how to increase the likelihood of recommendations.
How to improve the NPS
• Provide an exceptional customer experience, right in the beginning
• Provide value regularly
• Be transparent with customers
• Have a great customer support
• Ask customers for feedback to improve your service
• Learn from churned customers
• Provide value regularly
• Be transparent with customers
• Have a great customer support
• Ask customers for feedback to improve your service
• Learn from churned customers
What to do with all these metrics?
We have covered a lot of essential metrics for your SaaS business / Startup. But do you need to track them all? No. Do you need to track additional metrics? Maybe yes. Depending on your business, it can make sense to use additional metrics to identify your business growth.
Although these metrics are standard in most SaaS businesses, sometimes it is even recommended to create your own metrics based on the company you run. Since you know your business better than anybody else, you alone can define which KPIs genuinely move the needle for your business.
When you start, use industry benchmarks to get a gauge of how you are currently performing. However, as already stressed initially, benchmarks are only helpful to get a first indication of growth. It is much more meaningful to measure your own numbers and find trends for further development.
Although these metrics are standard in most SaaS businesses, sometimes it is even recommended to create your own metrics based on the company you run. Since you know your business better than anybody else, you alone can define which KPIs genuinely move the needle for your business.
When you start, use industry benchmarks to get a gauge of how you are currently performing. However, as already stressed initially, benchmarks are only helpful to get a first indication of growth. It is much more meaningful to measure your own numbers and find trends for further development.
How to use cohorts to get the most out of your metrics
Cohorts are a group of people with shared characteristics. Cohort analysis measures user engagement and is especially effective when identifying customer churn and customer retention. A cohort analysis enables you to put your metrics in context and shows you how a specific segment of customers evolves. For your SaaS business, one cohort could be all people who started their subscription in January. Just compare which message is more valuable:
1. Customer churn rate is up by 2%
2. Most customers churn in month 3 of their customer lifetime.
To create cohorts, separate your customers into meaningful groups, for example, in subscription date, region, or pricing plan. Afterward, compare the progression of your metrics for each cohort over time.
In the table above, you see the relationship between your product lifetime and the user lifetime. The numbers in percentages show the percentage of customers churned relative to the previous month. In this example, if you identified that most customers churned in month 3 of their customer lifetime, you can create action steps to bring more value to those customers and avoid churn.
To sum it up, cohorts are a great framework to derive more insights from your metrics, identify trends and make informative decisions.
1. Customer churn rate is up by 2%
2. Most customers churn in month 3 of their customer lifetime.
To create cohorts, separate your customers into meaningful groups, for example, in subscription date, region, or pricing plan. Afterward, compare the progression of your metrics for each cohort over time.
In the table above, you see the relationship between your product lifetime and the user lifetime. The numbers in percentages show the percentage of customers churned relative to the previous month. In this example, if you identified that most customers churned in month 3 of their customer lifetime, you can create action steps to bring more value to those customers and avoid churn.
To sum it up, cohorts are a great framework to derive more insights from your metrics, identify trends and make informative decisions.
3 FAQs about SaaS metrics
1. What are the most important SaaS metrics to track for my business?
This depends on what you are trying to achieve. However, key SaaS metrics include Monthly Recurring Revenue (MRR), Customer Acquisition Cost (CAC), Churn Rate and Customer Lifetime Value (CLV). Monitoring these metrics will help you assess the health and growth potential of your SaaS business.
2. How can I use metrics to assess the scalability of my SaaS business?
There are certain metrics that will help you assess your scalability. These are your current Customer Acquisition Cost (CAC) payback period and your Lifetime Value (LTV) to CAC ratio. A shorter payback period and a favourable LTV to CAC ratio indicate better scalability - which means you have efficient growth strategies in place.
3. What metrics help to understand user engagement within a SaaS application?
Probably the most important user engagement metrics are monthly/daily active users (MAU) and feature-specific usage data. Analyzing these metrics provides insight into how users are interacting with your SaaS product. If you see that users are only using your service for a short period of time, you need to take action.
Summary
This article covered the most important metrics to make your SaaS business/Startup a success. Identifying the metrics that move the needle for your business and measuring those KPIs regularly is just the beginning. Use benchmarks to get a first indicator of your industry peers' achievement, monitor your metrics in dashboards, and build cohorts to identify trends.
As your business grows, review your metrics regularly and determine if the metrics you are currently measuring are still relevant or if you need to add/remove some of them.
Building your SaaS business? As your business grows, review your metrics regularly and determine if the metrics you are currently measuring are still relevant or if you need to add/remove some of them.
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