Strategy & Planning

The most important SaaS metrics to watch for B2B companies

Due to the exponential growth that the Software-as-a-service (SaaS) industry experiences, the market has become more and more competitive. Growth has been and is the main objective for SaaS companies in 2022. If you don't want to end up in the bottom quartile of your peers, you need to keep a close eye on some metrics and KPIs to make decisions and plan accordingly. 

To ensure that your company is growing at the rate it should be, track and measure the following key SaaS metrics. Start now, you'll need the benchmark and the foundations as your company grows. 

  1. Customer Churn
  2. Monthly Recurring Revenue (MRR)
  3. Average revenue per user (ARPU)
  4. Life time value (LTV)
  5. Customer Acquisition Cost (CAC)
  6. Months to recover 
  7. Cost-to-Service
  8. Lead to Customer Rate

1. Customer Churn 

Maintaining your current customers should be as important as finding new customers. Customer Churn, besides being one of the most important SaaS KPIs, will reveal if your company has reached product-market fit (PMF) within your audience. Having customers that have paid and have stayed with you beyond their initial annual subscription is key to ensuring you have reached PMF. 

Customer churn rate measures how much business you've lost over a certain period of time. This translates into the number of customers that churned as a % of all paying customers. To add more context to this metric, make sure you analyze the personas that have churned to better understand the reason behind the decision. This information will add value not only to your success and sales team, but also to your marketing team as they define your Ideal Customer Profile (ICP), and plan objectives. 

This metric becomes more important when you are losing customers. The idea is to minimize your churn rate to the point where you can start analyzing this KPI in terms of customer retention instead of loss. 

2. Monthly recurrent revenue (MRR) 

The total revenue your SaaS company generates in a single month. If you multiply this value by 12 you'll have the annual recurring revenue (ARR). Learn more about how to measure MRR (and other SaaS churn metrics) by reading our blog.

3. Average revenue per user (ARPU)

In SaaS companies, the average revenue per user (ARPU) is often measured by the average revenue per user or per account. To get this value,  divide your total monthly recurring revenue (MRR) by the total number of paying accounts. We understand paying customers as the ones who have paid their last bill and have a valid payment method status in your billing system for the next billing cycle. 

4. Lifetime value (LTV) 

This metric represented the total revenue generated by a customer over the lifetime of their subscription/account. If your customers use your product for a long period of time and they keep renewing their subscription, this value will increase. You can calculate your Lifetime Value by dividing ARPU by your Churn Rate. 

5. Customer acquisition cost (CAC) 

When planning your marketing strategy for your quarterly and yearly objectives, the Customer Acquisition Cost (CAC) is a fundamental piece of the marketing plan and the growth of a SaaS company.  This metric will tell you how much it takes for you to acquire a new customer. To calculate CAC, divide your total Sales and Marketing spend (including people) by the total number of your paying customers for a specific period of time. 

The ratio between LTV and CAC will be helpful to have a better understanding of your ROI after acquiring new customers, determining future marketing decisions, and analyzing the health of your marketing strategy. 

6. Months to recover 

This metric measures the number of months it takes you to generate the revenue to cover the cost of gaining a new customer. This means the break-even point when your new customers start to generate ROI for your SaaS company. 

To calculate this SaaS KPI, divide CAC by the product of monthly recurring revenue (MRR) and your gross margin (gross revenue - cost of sales). 

As your company matures and gets better at onboarding new clients, applying unique business rules, integrations, and overall sales complexities, it is expected to see this number decrease. However, it will take you some time to get to the ideal stage where you can start to optimize and account for that level of expertise. 

7. Cost to service (CTS)

In this dashboard, include the costs of your Success Team, onboarding, implementations, integrations, infrastructure, product, and also the cost to retain your customers; whether that is through loyalty programs or specific marketing efforts. 

After keeping an eye on this metric for a while, your marketing team will benefit from this analysis as it will impact the demand generation towards companies that are a better fit and imply fewer costs in the early stages. 

8. Lead to customer rate 

Understanding the source that is driving conversions that have a higher quality in terms of higher conversion rate is fundamental to drive growth. Try to measure the conversion rate through your funnel as granular as possible. You can start with measuring: 

  • Website visitors to leads. 
  • Leads to MQLs 
  • MQLs to SQLs
  • MQLs to Customers

Building a foundation through benchmarking

Keeping an eye on these SaaS metrics early on will help you build the right foundations for sustainable growth. Data from one week, one month, two months is better than no data. Start to get familiar with these acronyms, build dashboards that report on them on a weekly basis and prepare to start growing your customer base. 

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