6 SaaS Metrics and KPIs Should be Measured
Every SaaS startup strives to keep track of their own growth using specific SaaS Key Performance Indicators (SaaS Metrics) at any possible time and way. Additionally, with new companies springing up each day, it is necessary to monitor the progress of business and market reforms. Even though it is not always easy. This guide will provide you with core SaaS KPIs demanded by any investor.
Nowadays technology has advanced the business world, providing the entrepreneur with easier access to various information. For example, the advent of Software as a Service (SaaS), alongside Infrastructure as a Service (IaaS) and Platform as a Service (PaaS), has created a platform for financial businesses. It allows to achieve much more effective transactions and information flow. So, let’s delve deeper into some aspects of SaaS model!
According to Wikipedia Software as a Service is a cloud based software service where a third-party partner can host apps and make them available to users over the web. The access could be based on a subscription basis.Instead of clients having to buy the software and install on their computers, they may just get easy online access to it.
Besides, they can pay monthly for a subscription called monthly recurring revenue or MRR. So, that is one of SaaS strength which can save a lot of client’s time and effort. Nowadays SaaS may serve as a platform for various business organizations. It is one of the most popular business models and highly demanded by the venture investors.
SaaS Key Performance Indicators or SaaS KPIs or SaaS Metrics
In today’s world, data analysis helps with adequate estimation of financial outcomes in business. Small scale or large-scale businesses need control how they are performing based on revenue generated yearly. Therefore, good financial analysis can be achieved adequately using what is called SaaS Key Performance Indicators. Also, it can be called SaaS KPIs or sometimes SaaS Metrics.A SaaS Key Performance Indicator measures how well a SaaS company is achieving its business goals. SaaS KPIs help all workers in an enterprise or firm keep track of their progress.
Moreover, it helps them adjust the plan when needed.That’s why SaaS companies need specific SaaS Key Performance Indicators to keep track of their growth and performance at any given time. There are basic SaaS KPIs in the financial models that must be emphasized as they play a great role in good business performance reviews.
Core SaaS Metrics in SaaS financial models
For SaaS businesses to remain stable and not distracted, let’s review core SaaS Metrics that can help to keep track of the efficiency.
1. The Churn Rate
It is crucial for SaaS business to keep track of their clients — and the helps with this issue. The churn is helpful because it provides the annual rate/number of what percentage of clients are stopping subscribing to a service or leaving the company. This way, the company can also be sure to find new and efficient customers and retain the old ones.
2. The Monthly Recurring Revenue
The MRR metric helps to track all new sales made. So, it helps track the churn rate and rate expenditure monthly. Additionally, it allows to keep the management from falling into debt and unwanted scenarios
3. The Committed Monthly Recurring Revenue
This is a much-modified variant of the monthly recurring revenue. It helps to determine what stream of the income would be moving forward if the company has to be halted due to certain reasons.
- Taking the monthly recurring revenue.
- Adding the future recurring revenue to it and then.
- Subtracting the recurring revenue of clients who may not renew it within that given year.
All enterprises, startups, SaaS companies and other financial establishments should control their capital used to develop their businesses as well as the cash reserves. If not, such companies may end up spending excessively and running into debt.
4. Cash
All enterprises, startups, SaaS companies and other financial establishments should control their capital used to develop their businesses as well as the cash reserves. If not, such companies may end up spending excessively and running into debt.
5. The Customer Acquisition Cost
When the SaaS startup is measuring the cost it would take for its business to gain new customers, they may use the customer acquisition cost. It helps to show precisely how much expenses you will spend to gain new clients and how much value a client brings to a startup.
Customer acquisition value is calculated by taking the gross margin of the annual new revenue from a given time of the year and dividing it by the marketing spendings and the sales from the past quarter or part.
6. The Customer Lifetime Value
This KPI is an advanced way of viewing the SaaS business’s productivity and effectiveness. CLV is used to guide efforts in client and traffic acquisition by showing how much a customer is worth in financial term.
When you know how much a client is worth, it sheds new light on the acquisition. Note, this metric should never be less than the customer acquisition cost as this means that the startup is in trouble. It is important to always keep in mind this.
What SaaS KPIs Are You Measuring?
That’s for sure: the SaaS business needs KPIs to keep track of the company’s progress. So, it’s very important metrics to record in business if an establishment wants to thrive. Share with us what other core KPIs you are using, and if you have any questions, please, do not hesitate to contact us!
