10 SAAS Metrics You Must Know

Software-as-a-service (SaaS) industry has experienced exponential growth in the last decade. Compared to the traditional software companies which relied mainly on upfront fees, the SaaS business model is different as it relies on smaller recurring revenues.

1. Average revenue per user (A.R.P.U):?ARPU is a measure of revenue contributed by an “average” sale or customer, on a month-by-month basis. A.R.P.U is calculated by dividing monthly revenue by a number of active accounts per month. A.R.P.U?gives you a clear picture of how our customer segments of products or services are performing on a monthly basis, and if there is?a need to change pricing for any specific product or service.

2. Monthly recurring revenue (M.R.R)?is the total recurring revenue generated by all customers in a given month. To calculate the MRR, multiply your total number of paying users by the A.R.P.U.?

Annual recurring revenue (A.R.R)?is the total amount of revenue you can expect to generate in a year. To calculate your ARR, simply multiply your MRR by 12.

3. Customer Acquisition Cost (CAC): It is the costs to acquire new customers,??amount spent on sales, marketing, and other associated costs in order to acquire one new customer. CAC is calculated by dividing a company’s total marketing and sales costs with its total number of customers.

For example, if you’ve spent INR 10 Lacs on marketing and sales and acquired 1,000 new customers, your CAC would be?INR 10 Lacs?/ 1 Thousand, which equals INR 1,000 per customer.

4. Churn rate?is the month on month churn or loss of customers. To calculate churn rate, you need to divide the number of customers who unsubscribed to your product or service in a month by the prior month’s total customer base.?It is the business lost in a certain time period. Although, churn is a reality, tracking it and reducing churn and improving?retention can help us save our business.

5. Retention Rate?is the number of customers?retained over a given period of time. It is inverse of the churn rate. The higher the retention rate, the greater is customer loyalty for our product. A growth in retention indicates that our retention efforts are paying off and that we are likely to earn more in the future from existing user base.

For Example if at the start of the month, you have 10 customers. By the end of the month, the number of customers you have is 15 and during this time period, you have acquired 10 new customers and lost 5.

Retention rate?=??{(Customers at end of the time period – New customers acquired during that period)/ Customers you had at the start of that period} x 100.?Which is {(15-10)/100} x 100 = 50% Retention

6. Lifetime Value (LTV)?is the total revenue generated by a customer over the total duration of their association with our company or during their total lifetime as our customer.?It shows what is the worth of an average customer. For startups, it can display the value of our company to investors.We can calculate LTV by multiplying our?A.R.P.U by the average customer lifetime, which is typically expressed in months.

Example : If?ARPU is INR 100 and your average customer lifetime was 5.5 years, or 66 (5.5 X 12) months, our LTV is INR 6,600 (INR 100 X 66)

7. Net Promoter Score?NPS is one of the most popular metric to measure customer satisfaction and loyalty.?It is a direct measure of the value customers are gaining from our product or service.?It allows us to find out why our customers might be dissatisfied, and we can use their feedback to improve our product or service. To measure NPS, we can ask our customers a simple question like “How likely are you to recommend us to a friend or colleague?”

Three types of responses can be bucketed:

• Detractors (customers giving a 0-6 score)
• Passives (customers giving a 7 or 8 score)
• Promoters (customers giving a 9 or 10 score)

8. Customer Engagement Score:?More engagement usually means more loyalty and longer retention. Customer Engagement Score?is a means of determining how engaged our customers are.?We can find out these insights from out data : How frequently do customers log into their accounts? How long do they typically stay logged in? What actions do they perform most frequently? Which features do they use the most??Based on the above data points we can assign to each one some weight and calculate the Customer Engagement Score.

9.?Customer Satisfaction Score?(CSAT)?is a?customer?loyalty metric used by companies to gauge how?satisfied?a?customer?is with a particular interaction or overall experience. It is calculated by dividing all the positive responses by the total number of responses and multiplying by 100. This results in your?CSAT?percent. For example, if you have 35 positive responses and a total of 50 responses, your?CSAT?would be 70%.

10. Customer Effort Score (CES):?CES?is also a customer experience survey metric that helps the organization to sense the ease of customer interaction.?By tracking CES?service leaders can make changes and improvements to the customer experience.?CES is measured by asking a single question like “How easy was it to complete you order?” and scoring the response on a scale from 1 to 5.

“What gets measured gets improved.”

KPI’s or Key metrics are the backbone of any successful business. They tell us about how our company is doing, what it does well, and where we need to improve.