10 Advanced Metrics Every SaaS Company Should Track

As a marketing executive within SaaS, it's crucial to have a solid understanding of the key metrics that drive success for your company. By tracking and analyzing the right metrics, you can make informed decisions, optimize your strategies, and drive growth. Let us explore the top 10 metrics that every SaaS company should pay attention to beyond the basics, providing valuable insights and best practices along the way.

Lead Velocity Rate (LVR)

Lead Velocity Rate (LVR) is a metric that measures the growth rate of new leads entering your sales pipeline over a specific period. By tracking LVR, SaaS companies can assess the effectiveness of their lead generation efforts, predict future revenue streams, and identify trends in customer acquisition.

How to use: A positive LVR indicates healthy lead generation and potential revenue growth, while a negative LVR may signal challenges in acquiring new customers or scaling sales efforts. Monitoring LVR can help optimize marketing campaigns, sales strategies, and overall business performance.

Best Practices: Analyze lead sources, conversion rates, and lead-to-customer ratios to improve LVR. Implement lead scoring, nurture campaigns, and sales enablement tools to accelerate lead velocity and drive sustainable business growth.

Cost Per Lead (CPL)

Cost per lead is a marketing metric that measures the expense incurred to acquire a lead. A lead is typically defined as a potential customer who has expressed interest in your product or service, often by providing their contact information. CPL is calculated by dividing the total marketing spend by the number of leads generated. You can measure your CPL to all marketing efforts or specific campaigns.

Best Practices: Understand your target audience and segment them based on different factors such as demographics, behaviors, and interests. Tailoring your marketing efforts to specific audience segments can increase the quality of leads.

Determine which marketing channels (e.g., social media, email marketing, PPC, content marketing) yield the best leads at the lowest cost. Allocate more budget to the most effective channels, but keep in mind that channels for demand generation are an investment to win the future buyer and to become top-of-mind when the right window opens. A higher CPL doesn't necessarily mean you should cut your campaign.

Focus on generating high-quality leads that are more likely to convert. Using lead scoring models can help you prioritize leads based on their engagement level and fit with your ideal customer profile.

Average Revenue Per User (ARPU)

Average Revenue Per User (ARPU) measures the average amount of revenue generated per customer within a specific period. SaaS companies can use ARPU to analyze pricing strategies, upsell opportunities, and customer segmentation to drive revenue growth.

How to impact: Increasing ARPU can enhance overall profitability and revenue streams, making it a valuable metric for optimizing pricing plans, feature offerings, and customer engagement strategies.

Best Practices: Implement tiered pricing models, introduce value-added features or premium plans, and target upsell/cross-sell opportunities to boost ARPU. Analyze customer segments, usage patterns, and feedback to tailor pricing strategies and maximize revenue per user.

Average Revenue Per Account (ARPA)

Average Revenue Per Account (ARPA) measures the average monthly or annual revenue generated per customer account unlike ARPU. ARPA provides insights into pricing effectiveness, customer segmentation, and revenue optimization strategies.

Insight: Increasing ARPA can boost profitability, customer lifetime value, and overall revenue streams. Analyzing ARPA trends can help identify upsell opportunities, pricing adjustments, and targeted marketing initiatives to maximize revenue per account.

Best Practices: Segment customers based on usage, needs, or willingness to pay to tailor pricing plans and increase ARPA. Introduce value-based pricing, subscription tiers, and personalized offers to drive ARPA growth and enhance customer satisfaction and loyalty.

Customer Acquisition Cost (CAC)

Customer Acquisition Cost (CAC) is a critical metric that measures the average cost of acquiring a new customer. To calculate CAC, simply divide your total sales and marketing expenses by the number of new customers acquired within a specific period. In the SaaS industry, where competition is fierce and customer retention is key, understanding and optimizing your CAC is essential for sustainable growth.

Insight: High CAC can indicate inefficient marketing strategies or an unsustainable business model. It's important to continuously evaluate and optimize your acquisition channels to ensure a healthy CAC ratio.

Best Practices: Focus on cost-effective acquisition channels, improve targeting and personalization in your campaigns, and invest in customer retention to maximize the lifetime value of acquired customers. As adding and allocating all sales and marketing costs often isn't possible you can start by doing that for a specific channel. However, no deal is being won by a single marketing or sales activity and you should keep an holistic view - as the customer journey is.

Customer Lifetime Value (CLTV)

Customer Lifetime Value (CLTV) is the total revenue that a customer is expected to generate throughout their relationship with your company. By understanding the CLTV of your customers, you can make more informed decisions about how much to invest in acquisition and retention strategies.

How to use: A high CLTV indicates strong customer loyalty, while a low CLTV may signal a need for improved retention efforts or product features.

Best Practices: Increase CLTV by providing exceptional customer service, personalized experiences, and ongoing value through your product. Monitor CLTV regularly and adjust your strategies as needed to maximize long-term revenue.

Monthly Recurring Revenue (MRR)

Monthly Recurring Revenue (MRR) is a key metric for SaaS companies that reflects the total predictable revenue generated from subscription-based customers each month. Tracking MRR allows you to accurately forecast revenue, measure growth, and identify trends in customer behavior.

Insight: Monitoring MRR growth is essential for assessing the health of your business and setting realistic revenue targets. SaaS companies should aim for consistent and sustainable MRR growth over time. To keep your impact clean, you can exclude upsells from MRR, which is especially interesting for SaaS investors.

Best Practices: Focus on expanding your customer base, increasing average revenue per user, and reducing churn to drive MRR growth. Implement pricing strategies, upsell opportunities, and retention initiatives to optimize MRR performance.

Just as monthly recurring revenue (MRR) represents the predictable income your business earns each month from customers, annual recurring revenue (ARR) is the annualized projection of this predictable income over a year.

What’s the Difference Between ARR and MRR?

ARR and MRR are both key metrics for tracking recurring revenue, but they serve different purposes and are used in different contexts. MRR, or monthly recurring revenue, is more commonly used by early-stage businesses, particularly when contract terms are shorter than a year.

The primary difference between MRR and ARR is the time span each measures. ARR, or annual recurring revenue, is simply MRR multiplied by 12.

Another distinction lies in their usage: MRR is typically an operational metric that reflects the month-to-month performance of the business. In contrast, ARR is more of a valuation metric, offering a broader view of the company's financial health over a year. Investors often look at ARR to gauge overall business performance, and many founders present ARR during fundraising or board meetings to provide a long-term perspective, while MRR is used for tracking day-to-day business operations.

Churn Rate

Churn Rate is the percentage of customers who cancel their subscriptions within a given period. High churn rates can significantly impact your revenue and growth potential, making it a critical metric to monitor and address proactively. If you churn rate is higher than you win rate you are either signing the wrong type of customers or need to look at causes for them to leave. Talk to your Customer Success team for insights.

How to use: Understanding the reasons behind churn is crucial for developing effective retention strategies. By identifying and addressing common pain points, you can reduce churn and improve customer loyalty.

Best Practices: Implement customer feedback mechanisms, analyze churn data regularly, and prioritize customer success initiatives to reduce churn. Focus on delivering value, improving product usability, and addressing customer needs to enhance retention rates.

Net Promoter Score (NPS)

Net Promoter Score (NPS) is a metric that measures customer satisfaction and loyalty based on a single question: "How likely are you to recommend our product/service to a friend or colleague?" SaaS companies can use NPS to gauge customer sentiment, identify brand advocates, and drive word-of-mouth marketing.

How to use: A high NPS indicates satisfied customers who are likely to refer others, contributing to organic growth and brand advocacy. Low NPS scores may reveal areas for improvement in product quality, customer support, or overall user experience. Monitor your NPS ratings and the comments very carefully. Take the learnings to improve your processes and product. Reach out to customers to learn more and engage happy customers to write a review on comparison platforms or become a testimonial for your channels.

Best Practices: Regularly survey customers to measure NPS, gather feedback, and prioritize customer satisfaction. Use NPS insights to identify opportunities for product enhancements, customer service improvements, and referral programs to boost loyalty and advocacy.

Activation Rate

Activation Rate measures the percentage of new sign-ups or free trial users who engage with key features or reach a specific milestone within your product. Tracking activation rates can help SaaS companies understand user behavior, improve onboarding processes, and drive product adoption.

How to use: Low activation rates may indicate barriers to user adoption, lack of product understanding, or poor onboarding experiences. Optimizing activation can increase user retention and long-term engagement.

Best Practices: Analyze user behavior during the onboarding process, identify points of friction, and optimize product features to improve activation rates. Provide clear guidance, personalized tutorials, and proactive support to help users quickly realize the value of your product.

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Tracking and analyzing the right metrics is crucial for driving growth, optimizing strategies, and fostering long-term success. As a marketer need to understand how you can impact these metrics and get your team onboard. By focusing on key metrics you can make informed decisions, improve customer experiences, and maximize revenue potential. Many platforms like Salesforce or HubSpot CRM allow you to connect, measure and evaluate your pipeline metrics. If you want me to look over your operational setup and data quality to create your most important dashboards with your key metrics, feel free to reach out and request your free audit.