Scaling a Software as a Service (SaaS) company is a difficult task. Many young SaaS companies struggle to reach predictable revenue growth and even fewer reach truly reliable profitability.
To run a successful SaaS business, you can’t just expect to offer your software through a monthly subscription and watch the success follow. Every successful SaaS company goes through a thoughtful, data-driven driven decision making process to continually optimize their sales operations and maximize profitability.
The software business has changed rapidly over the last decade. In previous years, software companies would make most of their money up front through large fees. The sales cycle was still a long one, but the time to reach profitability on each individual customer was typically instantaneous.
Modern SaaS companies rely on smaller recurring transactions to generate revenue. This makes stability harder to come by because you need to attract a consistent stream of high-quality leads and find ways to increase your lead volume as time goes on to experience consistent growth. Additionally, SaaS companies have to expend a great amount of energy to retain those customers after the initial payment to maximize revenue from each individual customer.
This requires optimization in all aspects of your business including your marketing, sales teams, and daily operations. You have to find ways to make your business more efficient across the board. Tracking, measuring, and optimizing for a variety of KPIs and metrics can help you to identify gaps in your strategy and areas for improvement. Having an adept sales team can often mean the difference between mediocrity and exciting growth.
In this article, we’ll be deep-diving into the most relevant sales metrics for SaaS companies. No matter how “viral” your SaaS business becomes, you need to flesh out a foundation that you can depend on in efficient sales processes that lead to reliable revenue. To do that, you’ll need to define what metrics are important to your success, and use that data to help you acquire not just new customers — but the right kind of new customers.
SaaS Sales Metrics to Track
As the SaaS industry has grown, so too have the metrics and methods used to track success. There are dozens of different metrics that you can use to optimize your sales processes, each bringing its own unique benefits.
Here we’ll cover the most important sales metrics for SaaS companies to track. These will provide a foundation that allows you to analyze and optimize your sales operations and improve revenue over time.
Let’s dive into the most important and relevant SaaS sales metrics that your company should be tracking.
Monthly Recurring Revenue (MRR)
The foundational big-picture metric for SaaS sales success. Monthly and annual recurring revenue is a straightforward metric that helps to provide insight into the overall performance of your company as a whole. All SaaS companies track it to give themselves a top-down view of their companies growth and success. MRR includes all recurring revenues and does not include one-time sales.
MRR is so critical because ultimately all decisions that you make regarding your sales operations affect your MRR in some way. Your baseline goal for a decision might be to increase the number of marketing qualified leads (MQL), conversions, upsells, or any other sales consideration — but ultimately it all flows back into your MRR. When your MRR is growing, the company is growing. When it is shrinking, the company is shrinking.
MRR measures the predictable revenue stream that your SaaS company is able to generate through subscriptions and additional services. But it is important not to put too much stock into MRR and what it says about your business. It’s a useful metric. But it is only a view of that specific moment in time. Evaluating your sales performance using only MRR is not likely to produce the best results.
For SaaS companies that have a long onboarding time before a subscription starts, a practice that is common in enterprise software models, you may also want to account for committed MRR (CMRR) as well. CMRR includes revenues that have been agreed to, but have not yet had their first payments made.
Revenue Churn and MRR Churn Rate
Sales MRR churn measures the erosion of your MRR due to customers canceling their service (customer churn) or downgrading to a smaller plan. Keeping a close eye on your revenue churn is important for maintaining growth.
Revenue and MRR churn at directly connected to multiple facets of your business including product and customer success but also play a key role in sales. If your sales team is not closing quality customers that fit your ideal profile, you’re more likely to experience churn and may need to make alterations in your lead pipeline.
To calculate MRR churn, you can use the following formula:
MRR Churn = lost MRR from downgrades + lost MRR from customer churn
While some churn is to be expected, over 70 percent of SaaS companies have an annual churn rate lower than 10 percent. Ideally, SaaS companies should aim to reduce their MRR churn rate to less than 5 percent annually, but these figures are highly dependent on your product and industry.
Churn metrics are excellent for evaluating your customer retention and lead generation efforts, but it also provides insight into how your sales teams have set expectations for your customers. It’s also important to remember that MRR churn and customer churn can provide very different results. If you have a single customer cancel their account, but that customer made up 25 percent of your total MRR — your customer churn rate will be very low while your MRR churn will be high. It’s all about context.
Customer Acquisition Cost (CAC)
Customer Acquisition Cost is designed to tell you how much your SaaS company spends to acquire each new customer. It can provide insight into both your marketing and sales operations and help you identify areas for improvement. For most SaaS companies, the costs of acquiring a new customer can be boiled down to two unique factors.
>First, the costs of generating a new lead. This is directly connected to your marketing costs. Second, the costs of having your marketing and sales teams convert that lead into a new customer. Your marketing teams play a role in this as they use marketing materials to nurture a lead through the SaaS sales funnel. Your sales teams also play a big role in this as they are responsible for closing the sale and touching base with the customer toward the end of the nurturing process.
The simplest way to calculate CAC is to take your total sales and marketing costs over a given time period and divide that by the total number of new customers.
Customer Acquisition Cost is one of the most important SaaS sales metrics because it directly affects how much you can afford to spend to acquire each new customer. If you offer trial plans for free, it is important that you calculate the acquisition cost of those customers separately than through your paid channels.
CAC Payback Period
Image from Profitwell
Using CAC as a basis, you can take the metric a step farther to better understand your position. CAC Payback Period measures when a customer actually becomes profitable for your business. CAC Payback Period measures how long a customer will have to be a subscriber before their membership becomes profitable for your company.
For instance, if you spend $40 to acquire a customer on a $10 per month subscription plan, it will take 4 months before you break even on that customer, giving them a CAC Payback Period of 4 months. The formula for calculating the CAC Payback Period is simple. You just divide the cost of acquiring the customer by the monthly revenue they bring in to figure out how many months it will take until your company breaks even on their acquisition.
Average Revenue Per Account (ARPA)
Average Revenue Per Account (ARPA) measures how much revenue is brought in by your average customer on a monthly basis. Tracking these changes can be helpful for evaluating a few different facets of your business including how well your sales teams are closing new customers on higher paying plans and how well your customer success teams are upselling existing customers.
Calculating ARPA is simple. You just divide your MRR by the number of active accounts that you currently have. This gives you the average revenue generated by each individual account.
Many SaaS companies choose to track ARPA for new and older accounts on a separate basis.This can help you to compare how changes that you have made are affecting the average revenue of each customer and identify how much impact your changes are having.
Lifetime Value (LTV)
Customer Lifetime Value (LTV) measures the total amount of revenue that a single customer will generate over the lifetime of their engagement with your company. For SaaS companies, this number reflects the life of their subscription and all secondary services or products that they purchase.
LTV provides clear insight into how much each individual customer is contributing to your revenue. It also sheds light on how much you can spend to acquire them, making LTV a great metric to pair with CAC. In isolation, both metrics are less helpful than when they are paired together. You can measure LTV of segments and buyer personas to help you identify the most profitable customers to target and evaluate where you currently spend your marketing dollars.
Calculating LTV is simple and can be done using ARPA and customer churn rate:
For many SaaS companies, LTV is a foundational metric. It provides clear insight into how much you can expect each customer to generate and is used to inform marketing, sales, and retention decisions.
Customer Retention Cost (CRC)
How much does it cost your company to retain customers? Once a lead becomes a customer, your focus as a company shifts toward helping them to use your software effectively and retaining them as a customer in the long term. While this metric does fall a bit outside of the “SaaS sales metrics” category because it includes costs from customer success and support efforts, it does play a direct role in your CAC Payback Period and LTV of your customers.
CRC can also influence the sales strategies that you employ. Companies that have to invest heavily in retaining customers may want to look into changing their nurturing and sales practices to ensure that new customers are properly vetted and positioned for success with your software.
CRC includes all tools, materials, and staff time that your company uses to ensure that your customers stay on board. You can help to reduce CRC with thoughtful product design, developing educational content that would ordinarily be handled by a customer success rep, and conveying clear expectations to your customers when they convert.
Remember, you calculate CRC using the total number of customers that you have retained through your efforts, not your complete customer base. You can calculate CRC using the following formula:
Average Selling Price (ASP)
While ARPA examines the average revenue that a customer brings in on a monthly basis, Average Selling Price (ASP) evaluates the initial cost that a customer pays at the time of conversion. For most SaaS companies, this number will be directly tied to the price of your plans. Some are able to creep this number up by offering other professional services, add-ons, or making an effort to upsell customers to higher plans.
Having an understanding of your ASP is critical for evaluating the effectiveness of your sales teams. Your ASP also plays a direct role in your Customer Acquisition Cost. Companies that make an effort to get customers spending more at the point of conversion can keep a close eye on ASP when evaluating individual sales reps.
The sales model you employ for your SaaS start, whether transactional, self-service, or enterprise, will play a direct role in your ASP. Companies that have a higher ASP (such as in enterprise sales), will have a higher viability for high-touch sales strategies. Companies with a low ASP may be forced to opt for self-service and other similar sales models.
Win Rate offers the most straightforward way to evaluate the efficiency of your sales teams. How often are your sales reps closing the deals that they have in front of them? Win Rate examines the number of deals won as a percentage of the total possible deals. It is sometimes represented as a dollar value of those deals, but the standard Win Rate formula represents it as a percentage value.
A high Win Rate is indicative of an effective sales team that is closing deals. It is also indicative of high lead quality. Many SaaS companies will evaluate their Win Rate by segment, comparing it to other metrics like LTV to determine the most profitable markets and segments for their business.
Lead Velocity Rate (LVR)
Lead Velocity Rate is critical for projecting future sales for your SaaS companies. Too many companies get stuck using current metrics to assess the stability of their SaaS business without projecting into the future at all.
Lead Velocity Rate is also sometimes known as Lead Momentum or Qualified Lead Growth. It’s a clean and effective way to measure the growth of your monthly lead generation and therefore the number of opportunities that your sales teams are working with. By pairing this metric with Win Rate, you can project future sales.
Lead Velocity Rate is represented as a growth percentage. You can calculate Lead Velocity Rate by subtracting your number of leads from the latest month (t), from the previous month (t—1), and then dividing that by the previous month’s leads and multiplying by 100. Here is the formula:
LVR is a great metric for projecting the future of your sales and marketing efforts and assessing recent changes in your strategies.
SaaS Sales Metrics Help With Evaluation
Any SaaS owner that stays up to date has seen the explosion in data-backed strategies in the industry in recent years. There are dozens of different metrics that a SaaS company can use to evaluate their strategies and project the future of their company. The metrics covered in this article will provide you with a good foundation for evaluating your sales efforts and growing your revenue with thoughtful, data-backed strategies.