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7 SaaS KPIs You Need to Track in 2017

7 SaaS KPIs You Need to Track in 2017

The
software-as-a-service (SaaS) industry has experienced
exponential growth over the past several years and shows no
signs of decline. Even the poorest segment is projected to see
a compound annual growth rate of 19.7 percent through 2019. And
by 2020, it’s projected that SaaS deployment will be more than
25 percent greater than traditional software deployment.

SaaS is going nowhere soon. However, with
rapid growth comes the potential of market saturation. In order
to stand out, SaaS vendors need to be smart about their
marketing strategies. In fact, the inability to market products
was cited as a cause for 14 percent of startup failures in a
recent survey.

While you may be familiar with the concept of key performance
indicators (KPIs), there are a number of unique aspects to
consider when marketing your SaaS product:

1) Qualified Marketing Traffic

You already know the importance of website traffic. Reporting
on unique visitors and traffic per channel should already be
part of your reporting routine; however, as a SaaS company,
it’s important to dive a bit deeper. Most SaaS websites have a
log-in link on the site, usually in the top navigation.
Providing a cloud-based solution, customers need to log in,
which means they need to revisit your website. As your app
users increase, so will your overall traffic. This can yield
false data, ultimately showing higher traffic growth due to
marketing initiatives, which may not be the case.

It’s important to track these returning customers
independently, as they can skew your traffic numbers. As a
marketer, it is important to track what percentage of visitors
are already customers and which are qualified marketing
traffic. Being able to differentiate between these two groups
will allow you to set actionable traffic KPIs and build a solid
traffic-generation plan.

There are a number of ways to identify this traffic as
returning customers. One way to do so is to use event tracking
to count each time a visitor reaches a log-in screen or clicks
the link in the navigation. Another way is to use in-app
analytics to identify log-ins and usage per month as well.
Being able to separate these two data points will allow you to
accurately track traffic growth each month, with a keen eye on
qualified marketing visitors, as opposed to returning
customers.

2) Leads by Lifecycle Stage

Anyone who’s been in the marketing or sales game for any amount
of time knows the importance of leads. A basic lead is a
prospect who’s starting to do his or her research. However,
breaking leads into subcategories outlines exactly where they
are in the buying process.

Marketing qualified lead (MQL): A prospect who
has taken additional research steps, such as downloading ebooks
and returning to your website.

Sales qualified lead (SQL): A prospect who has
moved beyond the initial research phase, is most likely
evaluating vendors, and is worth a direct sales follow-up.

The sales process for SaaS products can range anywhere from a
few days to close to a year. Having a firm grasp on your lead
qualification definitions (lead, MQL, SQL, etc.) will help
identify if and where leads might be getting stuck in the
funnel. As much of the research is done by the prospect, it is
often up to him or her to take the next step and request a demo
or a free trial. Because of this, marketers should measure
leads not only as an overall metric, but also monthly per
lifecycle stage. Doing so can yield great insight into
lead-nurturing opportunities and even guide sales follow-ups
appropriately.

3) Lead-to-Customer Rate

Driving customers is your ultimate goal, right? Consider the
importance of lead-to-customer rates.

This metric shows exactly how well you’re generating
sales-ready leads—and improving over time. It outlines, on
average, how many leads turn into paying customers. In other
words, it shows whether your sales process and lead-nurturing
methods are working or not.

Lead-to-customer rate is easy to calculate. Take your total
number of customers for any given month, divide it by the total
number of leads, and multiply that number by 100. For example,
five customers in a month with 500 leads would result in a 1
percent lead-to-customer rate.

The most streamlined way to gather these data is by
implementing closed-loop reporting. By integrating your
customer relationship management software with HubSpot, each
time a deal is won, that contact is marked as a customer within
your HubSpot reports. Having a clear view of how different
customers close will provide unique data into which campaigns
were most successful and into common behavior across all
customers. This too will help shape new marketing campaigns
throughout the year.

4) Churn

If driving customers is your ultimate goal, then maintaining
your existing ones is equally important.

Churn measures how much business you’ve lost within a certain
time period. It is one of the most important metrics in
tracking the day-to-day vitality of your business. And while
churn is certainly a reality, tracking it can save your
business from complete disaster.

Churn can help you better understand customer retention by
specific insight on activity. Generally, companies report churn
in terms of customers or revenue. No matter how you track it,
it’s best to refine by dates and compare time periods.

As most SaaS businesses are based on annual subscriptions,
keeping customers is as important as acquiring new ones. When
tracking churn on a monthly or quarterly basis, be sure to dig
deeper than just the revenue numbers or customer count.
Identify the personas of these churned customers as well as the
industries or anything else unique that can help shed some
light on why they failed to renew. It can be prudent to discuss
this information across departments, including sales,
marketing, and customer success.

5) Customer Lifetime Value (CLV)

Customer lifetime value (CLV) is the average amount of money
that your customers pay during their engagement with your
company. The metric provides businesses with an accurate
portrayal of their growth and can be explained in three steps:

Find your customer lifetime rate by dividing the number 1 by
your customer churn rate. For example, if your monthly churn
rate is 1 percent, your customer lifetime rate would be 100
(1/0.01 = 100).

Find your average revenue per account (ARPA) by dividing total
revenue by total number of customers. If your revenue was
$100,000, divide it by 100 customers and your ARPA would be
$1,000 ($100,000/100 = $1,000).

Finally, find your CLV by multiplying customer lifetime by
ARPA. In this example, your CLV would be $100,000 ($1,000 x 100
= $100,000).

CLV shows what your average customer is worth. And for those
still in the startup mode, it can display the value of your
company to investors. As mentioned prior, most SaaS businesses
operate with subscription-based models. Each renewal yields
another year of recurring revenue, ultimately increasing the
lifetime value per customer.

6) Customer Acquisition Cost (CAC)

Customer acquisition cost (CAC) shows exactly how much it costs
to acquire new customers and how much value they bring to your
business. When combined with CLV, this metric helps companies
guarantee that their business model is viable.

To calculate CAC, divide your total sales and marketing spend
(including personnel) by the total number of new customers you
add during a given time. For example, if you spend $100,000
over a month, and you added 100 new customers, your CAC would
be $1,000.

Customer acquisition should be a primary focus for new
companies. Fully quantified CAC rates help companies manage
their growth and accurately gauge the value of their
acquisition process.

7) CLV-to-CAC Ratio

CLV-to-CAC shows the lifetime value of your customers and the
total amount you spend to acquire them—in a single metric. This
metric displays the health of your marketing program, so you
can invest in programs that are working well or change
campaigns that aren’t.

Finding your CLV-to-CAC is easy; simply compare your CLV and
CAC. Generally, a healthy business should have a CLV that is at
least three times greater than its CAC. Any lower (say, a 1:1
ratio) and you’re spending too much money. Any higher (a 5:1
ratio) and you’re spending too little and probably missing out
on business.

Conclusion

As you can see, there are a number of nuances to consider when
reporting on key marketing and sales data for SaaS-based
organizations. Obviously, these metrics can be applied across
all industries and company types and should be monitored on a
regular basis. It’s important to start off 2017 on the right
foot by putting in place necessary reports and setting
benchmarks for each. Start by looking into 2016’s data to see a
baseline to which you can measure against, and as we wrap up Q1
2017, see how this past quarter stacks up to past years.