With the right SaaS metrics and processes in place, you have your hands on valuable insight to maintain profitable, long-lasting relationships with your customers.
Whether customer interactions are in person or remote, the viability of a business is still reliant on building these strong connections. Every Software as a Service (SaaS) company should be able to predict customer success to better manage revenue and profit. To demonstrate the return on investment (ROI) of your hard work, tracking and calculating SaaS metrics related to customer success is a must!
Why Track Software as a Service Metrics?
When businesses invest time and energy into tracking customer success and understanding what’s working and what’s falling short, it helps to grow your product and keeps your customers thriving.
SaaS companies run a unique business model that is much more customer-focused than more traditional business models. This means they need a unique set of metrics to make sure that their business is on track and growing in a sustainable way.
Calculating SaaS metrics and tracking them to figure out how well your users understand the full value of your product will help to answer some key questions. Are they happy with the way it works? Are they unaware of certain functionalities? Or are they just straight-up unsatisfied with the results they’ve had?
These insights can provide valuable information on how successful and satisfied your users are with your product, which can help steer your roadmap going forward and prevent churn down the line.
5 Key SaaS Metrics
Here are five SaaS metrics you should be focusing on to maximize value for your customers — and the formulas to calculate these metrics.
Customer Churn Rate
This SaaS metric refers to the number of customers a business lost within a given time period. It’s a metric the company as a whole should care about. Marketing, sales and service departments should assess the data from churned customers for noteworthy insights.
Customer Churn Rate = Churned Customers in Period / Total Customers at Start of Period
Customer Retention Cost
Customer retention cost helps determine how much you’re spending to retain a customer. Retention figures can be calculated using total purchases over a period mitigated by retention expenditures, churn, acquisition costs and general overhead. The good news is that the costs associated with repeat business are usually significantly lower.
Customer Retention Cost = Total Retention Cost for All Contracts Up for Renewal / Number of Contracts Up For Renewal
Net Promoter Score
This SaaS metric is the general health indicator for the business. It’s the percentage of customers rating their likelihood to recommend a company, product or service. Getting customers to advocate for the business and share their success stories drives down the customer acquisition cost and supercharges the business.
Net Promoter Score = (Total of Promoter Scores / Number of Respondents) – (Total of Detractor Scores / Number of Respondents)
Customer Lifetime Value
Customer lifetime value is the average amount of revenue a customer generates during their entire relationship with the company. It must account for customer acquisition costs, ongoing sales and marketing expenses, operating expenses and the cost required to manufacture the product and services the company is selling. This metric is a great way to assess customer profitability in knowing how much you should be spending on customer acquisition.
Customer Lifetime Value = Average Value of Sale × Number of Transactions × Retention Time Period × Profit Margin
Renewal rate measures the percentage of customers who renew at the end of the subscription period. A high renewal rate is indicative of customer success because it implies stable, recurring revenue from current customers. As a result, it allows you to focus more attention towards acquiring new customers.
Renewal Rate = (Dollar Value of Renewed Contracts + Growth) / Total Dollar Value of Contracts Up For Renewal
The world of SaaS is one of engagement and collaboration. You want customers to be able to confidently move through your system and interact with it in a successful way. Calculating SaaS metrics and tracking them over time is great for benchmarking and finding new ways to constantly improve.
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