10 July 2020
7 Essential KPIs Every SaaS Company Must Know – Payvoice
A KPI (Key Performance Indicator) is one of the most 'important' performance measures for a SaaS business. KPIs are not only metrics or numbers; they are essential insights responsible for providing answers to your key SaaS business questions and action plans to create an impact.
There are many differences between Key Metrics (KM) and Key Performance Indicators (KPI); the main problem is how often SaaS Companies mix them. A Key Performance Indicator is a powerful metric that every SaaS Companies must utilize to gauge the performance and efficiency in critical areas of a SaaS business such as customer churn, dunning, invoices, sales, and many more.
The primary reason why SaaS organizations use KPI at multiple levels, unlike any other industry, is to review their performance at different levels and evaluate them for reaching the targets. High-level KPIs may focus on SaaS organizations' general efficiency, such as sales, revenues, and productions. In contrast, low-level KPIs may focus on employees, marketing, products, and services.
The objective of using SaaS KPI could be as follow:
1. Evaluation
2. Information
3. Communication
4. Diagnostic
5. Progress
6. Growth
Most of the Saas KPIs fall in the following category:
1. Financial Metrics
2. Customer Metrics
3. Process Metrics
4. People Metrics
Benefits of using KPI in SaaS Business
Most of the SaaS Companies these days use KPI as a growth measurement tool for measuring how good they are doing in terms of overall growth in revenue, sales, and profits compared to other SaaS Companies in the same industry. If the KPI is below the SaaS industry standard, it means the Company is not utilizing its SaaS product or service to the best possible extent. To make the most of your SaaS Company, you need to keep track of seven essential KPIs which we are going to discuss in this article, but before that, let us take a look at the benefits of using KPI in your SaaS business.
1. Improve Decision Making
2. Evaluate Performances
3. Gain Visibility
4. Direct Behavior
5. Get Growth Overview
There are few basic rules for selecting KPIs in SaaS Company: -
1. SaaS KPI needs to align with your SaaS Company’s goals or objectives. If your goal is ‘to add 20% new product or service signups in a current financial year with 10% increase in budget’ you will better off tracking crucial SaaS metrics such as CAC (Customer Acquisition Cost) VS LTV (Customer Lifetime Value), Customer Churn Rate, and MRR (Monthly Recurring Revenue).
2. SaaS KPI should be easily accessible and easier to understand.
3. SaaS KPI must be tracked in real-time using a KPI measurement tool or software.
Top 7 KPI For SaaS Companies To Track
Using SaaS KPIs, the objective is to focus on tasks and processes that can help you progress towards declared goals and targets. Although keeping an eye on KPIs can help SaaS Companies determine shortages within a Company, and it is up to the Company how to fix them.
Having too many KPIs for a SaaS Company can be problematic. It makes it difficult for the management team to prioritize critical indicators and ensure they get the attention they deserve. That is why we’ve chosen the seven crucial KPIs that every SaaS Company needs to pay attention to.
1. New Sign Ups
For SaaS Companies getting website visitors and converting them into sign-ups can be measured as success. The more sign-ups you get each month, the more revenue you’ll make; this is one of the key indicators that your SaaS Company is in the right direction, and all the actions that you are taking are working for you.
If your new sign-ups are getting less in number each month, it indicates that there is something wrong with your SaaS product, services, or management. You need to identify loopholes using this KPI and try to fix them as soon as possible.
2. Customer Churn Rate
Customer churn rate refers to a percentage of customers that your business loses over a specific period. It can be calculated on a quarterly or monthly or yearly basis. The customer churn can be measured by the following:
1. The total number of loss clients during a monthly, quarterly, or yearly period.
2. The percentage of lost customers during a monthly, quarterly, or yearly period.
3. The total loss of business revenue during a monthly, quarterly, or yearly period.
4. The percentage of recurring business lost during a monthly, quarterly, or yearly period.
Keeping track of your customer churn rate and lowering them by taking logical steps is extremely important for SaaS Companies.
3. Annual Growth Rate
As a good benchmark, SaaS Companies must have an average of 15%-30% year-by-year growth rate. SaaS Companies with less than $1 million in revenue annually tend to have a higher growth rate in the industry.
Some of the other important metrics to remember while calculating annual SaaS growth depend on your customer's country, specific industry, and development stage. If you're below 10%, you need to immediately focus on the primary KPIs, such as new sign-ups and customer churn rates and fix them as early as possible.
4. Customer Lifetime Value (LTV)
Customer Lifetime Value, also known as Lifetime Value (LVT), is the amount of money a customer will spend on your SaaS products or services over their lifetime or the entirety of your business. As long as your SaaS Customer Lifetime Value (LTV) is higher than your Customer Acquisition Cost (CAC), you will be in a good position.
The best way to determine the Customer Lifetime Value (LTV) is to project out a stream of possible future revenues. It also becomes feasible for SaaS Companies to measure ROI for every new customer that can help figure out sales and average marketing budget.
5. Customer Acquisition Cost (CAC)
In simple terms, the Customer Acquisition Cost (CAC) is the average amount of money a SaaS Company spends to acquire new customers or clients for their SaaS products or services and how much value they bring to the Company. It is one of the most important KPI for a SaaS business to track. When companies have the necessary data on the acquisition channel and have a better idea of which ones work better, they know which channel to spend more on.
6. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue, also known as MRR, is the amount of revenue a SaaS Company earned in a month. It is used by SaaS Companies to measure the predictable recurring revenue, and it is subscription or recurring based.
Crucial factors in determining the MRR are:
1. New MRR = Total number of new clients
2. Expansion MRR = Total number of existing clients expanded
3. Churned MRR = Total number of existing clients churned
4. Net New MRR = New MRR + Expansion MRR - Churned MRR
The MRR KPI tells how much revenue you are making on a subscription basis instead of one-off delivery.
7. Cash Burn Rate
Cash Burn Rate, also known as Burn Rate, is the cash that a SaaS startup loses before emerging into profitably and positive cash flows. A SaaS Company burn rate is also utilized as a measurement stick for its future outcomes, such as how much time the Company has before it runs out of money.
Suppose your SaaS Company’s Cost of Customer Acquisition (CAC) and business operations such as production, management, and marketing is way over the amount of revenue generated per month. In that case, your SaaS Company’s future is in the dark.
Conclusion
As soon as KPIs have been identified, the SaaS Company needs to continuously refine the signs to guarantee the KPIs enhance each other and do not cause conflicting priorities. In addition to being measurable, all KPIs must be well-defined and also connected. Each KPI should support the level above it to make sure that all aspects of the SaaS Company are collaborating towards the same goal and objectives.
