What are the top 10 KPIs every SaaS company should prioritize?
SaaS companies are different from most other types of businesses. For example, they don’t have inventory that they need to sell and then purchase again. They also don’t have physical stores or locations where people can go and purchase their products.
But one thing that SaaS companies do have in common with non-SaaS companies is KPIs (Key Performance Indicators). If you want to run a successful business, you need to be able to track your progress and see how well your efforts are paying off. This will help you make decisions about what features to add, how much money to invest in marketing, which customers are more likely to buy, and so on.
In this blog post, we’ll discuss the importance of KPIs for SaaS companies and identify 10 key KPIs for SaaS businesses.
Why should SaaS companies track KPIs?
KPI stands for Key Performance Indicator(s). These are metrics that indicate the success of a business or the progress towards a goal.
The importance of KPIs in SaaS companies cannot be emphasized enough. You need to know how your customers are responding to your product so that you can make changes accordingly. KPIs help you track these changes, and adjust your strategies accordingly.
By tracking key KPIs, SaaS companies can:
- Do more with less. If your company is growing, you can use key performance indicators (KPIs) to determine which areas of your business need more attention and resources, so that you don't waste time on ineffective or unproductive features.
- Evaluate the success of your marketing strategies. A/B testing is one of the most effective ways to improve conversion rates, increase signups and measure the success of your marketing efforts.
- Understand how customers interact with your product or service. It's important to know how users are using your product or service and how they feel about it so that you can make improvements based on their feedback.
Top KPIs and Metrics For SaaS Companies
Here are some of the most important SaaS KPIs and metrics to track:
- Churn Rate – The number of customers who cancel their subscription each month. This is a very important metric to track because it’s a leading indicator of future revenue loss. If your churn rate is high, you need to figure out what’s causing it and need to fix it immediately.
- Customer Lifetime Value (LTV) – The total profit you generate from a customer over the lifetime of their relationship with your company. LTV is calculated by multiplying ARPU (Average Revenue per User) with average customer tenure, which gives you an idea of how much revenue you can expect from each customer over time. CAC (Customer Acquisition Cost) is used as an indicator for LTV because it’s easier to calculate than average customer tenure.
- Customer Acquisition Cost (CAC) – The cost of acquiring a new customer through marketing or sales activities. This is another way of calculating LTV but instead focuses on how much money is spent on getting new customers into the business rather than how much they spend over time once they are in the business.
- Activation Rate – The activation rate is the percentage of visitors who register or create an account on your website. This metric is often used to evaluate how many visitors are signing up for a free trial of your product or service.
- Conversion Rate – The conversion rate is the percentage of people who view a specific page (e.g., a landing page) and then take an action (e.g., sign up for a trial). This metric can be used to determine how effectively your marketing campaigns are driving traffic to your website and ultimately converting visitors into customers.
- Referral Rate – The referral rate measures how many people are referred from outside sources (such as email, social media, etc), which can be used as another way to measure the success of your marketing campaigns.
- Average Revenue Per User (ARPU) / Average Revenue Per Account (ARPA) – If your business model involves charging customers based on the number of users they have or the number of accounts they have, then ARPU and ARPA are probably going to be some of the most important metrics you track. These numbers show how much each customer is paying per month, or per year, respectively.
- Net Promoter Score (NPS) – The Net Promoter Score is an indicator of customer satisfaction and loyalty. It is calculated by asking customers to answer the question: “On a scale from 0 to 10, how likely are you to recommend our company/product/service?” Promoters are those who answer 9 or 10; detractors are those who answer 0 through 6, and passives are those who score 7 or 8. The NPS can be used as a performance indicator for your SaaS business. You can track the NPS for each customer segment (new vs. returning customers) or even for individual products within your product portfolio. The target should be to increase the NPS over time.
- Monthly Recurring Revenue (MRR) – Monthly Recurring Revenue (MRR) is an important metric for SaaS companies because it shows how much revenue your company can expect to generate each month. You can use MRR to calculate your annual revenue and see how you’re doing over a specific period of time.
- Annual Recurring Revenue (ARR) – Annual Recurring Revenue (ARR) is another way of looking at the same metric. ARR is calculated by multiplying MRR (Monthly Recurring Revenue) with 12, which gives you a more accurate view of your annual revenue potential.
Tips To Improve Your KPIs
- Put a clear strategy in place
You need to have a clear strategy for your SaaS company, which will define the direction you are taking and how you are going to achieve your goals. Your strategy should be flexible enough to adapt to changes in the market and respond to opportunities that arise.
- Define your targets
You need to define what success looks like for your business, such as increasing revenue, reducing churn, or improving customer satisfaction. The clearer you can define your targets, the easier it will be for you to understand how well you are performing against those and whether there are any steps that need to be taken to improve performance.
- Set realistic KPIs
It's important that your KPIs are realistic so that they aren't too easy or too hard for the team to reach. If they're too easy then there's no point setting them because they won't be challenging enough; if they're too hard then they could discourage the teams to go after them and may also put pressure on them unnecessarily if they don't achieve them right away.
- Build a system to collect and analyze data
Every single business needs to collect data from various sources such as customer surveys, call-center recordings, website analytics tools, etc., in order to understand exactly what their customers want from them and how they are reacting toward those expectations. Collecting all this information manually would be time-consuming and costly as well. Therefore, it is suggested for SaaS companies use a platform that allows them to easily collect data from multiple sources and consolidate it all in one place. The collected data can be analyzed using various reports generated by this software which will then provide insights into how customers are responding.
- Monitor KPIs with AI
AI is a technology that learns from data and makes decisions based on what it has learned. As such, it can be used for predictive analytics and other sophisticated analyses related to KPIs. You don’t have to manually gather data anymore; instead, you can automate it using machine learning algorithms. Artificial Intelligence platforms can keep learning from new data and make better predictions in the future. This improves their accuracy over time as they learn more about your company’s needs as well as market trends and customer behavior patterns.
Track Top 10 SaaS KPIs and More With Qualetics
Qualetics is an AI-driven analytics platform that can be used to monitor a wide variety of KPIs across different business functions.
Qualetics is especially helpful for SaaS companies that have multiple products and services, or that need to manage large amounts of data across many different departments.
We also provide actionable insights and recommendations for improvement so that you can make better decisions about your business.
To know more about Qualetics, click here.