Decision-makers – Software as a Service (SaaS) Founder-CEOs, Co-founders, and CMOS – need to keep a close eye on the following marketing metrics when it comes to tracking the healthy growth of a company.
Marketing for SaaS is similar in principle but way different in practice, especially regarding their marketing strategies, channels, and metrics to measure.
On the one hand, marketing products traditionally have always involved finding audiences and convincing them about your product to turn them into paying customers.
SaaS companies, on the other hand, are data-driven, and they use this data to study their market toachieve product-market fit. Many SaaS companies go to the extent of creating new categories to effect this.
SaaS companies spent tons of money to acquire data about existing and potential customers, company productivity, marketing successes, and much more. To use all of this data to affect growth in your business, you must evaluate them, and this is why you need to track the right metrics.
What are the most important SaaS marketing metrics?
As long as you are tracking your performance (as you should), marketing metrics are incredibly significant for quantifying the performance of your campaigns.
As Paul Graham, of Y Combinator, says:
“Startups are so hard that you can’t be pointed off to the side and hope to succeed. You have to know that growth is what you’re after. The good news is, that if you get growth, everything else tends to fall into place. Which means you can use growth like a compass to make almost every decision you face.”
The primary aim of measuring SaaS marketing metrics is to turn them into SaaS KPIs (Key Performance Indicators). You can know the direction your business is going when you keep track of the metrics we will discuss in this section.
As a SaaS company, you can record tons of marketing metrics, but here are the most important ones you must know:
Customer acquisition cost (CAC)
Customer lifetime value (CLTV)
Churn rate
Activation rate
Monthly recurring revenue (MRR) and Annualized run rate (ARR)
The average revenue per account (ARPA)
Web traffic (Volume)
Cost per click (CPC)
Click-through rate (CTR)
We have classified these key SaaS metrics into the following categories:
User acquisition metrics
Revenue metrics
Marketing metrics
Without further ado, let’s dive in and discuss the above metrics.
User acquisition metrics for SaaS businesses
For the first types of SaaS marketing metrics we will discuss our customer or user acquisition metrics. The three user acquisition metrics below measure how much you spend to acquire new customers.
Customer acquisition cost (CAC)
The average cost you incur to acquire a new customer. When working out the customer acquisition cost, you need to factor everything in. From advertising campaigns to any external agencies and freelancers, marketing software costs, to the annual salaries of marketing staffers.
This metric is easier to get a handle on after at least 12 months of data, and the more customers you win, the lower the acquisition costs get.
Also known as Lifetime Value (LTV) is the value of a customer in monetary terms. Again, this is one of the SaaS metrics that is somewhat difficult to calculate until you’ve had customers for at least a year and can estimate how long they’ll remain customers.
Once you know how much a customer is worth, say for 1 year, and know or can estimate how long they will need your product/services, then you can estimate the lifetime value. For example, if a customer is worth $1200 a year, and the average timescale is 3 years, they’re worth $3600.00.
Activation rate
The activation rate is the rate at which new users adopt your product or service. You can calculate the activation rate for your business by dividing the number of users who make it to your goal event by the total number of users.
To improve the activation rate for your company, your website, processes, sample products, and marketing materials must emphasize your business’killer idea.
Since the goal of businesses differs, so do the methods of determining and improving activation rate. Generally, you want to find out the actions that translate to successful customer acquisition and retention.
Churn rate
The percentage rate at which you lose customers. The churn rate is the direct opposite of the activation rate (discussed above). Lower churn rates mean your customers are happy.
Churn is another way of saying when a customer leaves. Ideally, growth rates should keep churn to a minimum.
If you’re losing 5% of customers and revenue annually to churn, providing you are growing at a rate of say 15%, the loss of that 5% still gives you a healthy 10% annual growth rate.
Churn rate could refer to customer churn or revenue churn. While customer churn indicates the number of customers your business loses as a percentage of your total users, the latter points to the amount of money you spend as a percentage of your total revenue.
Between the two types of churn rates, revenue churn is a better measure of successful marketing efforts, while customer churn is a better measure of your business health.
Both types of churn rates are directly proportional to each other. An increase in one leads to an increase in the other, and vice versa.
Revenue metrics
Revenue metrics are crucial for SaaS companies to effectively evaluate how their funds are spent and discover ways to optimize spending for achieving business goals. Knowing how much you spend to get new customers is crucial, but keeping track of the revenue you make from each customer is equally important.
Monthly recurring revenue (MRR) and Annualized run rate (ARR)
How much the company is generating every month. Because SaaS businesses are subscription-based, it’s fairly easy to work out monthly revenue. Add up what customers are paying in a single month, and there’s the revenue figure.
This is likely to keep increasing, and some customers will pay annually, in a lump sum, which is why you also need to know the ARR figure too (explained below).
Annualized run rate, also known as annual recurring revenue (ARR) is your total annual revenue, which many think is calculated as follows: MRR x 12 = ARR.
However, when it comes to working out the ARR, as outlined above, it’s not quite as simple as the monthly figure x12, as the CEO of Buffer explains:
“The way we’ve measured “Revenue” has been to take the total revenue we generated in the month and use that. For “Annual revenue run rate,” we simply multiplied monthly revenue by 12. Our revenue includes people who pay us monthly and also those who pay for the whole year in advance. This is where the miscalculation lies. As a recurring revenue (SaaS) business, we can’t guarantee we will get the same number of people paying for annual subscriptions month after month, and we are counting revenue that is in the future. The correct way is to ‘amortize’ and divide those annual payments by 12. In this way, we’re only counting the next 12 months of actual recurring revenue we have already acquired.”
The average revenue per account (ARPA)
To get insights into the values of your customer segments on file, you should track the average revenue per account (ARPA).
With this data, you can focus on the highest-value customers and formulate strategies to improve the value of the other customer segments.
You can derive the ARPA by dividing the monthly recurring revenue (MRR) by the total number of active subscriptions. The ARPA metric will not give you information about specific customers, however.
What the ARPA tells you is the source of revenue increase or reduction – is it from increased revenue per account or simply more users?
If your SaaS business subscription model generates revenue monthly, you can analyze the ARPA or MRR (monthly recurring revenue) of a single month. Whereas, if it’s annually or quarterly, data from a single month would be insufficient; you need to focus more on the ARR (annual recurring revenue).
Marketing metrics
Marketing metrics here refer to the data you should track to gain an in-depth understanding of your existing and potential customers and their value to your business.
Web traffic (volume)
This is measured through the number of Unique Website Visitors, and the average time they spend on key pages. Web traffic, generated through inbound marketing efforts (SEO, content marketing, social media) and advertising (PPC) is the best way to pull in potential sales leads.
Track this using marketing analyticstools of your choice, so you’ve got a clear idea of how much overall web traffic you’ve got coming in, and look for ways to increase it.
Pay Per Click (PPC) campaigns are usually run through Google Ads. You can set an overall budget, and a budget for every keyword used. Within this, you’ll always have a clear idea of what your CPC is, which is part of your Customer Acquisition Cost (CAC).
Click-through rate (CTR)
CTR is the percentage of users who click and spend time on web pages, compared to those who saw your link and didn’t click through. Whether traffic is organic (e.g. content and social-driven) or via PPC campaigns, you need to constantlyimprove your CTR.
Click-through rate is one of the most crucial metrics for SaaS marketing, especially when measuring the various traffic streams to a website and the percentage of web visitors that click through from content, adverts, and email campaigns.
Aim to find the normal rates for your sector/vertical, and measure campaigns and inbound marketing efforts against those.
Let’s look closer at these metrics, and crucially howstartups and SaaS companies can get everything set up to measure success throughout the customer journey.
SaaS marketing metrics vs regular product-selling metrics
To understand the specifics of SaaS marketing metrics, you need to know the basic business logic of a SaaS company and how it’s different from other kinds of businesses.
SaaS isn’t about closing huge deals for six or seven figures or handling a massive array of products you’re selling. Here, we’re dealing with subscription-based service providing, so just measuring all the conversions of the leads you’ve generated isn’t all the marketing analysis you want to do.
Client retention rates are what matters arguably even more so than conversion rates – for a SaaS business to thrive, we’re looking for consistent long-term commitments. If we compare it to a product-selling business, we’ll quickly see that:
SaaS Marketing Strategy
Product Marketing Strategy
Service-selling focused approach
Product-selling focused approach
Based on high retention rates and upselling (i.e. premium plans)
Based on high conversion rates and encouraging big one-time purchases
Uses special offers by default as a way of making expensive plans more attractive
Uses selective sales and special offers to boost specific product purchases
As an online service provider, you most likely wouldn’t be looking at such marketing metrics as customer lifetime values. And one obvious reason is that it’s very difficult to calculate – even if someone buys from you on the regular, you wouldn’t be able to predict how much revenue in total they will bring over time.
That said, CLV is still tricky to calculate for SaaS businesses, but with only a few paid plans and predictable payment schedules, it’s easier.
The same can be said about such a SaaS marketing metric as customer churn. Since product-selling companies typically deal with one-off sales (barring loyal customers), customer churn isn’t one of the metrics that can be applied to them.
On the other hand, keeping customer churn as low as possible by building an effective marketing strategy is bread and butter for SaaS businesses. And to do that, they always need to be aware of the percentage of customers they lose within a certain period.
All SaaS-specific marketing metrics are based on the principles of longevity and predictability.
Monthly and annual recurring revenue (MRR, ARR), churn rate, and customer lifetime value have various degrees of importance for various types of businesses, but as far as SaaS is concerned, these are key.
5 steps to improve your key SaaS metrics
Improving the metrics we have discussed would directly translate to higher profit margins and help you cut out NVA activities from your operations.
1. Define your SaaS metrics
Every startup and SaaS company will have its preferred metrics. Measurements for success, and ways of tracking this data. CMOS and CEOs need a clear 360 overview of this information.
When trying to work out your ARR, remember to take into account those paying every month, and annually. Also, take away those likely to stop subscribing, based on current churn rates. This should give you a fairly accurate ARR.
SaaS CMOs and CEOs could also run a projections spreadsheet, based on the potential value of new customers entering the pipeline, so you can start to project forward. However, don’t count this into actual revenue, until a client starts paying, and don’t ignore the SaaS CRM time-sensitive metrics.
The SaaS CEO and marketing teams need to take the next steps to drive forward growth.
2. Set up traffic and user analytics dashboard
Use website and mobile app analytics to get insights into your traffic quality. Analyze your traffic volume, time people spend on the website or in the app, and click-through rates.
However, this is only one part of the overall marketing picture, albeit one of the best ways to track key SaaS metrics.
Whenever possible, aim to bring all the metrics you need to track into a dashboard. To ensure that SaaS leaders can have a quick overview of where the numbers are going every month.
When it comes to measuring SaaS metrics before you even put a strategy in place, you need a clear idea of the following:
Is growth going up or down?
What do the numbers look like at the top, middle, and bottom of the funnel (e.g. when a customer decides to buy, or not)?
If you operate using a Freemium model: How many sign-ups vs. the percentage who stay as paying customers?
When it comes to marketing: which SaaS metrics are working and which aren’t?
Can we then double down on what is working?
Any dashboard needs to include all of the key SaaS metrics outlined in the section above.
Make sure you’ve got a clear handle on MRR, ARR, growth and churn rates, and of course, conversion rates.
If you’ve got salespeople playing a role in the sales/marketing funnel, then it helps to understand their conversion rates too.
3. Outline your SaaS marketing strategy
Once everything is set up to monitor growth activities, you need to design and implement a marketing strategy. Base this on a few simple questions:
Who are our customers? Where are they? How do we reach them? What content or advertising would be useful to attract their attention? Once we’ve got their attention, how do we keep it? How do we convert them from being web visitors to paying customers?
Every SaaS marketing strategy is unique, of course. A one-size-fits-all approach doesn’t exist.
However, many include similar components and are running up against the same challenges: Getting the attention of your target audience and converting as many as possible.
As a former CMO of Slack says:
“Marketing is the fuel to the fire. Once you’ve got great product/market fit, marketing, and all the different tools that we have, everything from advertising to nurturing to conversion rate marketing to split testing to positioning messaging, those are all the tools that can help just accelerate that growth further.”
Normally, the first year or two in the lifecycle of any startup and software company is finding what works and what doesn’t. To measure everything as effectively as possible, you need analytics and a dashboard.
That way, you can see whether the content is generating leads, or how many are coming through advertising and if social media is increasing traffic.
4. Generate traffic for your SaaS business
Once you’ve decided on a marketing strategy to implement, you need to know how to move forward. First, you must decide to whom to entrust your marketing operations.
Will you hire a marketing person, work with anexternal agency,freelancers, or a hybrid mix of the above?
The aim of any marketing strategy should be to get traffic to the website and app if you have one. Once you’ve got visitors visiting, the aim should be to convert as many as possible.
5. Monitor SaaS marketing performance and increase conversion rates
This is where you move from marketing into either sales or onboarding, depending on the pricing model you operate. When software sells for a higher monthly price and therefore requires custom pricing for every new client, you often need salespeople.
Whereas, the companies that operate on a lower-price freemium model often need a smooth onboarding process to generate the sort of conversion rates you need.
This is where analytics plays such an important role. When you know what the figures are looking like and what metrics to look at, you can start to identify ways to increase conversion rates.
Whether that means improving the user experience and onboarding, using AI-powered bots, FAQ sections, videos, instant demos, or other methods to generate more revenue.
Why must you track these key SaaS marketing metrics?
Setting up a dashboard, or series of interconnected analytics systems is an essential part of monitoring SaaS marketing metrics. It’s a worthwhile investment, either right at the start of a growth journey, or as soon as you can invest in this.
Once you know where you are with every measurable, you can improve and increase marketing activity, according to what’s working and what isn’t.
When marketing is working, revenue, profits and the long-term value of every customer should keep increasing, even in a recession, alongside organic referrals.
At Rampiq, we can help you get everything up and running on the analytics setup side and marketing metrics growth giving you the tools and expertise you need to measure and scale SaaS marketing metrics with confidence.
Whether you are on track to win your first 100 customers or hit $10 million MRR, we are here for your every step of the way.
Advanced SaaS Metrics Whitepaper
Download our Advanced SaaS Marketing Metrics Whitepaper PDF and read on to learn more about how your SaaS business can benefit from measuring the following sets of advanced Saas marketing metrics:
Teams interaction metrics:
Sales accepted leads
Not-a-fit leads
Re-engaged leads
Recession-proofing metrics:
Disqualification rate
Cost per demo
Time to contract
Time-sensitive metrics:
2nd class leads
Time to reaction
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About the author
Liudmila Kiseleva
Liudmila is one of the best-in-class digital marketers and a data-driven, very hands-on agency owner. With top-level education and experience, Liudmila is a true expert when it comes to digital marketing strategies and execution.
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