When you’re in the thick of things and under pressure from shareholders and investors, it’s very easy to try and prove yourself and your business by showcasing and tracking your performance across multiple metrics.
But before you know it and snowed under by all that data, your time can quickly disappear in a never-ending cycle of tracking and measurement.
As a founder in scale-up, it’s crucial to know which SaaS marketing metrics that matter to your business. Which metrics are indicative of rising or stagnating performance, and what do your investors really care about?
Below, we have outlined those metrics that pretty much every SaaS business needs to analyze and monitor.
1. Monthly Recurring Revenue (MRR)
Monthly Recurring Revenue is the crucial metric for all subscription businesses, enabling you to track renewals, new sales, upsells, and churn. It does what it says on the tin and is a measure of the recurring revenue elements of your business, typically excluding variable and one-off fees.
At its foundational level, MRR is calculated by totaling the monthly fees paid by all of your customers SUM(Paying customers monthly fee). Still, as you start to scale, you need to understand the changes that occurred in your MRR over previous months. Broadly, these changes can be caused, positively or negatively, by three factors:
- Churned MRR. The amount of MMR lost from cancellation or downgrades by customers (negative)
- New MRR. A number of new clients you have signed (positive)
- Expansion MRR. Additional recurring revenue from your existing customers in the form of upgrades to plans or regular add-ons (positive)
While the huge focus is placed quite rightly on new MRR and reducing churn, it’s important to remember that its overlooked neighbor, expansion revenue, can often provide the easiest income to attain and, in the early days, can reduce the impact caused by churn.
2. Customer Acquisition Costs (CAC)
This is a metric that all businesses need to know. Your CAC allows you to measure how much it costs you to acquire your new customers and how long it will take for your company to recoup this investment.
It’s like a tap to your revenues. Knowing how much it costs to acquire your new customers will allow you to switch your faucet on and off.
As we all know, clients never gear up as quickly as we want them to, so typically, and for CAC purposes, new revenue from marketing and sales endeavors isn’t recognized until 3 – 4 months after the onboarding process.
3. Customer Lifetime Value (CLTV)
As the name suggests, this metric looks at the value of your customer over their entire lifespan with you.
There is always a careful balancing act to be achieved in that your CLTV has to exceed your CAC.
If your CLTV is high in comparison to your CAC, you have the room to scale, potentially without additional funding. The reverse is true, though, when your CLTV/CAC is comparable or low. Either too much is being spent on acquiring customers, and their revenue is not justifying the cost of their acquisition. Further capital will probably be needed while you increase CLTV and reduce CAC.
It’s important to remember that in scale-up, you don’t want to be resting on your laurels with your CLTV. It would be best if you built in those up-sells and cross-sells to ensure that your CLTV is constantly increasing across your client base. New releases, new products, or a move to your premium plan will all help to increase LTV and, in turn, MRR.
Customers come and go, wooed by your competitors or the lure of something that promises the ultimate in revenue deliverance.
While it’s easy to focus on the holy grail of new business, you’ve paid your dues (and your sales and marketing budget) to acquire your existing customers, so you want to keep them – and for as long as possible.
Your churn rate measures how many customers you lose over a year, although ideally, you want to be tracking this on a monthly basis without being obsessional. Scale-up requires that you reduce your churn rate to a minimum while keeping the pressure on new client acquisition.
Further detail on the key metrics necessary for SaaS companies to scale-up can be found in The Complete Guide to Marketing Your SaaS Business.
While contemplating those specific metrics, there are a couple of other areas that should reside at the back of your mind.
Don’t get fixated.
Of course, these metrics are vital as a bellwether for your business, but your business is unique. Yes, there may be other comparable companies, but they won’t be similar across every single element, so don’t get hung up on benchmarks, industry averages, or spin. Much better to establish your own metric Bible based on your actual figures, and center your business growth based on that data.
Hype n’ Snipe
No matter what anyone says, business is cut-throat. When money’s on the table, behaviors change. That’s just a reality. Don’t succumb to the hype of your near neighbors. Everyone has to paint their picture, no matter the truth. Similarly, don’t fall prey to overblown revenue figures or metric stats.
Your success won’t necessarily please everyone, so believe in and create your reality based on your data, not what someone else tells you they’re achieving.
Organic v Paid Growth
When starting on your road to growth, paid media provides a welcome boost. Subscribers, prospects for nurturing, and clients can all be gained. However, organic growth cannot – must not – be forgotten. Inbound leads can provide both a short-term increase in charges and, when your inbound processes are bedded in, can deliver a surge in visitors, leads, and clients.
The sooner you begin to put your inbound engine in place, providing value-led content to your audience to inform and educate and then distributing across relevant channels, by far the better.
Marketing will always be a blend of inbound and outbound. While traditional practices are dying, they haven’t disappeared completely. But the emphasis today, for SaaS companies in scale-up, is most certainly on organic, natural, inbound growth.
When all’s said and done, there’s one metric that always speaks the truth – and that’s your bank balance.
SaaS businesses take significant capital and, more often than not, investment. Very few companies are built overnight, and many change direction to meet their target audience’s true needs.
All of that takes cash.
While it’s very tempting to acquire all the trappings of success in the early days – the office, the team, the PA, ask yourself, are they really necessary?
Your bank account is often the true measure of your growth. Are you overspending on any of your key areas? What return on investment are you seeking and seeing on your marketing and sales teams? Do you even have a means of measuring these?
Cash is an accurate reflection of the state of play and, ultimately, will help to determine your growth rate.
SaaS is a complex business, but must be mastered. Don’t over-complicate to begin with. Start small and simple, and as your business scales up, then scale your metrics to meet your growth.
Incisive Edge is a full-service marketing agency specializing in inbound marketing for tech companies.