The SaaS Industry has claimed a significant stake in the modern business arena. Its transformative role has attracted big investors and many players in the industry. As the software demand soars, the fight for a share in the industry has intensified.
That said, it’s more challenging to land big-ticket sales, sustain clients, and grow revenue year after year. It’s upon business owners to assess and improve the existing campaigns for better results.
So, which SaaS metrics should you track in your business?
1.Customer Churn Rate
Churn rate is the proportion of subscribers or customers who exit the sales funnel and join a competitor. Some of the reasons customers exit include better packages, affordable prices, customer service, aggressive marketing, or dissatisfaction.
It’s normal to have a small percentage of subscribers leave for the competition. However, a business should be concerned when the rate is above 10%. It results in unstable revenue and the need for a large marketing budget.
Fact: An unmanaged churn rate can lead to the eventual death of a company.
To that end, business owners should strive to have negative attrition — minimal churn rate — in the sales books.
Here are few suggestions to work with
- A Better Product Uptake: Find ways for your customers to buy more from you. It can be through add-ons, value plans, lifetime access, or product bundling. As a result, the business will gain considerable revenue, which overshadows the attrition rate.
- Prioritize Customer Retention: It’s expensive to acquire a new client as compared to maintaining one. As such, get in touch with previous customers, find ways to improve value, and find innovative ways to increase usage.
If your churn rate is 6%, ensure the remaining 94% of customers take up more than 6% of extra product. The result will be a negative churn rate which is key to the long-term prospects of your business.
2. Monthly Recurring Revenue
Monthly Recurring Revenue(MRR) is the amount of income a business expects to receive during a given month. The amount is a product of the total number of customers and the average revenue per user.
But why should you keep track of MRR?
- Monthly revenue is the lifeblood of the firm.
- Assists to focus on the present and plan about the coming months of the business.
- Tracking MRR is crucial in meeting current obligations, targets and securing long-term deals.
That said, it’s essential to keep tabs on the following metrics monthly.
- New MRR: A tally of additional revenue brought by new customers each month.
- Churn MRR: It’s the revenue lost when a current customer cancels a subscription or downgrades a plan.
- Expansion MRR: This is the additional revenue that a business gains when a customer upgrades to a higher-priced plan.
3. Customer Lifetime Value
Customer Lifetime Value (CLV) is the amount of money a customer is likely to spend on your products in their lifetime. If you’re planning to invest in long-term projects like product development, this metric is crucial.
Here’s how to calculate Customer Lifetime Value in two steps
- Step 1- Calculate Customer Lifetime: If the monthly churn rate is 5%, Customer Lifetime is 1/0.05 = 20. If the annual rate is 20%, then Customer Lifetime will be 1/0.2= five years.
- Step 2 – Find Lifetime Value: Multiply customer lifetime with the average MRR per account. If the MRR is $200 and the lifespan is 20 months, the Customer Lifetime Value is $4,000.
Some of the benefits of CLV to your business include:
- Understand which products have the best profitability
- Creates a basis for profiling customers based on revenue
- Know the most profitable products
- Get insights on where to invest for similar or better results.
Ultimately, an organization can utilize CLV to position itself strategically to grow its sales.
4. Customer Conversion Rate
Customer conversion rate is also referred to as lead-to-customer conversion rate. It measures the effectiveness of a business in converting leads to customers. The interpretation of conversion rate may differ based on the user’s objective.
Example: At the end of the trial period, the business owner must assess the success rate. If the initial campaign yields a 3% conversion rate, the sales department should find a new strategy to improve the rate.
So, what’s the importance of the conversation rate to businesses?
- Track web pages and application performance
- Assessing different campaigns in a website
- Investigate how customers are responding to different products
You can use conversation rate information to optimize the sales funnel, reduce progression hurdles, and improve the product.
Due to the competitive nature of the SaaS Industry, players must continuously assess its strategies to improve. Some of the crucial SaaS metrics to consider include churn rate, monthly revenue rate, and conversion rate.
A business can use data from these SaaS metrics as an objective basis to improve its sales or revenue. If, for instance, a business has a low conversion rate, it must devise ways to improve — e.g., a better landing page, an enticing product offer, or a new marketing campaign.