Analyzing growth metrics is an incredibly useful way to understand how well your business is performing, and maintain that momentum or quickly change course. After all, it’s hard to improve something you aren’t measuring.
That said, not every fact or figure is worth tracking, especially when you’re busy scaling your business. We’ve created this article to help SaaS founders focus on mission-critical growth metrics to track in 2021 and beyond.
16 SaaS Growth Metrics To Pay Attention to in 2021
These growth metrics give you a deeper insight into your operations and signal opportunities to generate new revenue. We’ll break down what each metric measures, how to calculate it, and why it’s vital for growing your business. Let’s dive in.
1. Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC) measures how much money you need to spend in order to acquire one new customer.
How To Calculate It
There are two factors to take into consideration when calculating CAC: the cost of generating a lead and the cost of converting the lead to a customer. Since marketing spend usually leads to multiple customer acquisitions, the easiest way to calculate this metric is to total your marketing expenditure in a given period and divide it by the number of customer acquisitions.
For example, if you spent $10,000 on marketing in a calendar month and you acquired 50 new customers, then the CAC for that month would be $200.
Why It’s Important
CAC is an important SaaS growth metric because it shows you how many customers you can realistically gain in a given period of time and how fast you can scale. Furthermore, pairing CAC with Customer Lifetime Value (LTV or CLV) to calculate your company’s LTV:CAC ratio helps you determine if you’re building a profitable business.
2. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue (MRR) measures the revenue you receive from your customers on a monthly basis. MRR can be separated into new MRR which is gained from new customers, or expansion MRR, which is additional MRR from existing customers who buy add-ons, upgrade their account, add users, and more. In comparison, churn MRR is the revenue you lose due to cancellations.
How To Calculate It
Calculating MRR is simple. Add up all of the recurring revenue from your active customers for the month. If your SaaS company offers different plan lengths or discounts, you may need to calculate. You may also need to take late payments into consideration as well.
For churned MRR, simply calculate the revenue lost due to the total number of customer cancellations that month.
Why It’s Important
MRR allows you to track how much profit your business is generating from your product or service and forecast future monthly revenue. Depending on your business type, it may be normal to see swings in MRR based on the season.
3. Annual Recurring Revenue (ARR)
Annual Recurring Revenue (ARR) is the annualized calculation of your MRR. It predicts how much revenue your SaaS company generates annually based on your MRR.
How To Calculate It
To find ARR, all you need to do is multiply your MRR by 12.
Why It’s Important
ARR can give you a revenue forecast for the rest of the year. While it’s not the most accurate metric for most SaaS companies — which largely offer month-to-month subscription models — it can be combined with other metrics such as your customer churn rate to give you a better representation of business health.
4. Churn Rate
Broadly speaking, churn rate measures loss over a specific period, and there are two main types of churn: revenue churn and customer churn. First, revenue churn is the percentage of lost revenue for a period. Monthly churn (also known as the MRR churn rate) is the revenue lost due to subscription cancellations or downgrades on a monthly basis, while ARR churn rate represents those losses on a yearly basis.
Customer churn rate specifically deals with the percentage of customers lost and is more widely used by SaaS businesses. For a SaaS business, this might not necessarily result in lost profit, especially if you count trial subscriptions as active customers.
How To Calculate It
To find revenue churn, divide your MRR lost to downgrades and cancellations in a given period by your MRR at the start of that period, then multiply by 100.
To find customer churn, divide the number of customers that churned in the past month by the total number of active customers at the start of the month, then multiply by 100. For instance, if you lost 475 customers in the past month and there were 10,000 active customers at the beginning of the month, your churn rate would be 4.75%. (As a general benchmark, a good churn rate is considered to be 3% or less.)
Why It’s Important
Since a SaaS business depends on long-term subscribers, knowing what your churn rate is, evaluating it regularly, and keeping it as low as possible should be a top priority. A high churn rate could point to poor product-market fit, a confusing onboarding process, an underequipped customer success team, and more.
5. Customer Retention Rate
Customer retention rate is a reverse metric of customer churn rate. It measures the percentage of customers your SaaS business retains over a given period. It takes into account the existing number of customers you have and compares it to the number of customers from a previous period.
How To Calculate It
Divide the number of active users over a period by the number of total active users in the previous period, then multiply by 100. For example, if you had 11,000 active users in a given month and 11,500 active users in the previous month, then your customer retention rate would be 95.65%.
Why It’s Important
The more existing customers you hold onto, the fewer resources you have to invest in attracting and winning new customers. Keeping this metric as high as possible will yield more revenue and prove out your scalability.
6. Customer Lifetime Value (LTV or CLV)
Customer Lifetime Value (CLV or LTV for Lifetime Value) is a way to measure the amount of revenue you’ll earn from the average customer before they churn.
How To Calculate It
To find LTV, divide your average monthly MRR per customer by your customer churn rate.
For example, if your average MRR per customer is $100 and the customer churn rate is 5%, then the calculation would be $1000 divided by 0.05, which equates to a LTV of $2,000.
Why It’s Important
SaaS founders depend on the LTV:CAC ratio to understand whether their customers are spending more than it costs to acquire them. For Saas businesses, a good benchmark for LTV:CAC ratio is 3:1. To put that into numbers, if your average CAC is $200, then you should aim to make at least $600 from them before they leave.
Some levers you can pull to improve your LTV:CAC ratio include adjusting your pricing, using upselling tactics, and lowering your churn time.
7. Average Revenue Per Account (ARPA)
Average Revenue Per Account (ARPA) or Average Revenue Per User (ARPU) measures the average amount of revenue you can expect from each of your active customers on a monthly basis.
To calculate ARPA, it’s important to know how many active paying customers (subscribers, contracts, etc) you have on a month-to-month basis. “Paying” is the keyword here because ARPA is a measure of revenue, and free users don’t contribute to what you earn on a monthly basis.
How To Calculate It
Divide your total monthly MRR by the number of active customers you have. For example, if your MRR is $200,000 and you have 1,000 active customers, your ARPA will be $200.
Why It’s Important
Similar to LTV, ARPA is a handy metric because it shows how your monthly revenue is split among your customer base and ways you can scale. For example, if your ARPA is $50, it may be easier to grow than with an ARPA of $10. However, if your churn rate is high, a significant chunk of your monthly revenue goes with it.
This metric is also a healthy reminder that you don’t need a larger customer base in order to grow a SaaS business. If you retain customers and increase your ARPA, you increase your MRR and grow.
8. Conversion Rate
Conversion Rate (often known as customer conversion rate or lead conversion rate) measures the rate at which your leads become new customers.
How To Calculate It
Calculating your conversion rate is done by dividing the total number of conversions (new customers) by the number of leads, then multiplying by 100. For example, if you had 100 new customers from a total of 1,000 leads, then the lead conversion rate would be 10%.
Why It’s Important
Conversion rate helps you understand how efficient your sales pipeline and marketing efforts are at turning leads into paying customers. Optimizing your conversion rate — and specifically your sales process, marketing funnel, and customer journey — is a crucial part of scaling any business.
9. Win Rate
Win rate is often confused with conversion rates. Whereas conversion rates measure the number of new customers gained compared to the same number of leads in a given period, win rate specifically measures the number of won deals against lost deals.
How To Calculate It
Win rate requires you to track the number of opened deals and the number of closed deals that your account executives can secure. Simply divide the number of closed deals by the total deals opened, then multiply by 100.
For example, if there were 50 deals opened in a month and 25 of them closed successfully, then the win rate for that month would be 50%.
Why It’s Important
Win rate is typically used to calculate how efficient your SaaS sales team is at securing new contracts. This can be important for certain SaaS companies that are more focused on securing large contracts or upping their CLV.
10. Growth Rate
Your growth rate is a simple metric to measure the improvement in your revenue metrics over time.
How To Calculate It
Calculating your growth rate requires you to first calculate the MRR or ARR of one period and the previous period. Subtract the revenue earned from the previous period to the current one, then divide that total by the revenue earned from the previous period. Multiply this by 100 to get the growth rate.
For example, if your MRR was $50,000 in July and $45,000 in June, then you would subtract $45,000 from $50,000 to get $5,000. Then divide $5,000 by $45,000 and multiply by 100. Your growth rate in this example between June and July would be 11%.
Why It’s Important
Sustaining a healthy growth rate is ideal because it shows that your SaaS startup or company is performing well and maintaining growth. Not only is this valuable internally, but it’s also crucial for attracting and retaining investors.
11. Total Revenue
Simply put, total revenue is a metric that measures all of the revenue that your business has generated in a period before expenses are taken into consideration. It’s also known as gross revenue.
How To Calculate It
Total revenue can be calculated in different ways depending on the business model of your SaaS company and how your finances are handled. In most cases, revenue should be tracked with accounting software that’s integrated with your other business management tools.
Why It’s Important
Total revenue is a great way to see exactly how much money your SaaS company generated in a given period. It’s a key variable in many other formulas that require the exact amount of revenue earned within a period.
12. Net Promoter Score (NPS)
Net Promoter Score (NPS) is a survey and metric used to quantify how happy your customers are with your product or service. Specifically, it aims to understand whether they’ll promote your business to others.
How To Calculate It
The most basic NPS surveys focus on a single question: “How likely are you to recommend our product or service to a friend or colleague?” Customers use a 0-10 scale to rate their likelihood:
- Promoters (rating of 9-10) are considered loyal customers who are likely to recommend your product or service and leave positive reviews.
- Passives (rating 7-8) are satisfied but likely won’t take the time to spread the word about your product or service.
- Detractors (rating 0-6) are considered to be dissatisfied with your product or service and may leave negative reviews that damage your company’s reputation.
You’ll calculate your NPS by subtracting the percentage of detractors from the total percentage of promoters. For example, if 60% would promote your product and 20% were detractors, then your NPS would be 40.
Why It’s Important
NPS can be used on a near-daily basis to get feedback on the decisions your SaaS company makes and the quality of service that you’re offering to customers. It gives you a general idea of how satisfied your customers are.
13. LTV:CAC Ratio
LTV:CAC Ratio is a metric that helps determine the profitability and scalability of your business. It compares the costs of acquiring a new customer to how much revenue they provide your business before they cancel their subscription.
How To Calculate It
Once you have measured the CAC and LTV separately, you can simply compare the two values from the same period and calculate the ratio by dividing both by the highest common factor. For example, if your CAC is $100 and the LTV is $400, the highest common factor between both is 100. This means the CAC-to-LTV ratio is 1:4.
Why It’s Important
Since a SaaS company thrives on retaining long-term customers, it’s helpful to compare the costs of acquiring new customers and how much revenue they provide before they leave.
14. Lead Velocity Rate (LVR)
Lead Velocity Rate (LVR) gives SaaS businesses a better understanding of their month-to-month growth in lead generation. (Note that lead velocity rate is different from sales velocity.)
How To Calculate It
Subtract the number of qualified leads in the previous month by the number of qualified leads this month. Then divide that total by the number of qualified leads last month. Multiply by 100 to find the percentage.
For example, if there were 400 qualified leads last month and 450 qualified leads this month, you would divide 50 by 400 and multiply by 100, giving you 12.5%
Why It’s Important
LVR is a great way to get a general idea of how many leads you can expect to see in the next month, allowing you to predict future sales and get a rough idea of what you can expect in terms of your business’s long-term growth.
15. Quick Ratio
Also known as SaaS quick ratio, this is used to compare your revenue growth with your revenue shrinkage.
How To Calculate It
Quick ratio requires you to calculate four separate metrics first:
- MRR
- Expansion MRR
- Churned MRR
- Contraction MRR
First, total your MRR and expansion MRR, then total the churned MRR and contraction MRR. Divide the total positive MRR with the total churned MRR to find your company’s quick ratio.
Why It’s Important
Quick ratio gives you a quick look at the overall health of your company. There are many factors to consider when it comes to how that revenue is generated or being lost, but the SaaS quick ratio is a fast and easy way to understand which direction your revenue is headed.
16. Active Users
Active Users is a metric that shows how many users your SaaS company is currently serving. You can calculate Monthly Active Users (MAU), Weekly Active Users (WAU), or Daily Active Users (DAU). It’s also important to know that Active Users is different from Active Paying Users because free trial members are often included in Active Users.
How To Calculate It
Active Users is typically calculated with usage reports and statistics tracked by your SaaS company’s proprietary software. However, if these metrics aren’t available or compiled by your SaaS startup right now, then you can try other Active User calculation methods. For instance, you can track the number of unique logins and downloads or the number of actions taken by a user.
Why It’s Important
Active users is an important metric that is used in multiple calculations, such as your customer churn rate and retention rate. It’s a measure of stickiness, or the number of customers who are dedicated, repeat users and are likely to stick around to support your business in the long run.
The 3 Most Important SaaS Growth Metrics
There are many different SaaS growth metrics that are worth keeping an eye on — we’ve covered 16 so far. But if your team has the resources to track, analyze, and act upon just a handful of data, we recommend the following three SaaS metrics.
- Average Sale Price (or Average Deal Size): How much does your business earn from its average account, subscription, or contract? Every business needs to know its Average Sales Price inside and out, breaking it down by relevant segments like business size, territory, and more. It’s a key factor in setting sales and marketing goals and calculating a variety of other metrics.
- Customer Retention: Are you holding onto your existing customers each year? How long does the average customer stay with your business? Maintaining a high retention rate is essential for steady business growth.
- Value Retention: Are you protecting your revenue dollars year over year? After accounting for internal and external changes, such as new feature rollouts, market shifts, or personnel losses, you need to maintain as much value as possible.
It’s also important that you align these metrics with your compensation plans for account executives and sales leaders. You can also build in perks and bonuses for revenue producers to promote over-performance and keep your sales and marketing teams motivated.
SaaS Growth Metrics That Aren’t Worth Tracking
Some metrics and key performance indicators (KPIs) simply won’t yield valuable insights for a SaaS organization and/or should be taken with a grain of salt.
- Number of dials or meetings: This type of metric may help you analyze your conversion rate and similar metrics, but otherwise, it shouldn’t be a standalone metric to measure performance. A sales rep can go from making 100 to 150 phone calls every day and spend more sweat equity, but that doesn’t mean they’re netting high-quality leads that will grow the business.
- Certain year-over-year (YOY) or quarter-over-quarter (QOQ) metrics: Extrapolating metrics from months’ worth of data can lead to unrealistic expectations and inaccurate figures. Be sure to take seasonality and other variable factors into account for the best results.
- Certain month-to-month metrics: Although many SaaS businesses are built on monthly subscription models, these short-term metrics can still be misleading. When possible, pull back and wait to look at longer data trends.
Conclusion
There are plenty of helpful metrics that SaaS sales and marketing teams should monitor for maximum growth and revenue gains. But if you solely focus on average sale price, customer retention, and value retention, you’ll still be on solid ground.
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