The SaaS industry is growing at a staggering rate, with the global SaaS market worth more than 145.5 billion US dollars. In the years to come, the market value is going to surpass 170 billion US dollars, so there is no denying that this is both a lucrative and a highly competitive industry for newcomers and established businesses.
No matter the industry you come from, though, whether it is sales, content marketing, or beyond, you probably know that when you’re working in SaaS, you need to constantly monitor and act on relevant data. Why? In order to maintain your competitive advantage and keep the innovation process moving forward.
It’s important to note that with the growth rate of the industry, the consumer demands change, and so SaaS startups need to constantly optimize and refine their processes to bring valuable products to the competitive market. To do any of this, you need to track and measure the right key performance indicators.
Let’s take a look at the most important SaaS KPIs you need to monitor and act on in 2022 and beyond.
- Monthly recurring revenue
To start, one of the most essential and important KPIs you need to keep track of is your monthly recurring revenue. This is a relatively simple way to keep an eye on your new sales, upsells and cross sells, renewals and your monthly churn rate. That said, you do need reliable billing software that will allow you to manage all your expenses, generate and automate invoices, and most importantly right now, generate meaningful reports.
With a robust billing system and a built-in analytics tool, you can easily keep track of this important metric, as monitoring your MRR will allow you to stay calm and in control of your cash flow and keep your business on the right track. It’s also an important metric for resource allocation, especially in the SaaS realm where you need to stay innovative.
Established SaaS businesses that need to tend to legacy system modernization in order to stay competitive will feel this most, as you can only modernize your software by staying in control of your monthly cash flow. With a steady cash flow projection on a monthly basis, you can execute your projects and avoid financial pitfalls.
- Churn Rate
SaaS companies operate on a subscription-based pricing model nowadays, which is the best way to monetize your products and open new upsell and cross sell opportunities. Subscriptions are also the best at maximizing the lifetime value of a customer, which is why it’s important to try and keep customers at your side for as long as possible.
That said, people are inevitably going to fall off at some point and stop using your software, which is also known as user churn. One of your ongoing objectives should be to monitor your churn rate and then use the right SaaS tools to increase efficiency and customer retention over the long term.
The churn rate is a basic, but a powerful KPI that lets you see how many users you’re losing in a specific timeframe. To calculate your churn rate on a monthly basis, simply divide the number of users who left at the end of the month with the number of users you had at the start of the month. Then multiply that number with 100 to get a churn rate percentage.
- Revenue Churn
Okay, so you have a percentage of people who are falling off and not using your software anymore after a month or any other time period. But do you have the percentage of revenue loss incurred by those customers who have left? Do you know how much money those people are taking with them when they leave?
Without a doubt, this is an important KPI as well, because it will tell you how much money you have to allocate to other departments and campaigns. These can include sales content management, content marketing, new sales tools, product innovation, and more.
To calculate your revenue churn, you should pool all your data from other departments using the right data integration tools because things tend to get complicated when prices vary between customers and their subscription plans. You can then calculate the revenue churn rate by following the formula below:
- Annual recurring revenue
Just like it’s important to monitor your monthly revenue rate, it’s important to maintain a bird’s eye view of your revenue on an annual level. This KPI is equally important as the MRR, only it expands everything into a much broader perspective and allows for strategic planning, effective forecasting, and again, efficient product innovation.
Monitoring annual revenue is also important for optimizing your sales funnel and creating content that converts, which demands money, time, and effort.
You can also look at your annual recurring revenue as an OKR vs a KPI, also known as an objective and key result. An OKR is a goal-setting framework that allows you to strategize more efficiently and set clear objectives with measurable key results.
In any case, this is a powerful metric, but you can easily calculate it by simply multiplying your MRR by 12. Simple, but effective for SaaS teams that plan ahead.
- Committed Monthly Recurring Revenue
Another interesting SaaS sales and growth metric is the CMMR. Committed monthly recurring revenue shows you what you can expect to make if you suddenly stopped all your sales and marketing efforts.
Not that this is something you would ever allow to happen, but it can be a good indicator at the amount of effort you need to put into your SDR process every month to maintain your current revenue stream. It also shows you what you can expect in terms of churn for that specific timeframe.
The CMMR key performance indicator is valuable to your SaaS team because it takes into account the expected churn rate, meaning that you can plan for cancellations, downgrades and upgrades, giving you a more detailed overview of your monthly financial standing.
You can calculate your CMMR by adding new acquired users to your MRR, minus the expected churn rate.
- Customer Acquisition Cost
This is a pretty obvious and basic one, but it’s also one of the most important KPIs that every growth-oriented SaaS business should track. Because after all, monitoring the cost of acquiring new customers will be essential for your financial management and forecasting, but it will also impact many other processes in your business, such as your B2B marketing strategy.
By monitoring your CAC, your sales experts will also be able to better gauge the quality of new leads, and tend to more efficient lead scoring in order to rank leads, personalize the sales cycle to the needs of the individual, and ultimately minimize financial and time waste. This will shorten the sales cycle and help you, as you might have guessed, convert more for less.
Be sure to calculate your CAC by dividing the number of new customers with your sales and marketing costs.
Your cash reserve is yet another crucial KPI that you need to monitor over the long term, because it will define the success of your SaaS business before it breaks even. SaaS companies rely on cash reserves to develop their products and their content marketing strategies in order to convert and create loyal customers.
You can only maximize SaaS sales if you have an amazing product and an amazing marketing strategy, but the product itself will only produce a positive ROI over the long term. So, you need to be prepared with a steady cash reserve, or risk having to resort to outside financing.
There is no formula here, simply keep a close eye on your cash reserves and allocate your resources carefully – don’t chip away at the fund without a good reason.
- Customer Lifetime Value
CLV is one of the most popular KPIs in any industry, because maximizing the lifetime value of a customer is the best way to boost revenue and your entire SaaS business forward. To achieve this, though, you need not only an amazing product, but also an amazing content strategy and a CRM process that focuses on nurturing and delivering value to every customer.
It’s a long and winding road, but the results are worth the effort. In fact, focusing on elevating the customer’s lifetime value is one of the best sales tips any sales expert can give you, because generating repeat business is always cheaper than acquiring new customers.
Firstly, divide your yearly revenue by your total yearly sign-ups (paid). Then divide your total yearly sign-ups by the number of unique customers, and then multiply these two sums. This is your projected CLV.
- Lead Velocity Rate
Your lead velocity rate tells you how much you’re growing month to month through your qualified leads. The more qualified leads you’re able to generate, the faster you’ll be able to grow. The lead velocity rate is a clear indicator of how efficient your sales pipeline is, and whether or not you’re generating and converting leads fast enough.
You can always improve your LVR by improving your sales process and lead generation strategies, and sales outsourcing is a good way to do just that when you need to double down on your inbound and outbound strategies. But before you do that, you need to figure out your lead velocity rate.
Subtract the number of qualified leads from last month with your current qualified leads. Then, divide that number by the number of qualified leads last month and multiply by 100 to get your LVR percentage.
- Net promoter score
The last one might not be directly tied to sales or finances, but it is an essential KPI for sales, marketing, and support teams. That makes it essential for the growth of your SaaS business as a whole and will help with everything from writing better website copy to refining your sales tactics and processes.
The net promoter score is easy to calculate, and the insights your customers provide will allow you to build a result-driven SEO strategy for 2022, refine your support process, optimize your product quickly, and better market and sell your software as a whole. There’s a lot you can gain by monitoring your NPS – just make sure to send out surveys and ask your customers on social media and your site what they think of your product and brand.
Given the sheer competitiveness of the SaaS industry right now, as well as its expected growth in the coming years, it’s imperative for SaaS teams to monitor the right KPIs in order to maintain their competitive edge. If you don’t, you will not be able to continuously optimize your products and set attainable goals that will generate revenue and lifelong brand followers.
Make sure that these KPIs are a part of your 2022 growth strategy and you should have no problem taking your SaaS business forward as a whole.