Efficiency is a natural prerequisite for doing business. Otherwise, you run the risk of squandering your company’s precious resources, and your sales and marketing teams’ hard work may go to waste. And on top of all that, you run the risk of continuing methods of attracting customers that simply aren’t working. For a SaaS business in particular, that can be a death sentence. Having the right key performance indicators (KPIs) in place, however, can change everything for the better.
Why KPIs Are So Important
Since you spend countless hours developing and marketing your product, it stands to reason that you would have metrics in place to assess the level at which your business is performing at its best, right? Yet, many companies -- SaaS and otherwise -- fail to put their industry-specific KPIs to work. These values are used to determine the effectiveness and, ultimately, the value in your ongoing business efforts, and they typically vary based on department, as KPIs are targeted to specific objectives.
Because its business model relies heavily on subscriptions and long-term relationships, SaaS metrics accordingly focus on lead development as well as the acquisition and retention of customers. Without these in place to guide your strategy, you’re bound to be left depending on uncertain guesswork to shape the direction your business takes going forward. Scary thought. This could lead to disastrous effects on your current customer base and prevent you from enticing prospective ones to give your product a fair chance.
Keep an Eye on These Metrics
Once you identify the best KPIs to incorporate into your SaaS business, you’ll need a real-time reporting tool to isolate opportunities for growth. Although there are countless KPIs that you could apply to your business, we’ll go over a few of the most prominent ones to give you a clearer picture of how they can boost the ROI of your SaaS business.
Customer churn and retention rates
These two complementary metrics keep track of how many customers cancel and renew their subscriptions, respectively. For a SaaS company, this is essentially tantamount to the bottom line. You need to know whether customers are sticking around or abandoning ship. This much should be clear, but you’d be surprised how often these figures don’t inspire the course correction they should.
Monthly Recurring Revenue (MRR)
Exactly what it sounds like, this measure examines the incoming revenue your company generates from subscriptions each month. While that total alone is worth tracking for comparison’s sake, you should also keep a close watch on committed monthly recurring revenue, which glimpses how your revenue will be affected if all sales and marketing would cease.
Customer lifetime value (CLTV)
Though this value -- which predicts the future net profit of an individual customer relationship -- is notoriously among the most nebulous ones out there, it can be cracked. CLTV can prove to be quite useful in assessing your company’s performance, especially when compared against key metrics that tie directly into customer acquisition and the average revenue generated per customer.
Cost per lead (CPL)
Specifically tailored to measuring how cost-effective your marketing efforts are, CPL assigns a dollar amount to each lead created. As such, it is the perfect way to determine if the methods your company uses to identify fresh leads, particularly online campaigns, are achieving the desired results. Likewise, cost per acquisition is another metric you can use to identify if your approach is paying off.
Rite of SaaS-age
Whether you’ve just started your SaaS business or have years of experience, it’s never a bad idea to re-calibrate the systems you have in place for performance management. Introducing or tweaking the above KPIs will enhance your understanding of your company’s mission and how well it’s being delivered to your prospects. Better yet, you will have identified any underlying SaaSHoles that might be holding your business back. No time like the present to ensure that your SaaS KPIs are ready to address them.