The SaaS business model is one of the most scalable and predictable. Since they primarily monetize from monthly and annual recurring revenue, SaaS businesses can look at historical data to project future performance, understand demand and customer behavior trends, inform their go-to-market (GTM) strategy, and decide where to invest their resources.
But all the data these businesses have at their fingertips is useless if they don’t track the right SaaS KPIs.
SaaS KPIs 101
Key performance indicators (KPIs) are numerical benchmarks businesses use to measure their overall health and performance. SaaS KPIs are high-level metrics that provide insight into whether or not sales, marketing, and customer success efforts translate to your company’s economic viability in the real world.
SaaS KPIs take questions like, “How much is one of our customers worth in totality?” or, “Where are our sellers winning the best deals?” and break them into simple numbers you can graph over time.
That way, you can answer the really complicated questions like, “How long do we need to keep each customer if we want them to be profitable?” or, “What’s a profitable sales target our reps can reasonably hit without pulling their hair out?”
SaaS KPIs vs. SaaS Metrics
“KPIs and metrics” are often used interchangeably, but they measure your SaaS business differently.
- KPIs are strategic, while metrics are usually more operational.
- Metrics measure small things in one department. KPIs measure how well different departments work together to reach a goal.
- Metrics give you more information about what is happening, but KPIs help you make better decisions.
- All KPIs are metrics, but not all metrics are KPIs — a metric becomes a KPI once it’s pegged to a specific target or goal.
Suppose your SaaS business wants to know how valuable its typical customer is. You’d track the customer lifetime value (CLV) metric. After compiling data from the year, you realize your CLV is $200,000.
But CLV alone doesn’t benchmark anything. It just tells you you can expect to make $200,000 over the course of the customer lifecycle.
- Is $200,000 enough to cover our customer acquisition cost and retention efforts?
- How long do we need to retain a customer to make $200,000 in revenue?
- Can we scale our business with $200,000 per customer?
Once you know whether your $200,000 CLV is profitable and scalable, it is a key performance indicator because changes to it gives you tangible insights into business performance.
The Most Important KPIs for SaaS Companies
With the right indicators, investors, execs, managers, and individual contributors can understand the effectiveness of their company’s products, messaging, internal processes, and strategies.
Briefly, the most important SaaS KPIs are:
- Customer acquisition cost (CAC)
- Customer lifetime value (CLV)
- Average revenue per user (ARPU)
- LTV:CAC ratio
- Conversion rate
- Churn rate (subscription churn and revenue churn)
- Retention rate
- Lead velocity rate (LVR)
- Monthly recurring revenue (MRR)
- Annual recurring revenue (ARR)
- Net promoter score (NPS)
- Growth efficiency
- Renewal rate
A mouthful… We know. But your outbound sales, inbound marketing, and customer success efforts pretty much depend on them.
Although they sound intimidating, your CRM, analytics, and BI tools will probably show you them automatically. So all you’ll have to do is interpret them.
SaaS Financial KPIs
Start with the financial KPIs. They’re the ones that investors want to know about the most, and they’re the clearest indicators of how well your SaaS business is doing.
And since they speak to your profitability and revenue growth, they’ll help you set your sales, marketing, and customer success KPIs in such a way that you’ll know what needs to be done to grow your SaaS company.
Customer Acquisition Cost (CAC)
Customer acquisition cost (CAC) is the amount of money your SaaS company spends to acquire each new customer. It’s tied to your sales and marketing efforts, and is expressed as a percentage of revenue or a dollar amount.
| CAC = Total Marketing and Sales Expenses / Number of New Customers Acquired |
Sales and marketing expenses include salaries, commissions, advertising costs, software, and marketing materials.
CAC is relative — a low CAC doesn’t necessarily mean you’re doing well. It just shows that your cost per customer is low. You can have profitable customers who cost a lot to acquire if the total addressable market is large or each customer’s CLV is high.
Customer Lifetime Value (CLV)
When SaaS companies want to know how valuable their customers are, they use the customer lifetime value (CLV) metric. CLV measures the total revenue a single customer is worth over their entire lifecycle with your business.
It’s like CAC in reverse — instead of calculating costs, you’re calculating revenue.
| CLTV = (Average Purchase Value x Average Purchase Frequency) x Average Customer Lifespan |
Where:
- Average Purchase Value = the total revenue in a time period / number of purchases over the same period.
- Average Purchase Frequency = the number of purchases / number of unique customers who made a purchase during that time period.
- Average Customer Lifespan = the average number of years a customer continues to buy from your company.
LTV:CAC Ratio
The LTV:CAC ratio compares the customer lifetime value (LTV) to the customer acquisition cost (CAC). It measures how effectively you’re spending your marketing and sales budget.
| LTV:CAC Ratio = Customer Lifetime Value (LTV) / Customer Acquisition Cost (CAC) |
SaaS companies should aim for a LTV:CAC ratio of 3:1 or higher, meaning the lifetime value of a customer is three times greater than the customer acquisition cost.
Too high of a ratio, however, means you’re probably underspending on customer acquisition and missing growth opportunities.
CAC Payback
The CAC payback period looks into how long it takes to recoup the cost of acquiring each customer.
| CAC Payback Period = Customer Acquisition Cost (CAC) / Monthly Recurring Revenue (MRR) per customer |
SaaS companies use the CAC payback rate to understand how long they need to retain existing customers to get a return on their customer acquisition cost.
Monthly Recurring Revenue (MRR)
MRR measures how much money a business can rely on each month with minimal customer churn and attrition. Although it doesn’t factor in one-time payments (e.g., upgrades, add-ons), it’s still the most important SaaS metric because recurring revenue is what keeps SaaS businesses afloat.
There are several reasons you want to know your MRR:
- More accurate revenue forecasting
- Improved cash flow management
- Better communication with stakeholders and investors
- Higher upsell/cross-sell visibility
Looking at a snapshot of your MRR is helpful, but it’s better to look at how it changes over time — that way, you can calculate your revenue growth rate.
Annual Recurring Revenue (ARR)
ARR measures the value of subscription-based revenue that you can expect to receive each year. It’s simply MRR multiplied by 12.
Knowing how much revenue you make on a monthly basis doesn’t account for seasonality, spikes and troughs in demand, and anomalies. It also leaves a lot of gray area about paying customers who don’t stick around for the long haul.
Annual recurring revenue shows you the bigger picture of your SaaS company’s financial performance, which you can use to compare growth from one year to the next.
Growth Efficiency
The Growth Efficiency Index (GEI) tells you how much it costs for your SaaS company to generate $1 in net ARR. GEI values under 1.0 indicate revenue optimization, while those over 1.0 mean your revenue generation costs are too high.
| GEI = Current Year’s Marketing and Sales Expense / Net New Annual Recurring Revenue (ARR) |
It’s similar to LTV:CAC, but it’s more focused on efficiency and optimization.
The higher your GEI is, the harder it becomes to make money (unless you have an increase in MRR or ARR that offsets the high cost of customer acquisition).
SaaS Sales KPIs
Your sales KPIs come next. They tell you everything you need to know about sales team performance, how to set attainable quotas, and what you need to do to run a productive sales force.
Sales Activities
Your sales activities are the first things you want to set up for tracking. These include:
- Outbound activities — calls made, emails sent, etc.
- Inbound activities — demos scheduled, webinars attended
- Lead qualification rate — percentage of leads that become sales qualified leads (SQLs)
- Lead conversion rate — percentage of qualified leads that make a purchase
- Deals closed — number of deals closed each month or quarter
- Sales revenue generated — total value of all deals closed that month or quarter
To understand what amount of revenue your sales team needs to close in new deals (i.e., to set quotas) you need to look at the following SaaS KPIs:
- CAC payback period
- Customer lifetime value
- Average revenue per account
- Average deal size
Once you know how much each deal is worth, you can say, “We need $X in new revenue this quarter to be sustainable, and we can do that by making X sales.”
That’s how you set your quota.
Quota Attainment
Whether or not your sales team actually hits their quotas tells you a lot about your sales funnel.
Low quota attainment means something is amiss in your sales process, while hitting quota or exceeding it means you have a well-oiled machine that’s doing what it should.
Although the average quota attainment rate (regardless of tenure) is 58%, an ideal rate would be between 80% and 90%.
Lead Velocity Rate (LVR)
Lead velocity rate measures how quickly a company’s marketing efforts translate into sales-qualified leads (SQLs).
| LVR = (Number of Current Month’s Qualified Leads – Number of Previous Month’s Qualified Leads) / Number of Previous Month’s Qualified Leads * 100 |
It’s important to note that LVR isn’t just about quantity — it’s also about quality. If your lead velocity rate is high, but the leads are low quality, it won’t do you any good.
Average Deal Size
Comparing the average value of every deal against your retention rate and customer lifetime value can give you a clearer picture of the health and viability of your sales team.
| Average Deal Size = Total Revenue / Number of Deals |
It’s also useful for understanding how efficient sales teams are in terms of their ability to close bigger deals that bring in higher revenue.
Average Sales Cycle Length
In SaaS, the typical sales cycle lasts 84 days according to HubSpot. But enterprise SaaS purchases take around eight months to close.
Your potential customers have lives, too. In those several months, some of them forget and others lose interest, which is how deals fall through the cracks.
Conversion rates are closely tied to sales cycle length. The longer the process takes, the lower your conversion rate — and vice versa.
Sales by Contact Method
Contact methods include phone, email, and social media. Knowing which ones bring in the most revenue helps you prioritize your activities and target those channels.
Looking at the above sales KPIs on a granular level reveals which strategies are paying off and which ones to cut out of the sales playbook.
SaaS Marketing KPIs
Marketing and sales teams use KPIs differently. While sellers focus on the end goal (i.e., closing deals), SaaS marketers’ main goal is to get qualified leads over to sales.
MQL:SQL Ratio
Generating marketing qualified leads (MQLs) is fairly easy, but the reality is most of them won’t be a fit for your product.
You need to look at how many leads from each campaign turn into sales qualified leads (SQLs).
| MQL to SQL Conversion Rate = (Number of SQLs / Number of MQLs) * 100 |
This also means you can’t send every MQL to sales. You need to have a questionnaire, scorecard system, or some other kind of procedure that pre-screens potential new customers so your sales team deals with as many qualified leads as possible.
Conversion Rate per Channel
Your marketing and sales team use conversion rates in different ways. A conversion from a marketing perspective is simply a new lead. From a sales perspective, it’s an actual purchase.
To track how effective your different channels are at driving leads and purchases, you need to look at the conversion rates for each one.
Revenue per Channel
SaaS companies need to use revenue attribution to understand which channels and campaigns deliver the most value.
This is more complicated for the marketing team than for sales because there are several touchpoints between a final purchase and an initial marketing conversion.
Engagement Metrics
SaaS metrics for engagement aren’t always concrete numbers, but they’re still important to your overall marketing strategy.
Whether it’s content marketing, social media, email marketing, or a full-fledged SaaS SEO strategy, your marketing team needs to track engagement metrics.
These include:
- Website traffic
- Monthly unique visitors
- Time on site (or time viewing an ad)
- Click-through rate (CTR)
- Average session duration
- Page views
- Open and click-through rates for emails
- Social media follower growth and interactions
The higher your engagement metrics, the more likely it is that you’ll generate qualified leads.
Cost Per Lead (CPL)
Whether you get qualified leads from paid or organic traffic, you need to know how much you spent to get them. CPL is like the marketing version of CAC.
| CPL = Total Campaign Spend / Total Number of Leads Generated |
You need to look at your CPL for every marketing campaign separately if you want to know where your money is going and if it’s worth the investment.
Return on Ad Spend (ROAS)
If you’re driving conversions through paid traffic, you’ll need to know how much money you’re getting back for every dollar spent.
| ROAS = (Revenue from Ad Campaign / Cost of Ad Campaign) * 100 |
For SaaS companies, which have longer sales cycles and more touchpoints, it can be tough to quantify the value of each ad and track ROAS.
You’ll have to compare the cost of your paid traffic to your customer lifetime value, MQL:SQL ratio, and sales lead conversion rate — the probability of conversion and monthly revenue determines whether the cost is worth it.
SaaS Customer Success KPIs
Your customer success team creates an ongoing customer experience worth paying for. Although these KPIs are influenced by countless factors, customer success plays a huge role in improving them.
Focusing on KPIs tied to customer success means less revenue lost and lower costs to acquire customers.
Customer Retention Rate
Customer retention is five times less expensive than acquisition, and a 5% increase in retention can increase profitability by up to 95%.
Your retention rate also shows you whether your sales and marketing strategy are actually bringing in qualified leads, and if those leads are satisfied with your product.
Retention is always tied to the sales process, product, customer experience, or all three.
Customer Retention Rate = [(Number of customers at end of period – Number of new customers acquired during period) / Number of customers at start of period] * 100
For a SaaS business low retention means low customer satisfaction. And since they live off recurring revenue, it also means poor financial health.
Customer Churn Rate
Churn rate is similar to retention rate, but it’s a measure of customer loss.
Customer Churn Rate = (Number of Customers at Start of Period – Number of Customers at End of Period) / Number of Customers at Start of Period * 100
Your churn rate reveals how sticky your product is. If you’re getting new qualified leads but losing all your paying customers, you can’t scale.
Renewal Rate
Renewals increase customer lifetime value, improve customer retention rates, and reduce customer acquisition costs.
It’s easy to measure, too — all you need is the number of customers who renewed and those that didn’t.
Renewals aren’t the same as retention or churn. The customer success team can easily influence renewals by offering incentives and loyalty discounts (or by simply communicating).
Net Promoter Score (NPS)
Your net promoter score (NPS) measures customer satisfaction. When existing customers love your product, customer service, and the overall experience, you’ll have a higher NPS score.
To calculate your NPS score, follow these steps:
- Survey your customers and ask them how likely they are to recommend your company to others on a scale of 0-10.
- Categorize the responses into three groups:
- Promoters: Customers who give a rating of 9 or 10.
- Passives: Customers who give a rating of 7 or 8.
- Detractors: Customers who give a rating of 0-6.
- Calculate the percentage of respondents who are Promoters and Detractors. Ignore the Passives in this calculation.
- Subtract the percentage of Detractors from the percentage of Promoters.
The formula for NPS is:
| NPS = % Promoters – % Detractors |
The resulting score will range from -100 (if every customer is a Detractor) to +100 (if every customer is a Promoter). A positive NPS is generally considered good, and a score above 50 is considered excellent.
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