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Nov 4, 2015

5 Metrics You Need for Your Saas Business

Learn what metrics matter most for your Saas solution!
So, you’ve got a business going! Yay! :) You’ve got your product, you’re growing steadily, and now it’s time to really understand what is going on in your company.
Let’s go through the first five metrics you should be actively monitoring, what each of them mean, and the basic calculations for each one.

Monthly Recurring Revenue (MRR)


Monthly recurring revenue only contains the revenue you expect to continue into the next month. What's excluded are bookings (customers' intent to pay before you've provided the service), and one-time services. 

The first question you’re probably asking is, why isn’t revenue enough? Short answer, even though one-time services are great, they often don’t speak to the sustainability of a company. 

Services can become harder and harder to provide as your company grows. While additional customers don’t strain infrastructure very much, providing consulting services (for example) does. So, just as investors are more interested in MRR than in regular monthly revenue, you should be too! 

Customer Acquisition Cost (CAC)



As you grow, you will undoubtedly need to spend money to get your name out there. The world is crowded and that means word of mouth will never be enough. You need to know how much a customer costs and then analyze how that relates to what you will make from them. 

It's important to differentiate between the paid and blended calculation of this metric. Paid is [Total Acquisition Expenditure/Number of New Customers from Paid Marketing]. Blended is the same thing but it includes the new customers acquired from organic growth as well. 

Both can be useful, but Paid CAC will give you a better perspective on the success of your campaigns. 

Churn



OK, this one is important so pay attention! This is how many customers are leaving, well, it’s how fast something is leaving, at least! There are a lot of different types of churn. The two you should focus on is MRR (we just learned what that is) churn, and user churn. 

The most basic calculation for it is [Amount of something you lost in the month]/[The amount of that something you had at the beginning of the month]. 

A few weeks back we made a very detailed post all about Churn and Stripe. Open a new tab with this link to check it out!

Lifetime Value (LTV)


The purpose of the LTV is to answer the following question: “Ok, I’ve got a customer. How much profit will I get from him/her?”
There are three things you need to figure out before you calculate the LTV of your customer. First, you need the average revenue you can expect from the customer. Next, what are the expenses associated with supporting this customer? Finally, your churn rate, which we discussed just a second ago. 
Put the first two points together and you come up with the net profit you can expect from the customer. Multiply that by 1/[monthly churn] and you have the LTV. Makes sense right?
Lifetime Value of a customer = [Net monthly profit you can expect from the customer] * [How long you can expect to keep the customer around]

Engagement

The ‘final’ metric you need to be tracking is engagement. Now, this might seem a little obvious, but it’s important to differentiate between sign ups and engagement. It’s not enough to know how many people signed up for your solution, you need to know if they are going to stick around. 
Now, there's no set way to calculate engagement, mostly because it will look completely different from company to company. So you need to determine which metric will show that users are truly using your solution.
For example, for Slemma, we could do number of dashboards created. But, if someone has already set up their dashboards and they are just using them for monitoring, we might not consider this user to be engaged. Even though they are checking their dashboards daily! So for us, sessions is a good way to measure engagement. 
Sessions can then be supplemented by as many other activities as we want to get a refined picture on how users are using our product. 

Takeaways

These metrics are designed to give you a starting place on how to monitor your business. We encourage you to track as many metrics as you can; but, these will help to establish a quick overview of your business. 
If you would like to learn more about proper KPI monitoring, feel free to drop us a line! You can use the chat inside your Slemma account or email us at help@slemma.com. Don’t forget to subscribe to our newsletter or follow us on social media to get our blog updates!

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