SaaS (Software-as-a-Service) are solutions available online on the web or mobile interface. By definition, this business model responds to specific needs and generates sales and revenue through subscriptions (usually recurring). This business model is different from e-commerce companies because product development is costly from the start, so churn and marketing acquisition are much more critical indicators.
The objective of profitability depends on the acquisition and retention of a lead (new customer or user). SaaS requires scrutinizing and measuring precise key performance indicators. As SaaS works via subscriptions, it also implies recurring sales and revenues. Therefore, loyalty KPIs are needed.
KPIs (Key Performance Indicators) are the objectives and targets to be achieved for these online tools. They are easily measurable to provide good visibility on the progress of a project or the growth of a company. What are the 15 most relevant KPIs to track for SaaS growth rate?
They indicate the key performance of Software-as-a-Service on different aspects such as:
Monthly recurring revenue (MRR) is a measure of the recurring revenue generated by a product or service each month. It is calculated by dividing the annual recurring revenue (ARR) by the number of months in the year.
How to calculate the MRR?
Simply multiply the ARPU (Average Revenue per User) by the number of customers. It is important to take into account the average value of customers who may spend differently on your solution. For example, by subscribing to additional options, and by using services that generate more revenue.
The MRR is the key performance indicator that offers the level of performance month after month. It is ideal for measuring and adjusting the cost of your SaaS software solution.
Annual recurring revenue (ARR) is the annualized measure of MRR. It is the ARR multiplied by 12, the number of months. ARR is used to smooth out revenues over a year.
Average Revenue Per Account (ARPA) is a measure of the revenue generated by an account during a given period. It is calculated by dividing the total revenue generated by these accounts by the number of accounts.
To calculate the ARPA, divide the MRO by the total number of clients.
Average revenue per user (ARPU) is a measure of the revenue generated by a user in a given period. It is calculated by dividing the total spend generated by those users by the number of users.
Monthly active users (MAU) are users who have interacted with the product or service in the last 30 days. A user is considered active after at least one action on his part: visit, download…
Daily Active Users (DAU) are the users who have interacted with the product or service in the last 24 hours. This KPI is also critical to measure the relevance of a tool, a software, or a service to customers.
Average sessions per day is the measurement of the average number of user sessions in a product or service over a period of time.
This KPI is used to measure the quality of a service, its relevance, and its PMF (Product Market Fit). A constant or growing user base marks the recurrence of SaaS usage. Showing if your company is offering software that is useful for your customers.
The Net Promoter Score (NPS) is a measure of customer satisfaction and loyalty. It is calculated by asking customers about their willingness to recommend a product or service to their friends or colleagues. The Net Promoter Score ranges from -100 to 100. The opinions taken into account are divided into those of "detractors" (scores from 0 to 6), those of "passives" (from 7 to 8) and those of "promoters" (from 9 to 10). The overall NPS is calculated by subtracting the number of detractors from the number of promoters divided by the number of responses, all multiplied by 100.
Customer satisfaction (CSAT) is a measure of customer satisfaction with a product or service. It is measured by asking customers about their overall satisfaction with the product or service. In general, it is calculated using 5 levels of satisfaction: from 1 to 5 (from very dissatisfied to very satisfied).
Compared to NPS, CSAT will focus on customer satisfaction rather than the potential for a customer to recommend the service.
Trial conversion rate is a measure of the number of customers who switched from a free trial to a paid subscription. It is measured by comparing the number of customers who signed up for a paid subscription to those who tried the product or service.
Trials (mostly free) are important acquisition levers for companies that generate revenue online. They allow you to measure and identify leads, and precisely analyze where the subscription can be improved (thanks to tools like reviews or where the drop is).
Customer retention rate is a measure of the number of customers who continue to use a product or service over a period of time. It is calculated by comparing the number of customers who have stopped using the product or service to those who are still using it.
The calculation is based on the percentage of customers who continue to buy from a company over a given period. It is also known as the churn rate, which conversely means the rate of departure over a period. This retention rate indicates how loyal a customer is to a brand. The retention rate for SaaS is the percentage of customers who continue to buy from an e-commerce site over a given cohort.
This business metric is a key indicator of the health and performance of a company or organization. Retention rate can also be used to measure customer and employee satisfaction. A high retention rate is considered one of the KPIs of good management and good health. Conversely, with a high churn rate KPI, companies and organizations may know that they need to improve their offerings, and thus strengthen their retention rate to improve sales.
Customer Lifetime Value (LTV) allows SaaS to measure the total value of revenue generated by a customer after being acquired by the company. It is calculated by adding the average monthly revenue generated (MRR) by a customer during their time with the company. The objective is to have the longest possible LTV for the SaaS that bases their business model on recurrence and subscription.
A customer who opts for the most expensive subscription for a single month is likely to be less interesting for the sustainability of the company and its revenues than a returning user who has a longer life span and therefore allows for more efficient revenue retention.
The funnel conversion rate is the metric that measures the number of prospects or leads that have moved from one stage of the conversion funnel to the next. It is calculated by comparing the number of leads that have reached the last stage of the conversion funnel to those that started at the entrance of the funnel. The total indicator is the one that compares the number of people entering the funnel to those who perform the measured action. The CAC also drops depending on the sale which increases the turnover.
The objective of the annual contract value (ACV) is to measure the value of annual contracts signed by a company. It is calculated by adding the value of annual contracts signed by a company. A customer can be the source of revenue through several contracts. It is then important to subtract the fees charged at the time of signing to smooth the value over the entire period.
Annual contract value (ACV) is a key measure of SaaS companies' performances, as it represents the total projected annual revenue from a given contract. It can be calculated by adding up the amount of expected annual invoices and taking into account annual discounts or incentives.
Net revenue retention is a measure of a company's ability to retain customers and retain existing customers. It is calculated by comparing a given month's recurring revenue to the previous month's.