Tracking growth metrics is essential for any business that wants to achieve long-term success. Growth metrics provide critical insights into the health of a business, and help identify areas that need improvement. By tracking the right metrics, a business can gain a better understanding of its customer base, its performance relative to its competitors, and its potential for future growth.
For SaaS companies in particular, tracking growth metrics is especially important. Since SaaS is a subscription-based model, it’s critical to monitor metrics that indicate the health of customer relationships and retention rates. Metrics such as customer lifetime value, churn rate, and monthly recurring revenue can provide insights into the financial health of a SaaS business, while metrics such as user acquisition cost, conversion rate, and customer engagement can help identify opportunities for growth.
9 Essential Growth Marketing Metrics
SaaS businesses require a unique set of growth marketing KPIs (key performance indicators) to effectively measure the success of their marketing efforts. Here are some of the most important growth marketing KPIs for SaaS businesses:
#1. Monthly Recurring Revenue (MRR)
MRR is a critical KPI for SaaS businesses, as it measures the total revenue generated from monthly subscriptions. By tracking MRR, businesses can understand the growth and performance of their subscription-based revenue streams.
#2. Customer Acquisition Cost (CAC)
CAC measures the cost of acquiring a new customer. By tracking CAC, businesses can determine the effectiveness of their marketing and sales efforts and make informed decisions about how to allocate resources. How to calculate CAC.
#3. Customer Acquisition Cost Payback Period
CAC payback period measures the time it takes for a business to recoup the cost of acquiring a new customer. This metric is important for SaaS businesses because it helps them understand the effectiveness of their marketing and sales efforts, and the sustainability of their customer acquisition costs. How to Calculate CAC Payback Period.
#4. Customer Lifetime Value (CLV):
CLV measures the total revenue a customer is expected to generate over the course of their relationship with the business. By understanding the CLV, businesses can make informed decisions about how much to spend on customer acquisition and retention. How to calculate Lifetime Value.
#5. Churn Rate
Churn rate measures the percentage of customers who cancel their subscription or stop using the product or service. By tracking churn rate, businesses can understand the factors that contribute to customer retention and make informed decisions about how to reduce churn. How to calculate Churn Rate.
#6. Conversion Rate
Conversion rate measures the percentage of website visitors or leads who become paying customers. By tracking conversion rate, businesses can optimize their marketing and sales funnels to improve the effectiveness of their conversion efforts.
#7. Active Users
Active users measures the number of users who are actively using the product or service. By tracking active users, businesses can understand the engagement and satisfaction of their customers.
#8. Net Promoter Score (NPS)
NPS measures the likelihood of customers to recommend the product or service to others. By tracking NPS, businesses can understand customer satisfaction and identify areas for improvement. How to calculate NPS.
#9. Return on Investment (ROI)
ROI measures the return on investment of marketing and sales efforts. By calculating ROI, businesses can understand the effectiveness of their spending and make data-driven decisions about where to allocate resources. How to calculate ROI.
Overall, these growth marketing KPIs can provide valuable insights into the performance and effectiveness of a SaaS business’s marketing and sales efforts. By tracking and analyzing these metrics, businesses can make informed decisions about how to optimize their growth marketing strategies and maximize revenue and profitability.
Useful Tools for Keeping Track of Growth Metrics for SaaS
There are several tools that are critical for analyzing SaaS growth. Here are some examples:
#1. Google Analytics
This is a web analytics tool that can track website traffic, user behavior, and conversion rates. It can also be used to monitor the effectiveness of marketing campaigns and user acquisition strategies.
#2. Mixpanel & Amplitude
Mixpanel and Amplitude are analytics tools that can be used to track user behavior within a SaaS product, including user engagement, retention, and conversion rates. They can also be used to monitor the effectiveness of product updates and features.
#3. SEMrush & Ahrefs
SEMrush and Ahrefs are marketing analytics tool that can be used to monitor the performance of SEO, PPC, and social media marketing campaigns. It can also provide insights into the competitive landscape and identify opportunities for growth.
#4. ChartMogul & Baremetrics
ChartMogul and Baremetrics These are revenue analytics tools that can be used to track subscription revenue, churn rates, and customer lifetime value. They can also provide insights into the effectiveness of pricing strategies and customer acquisition channels.
#5. Looker & Tableau
Looker and Tableau are business intelligence and data analytics platforms that can be used to analyze and visualize data from various sources, including databases, APIs, and other analytics tools. They can help SaaS businesses gain a deeper understanding of their users, products, and market, and make data-driven decisions to drive growth.
By using these and other tools, SaaS businesses can monitor their growth and identify opportunities for optimization and improvement. The insights provided by these tools can help startups make data-driven decisions and increase their chances of success.
Growth Metric Calculations
How to Calculate CAC
To calculate Customer Acquisition Cost (CAC), you need to divide the total cost of acquiring customers (including all marketing and sales expenses) by the number of customers acquired during a specific period. Here’s the formula:
- CAC = (Total cost of sales and marketing) / Number of new customers acquired
For example, if a SaaS business spends $10,000 on sales and marketing in a month, and acquires 100 new customers during that same month, then the CAC for that month would be $100:
- CAC = $10,000 / 100 = $100
It’s important to note that to accurately calculate CAC, you need to include all costs associated with acquiring new customers, such as marketing and advertising spend, sales team salaries, commissions, and any other relevant expenses. This will give you a comprehensive understanding of the cost of acquiring a new customer and help you make informed decisions about your customer acquisition strategies.
How to Calculate CAC Payback Period
To calculate the CAC payback period, you need to divide the total cost of acquiring new customers (CAC) by the average monthly recurring revenue (MRR) generated by those customers. Here’s the formula:
- CAC Payback Period = CAC / (Average Monthly Recurring Revenue per Customer)
For example, let’s say that a SaaS business has a CAC of $10,000, and the average MRR per customer is $100. To calculate the CAC payback period, you would use the following formula:
- CAC Payback Period = $10,000 / $100 = 100 months
This means that it would take 100 months, or just over 8 years, for the business to recoup the cost of acquiring its customers.
It’s important to note that the CAC payback period is just one of many metrics that SaaS businesses use to measure the effectiveness of their customer acquisition efforts. While a shorter payback period is generally preferable, it’s important to balance this with other growth marketing KPIs like customer lifetime value, churn rate, and monthly recurring revenue to get a complete picture of your business’s financial health.
How to Calculate Customer Lifetime Value
To calculate Customer Lifetime Value (CLV) for a SaaS business, you need to determine the total amount of revenue a customer will generate over their entire lifetime as a customer of your business. Here’s the formula:
- CLV = (Average Monthly Recurring Revenue per Customer * Gross Margin %) / Churn Rate %
Here’s what each of these variables means:
- Average Monthly Recurring Revenue per Customer: This is the average amount of revenue you can expect to receive from a customer on a monthly basis.
- Gross Margin %: This is the percentage of revenue you retain after deducting the direct costs of delivering your product or service.
- Churn Rate %: This is the percentage of customers who stop using your product or service over a given period of time.
For example, let’s say that a SaaS business has an average monthly recurring revenue per customer of $100, a gross margin of 80%, and a monthly churn rate of 5%. To calculate the CLV for this business, you would use the following formula:
- CLV = ($100 * 0.80) / 0.05 = $1,600
This means that the average customer of this business will generate $1,600 in revenue over their entire lifetime as a customer. Knowing the CLV of your customers is important for making strategic decisions around customer acquisition, retention, and product development. By optimizing for a higher CLV, businesses can increase their revenue, profitability, and overall success.
How to Calculate Churn Rate
To calculate churn rate, you need to determine the percentage of customers who stop using your product or service over a given period of time. Here’s the formula:
- Churn Rate = Number of Customers Lost During a Given Time Period / Total Number of Customers at the Beginning of the Time Period
For example, let’s say that a SaaS business starts the month with 1,000 customers, and by the end of the month, 50 customers have canceled their subscription. To calculate the churn rate for that month, you would use the following formula:
- Churn Rate = 50 / 1000 = 5%
This means that the business had a churn rate of 5% for that month.
It’s important to note that churn rate is a critical metric for SaaS businesses to track, as it directly impacts customer lifetime value (CLV) and overall revenue. High churn rates indicate that a business may be struggling to retain its customers, which can lead to decreased revenue and a lower CLV. By tracking churn rate over time, businesses can identify areas for improvement and take action to retain customers, such as improving product features, customer service, or marketing and sales strategies.
How to Calculate NPS
To calculate Net Promoter Score (NPS), you need to conduct a survey that asks customers to rate how likely they are to recommend your product or service to a friend or colleague. Here are the steps to calculate NPS:
- Send a survey to your customers that asks the following question: “On a scale of 0 to 10, how likely are you to recommend our product/service to a friend or colleague?”
- Once you receive responses, categorize them into three groups based on the score they gave:
- Promoters (score 9-10): These are customers who are highly likely to recommend your product or service to others.
- Passives (score 7-8): These are customers who are somewhat satisfied with your product or service, but may not actively recommend it to others.
- Detractors (score 0-6): These are customers who are unlikely to recommend your product or service and may have negative feelings about it.
- Promoters (score 9-10): These are customers who are highly likely to recommend your product or service to others.
- Calculate the percentage of responses in each group. For example, if you received 100 responses and 30 were promoters, 50 were passives, and 20 were detractors, your percentages would be:
- Promoters: 30%
- Passives: 50%
- Detractors: 20%
- Promoters: 30%
- Calculate the NPS by subtracting the percentage of detractors from the percentage of promoters. In the example above, the NPS would be:
- NPS = 30% – 20% = 10
This means that your NPS is 10, which is considered a low score. NPS scores can range from -100 to 100, with a score above 0 being considered positive and a score above 50 being considered excellent.
How to Calculate ROI
Calculating ROI (Return on Investment) for a SaaS business requires two pieces of information: the net profit and the total investment. Here is the formula to calculate ROI:
- ROI = (Net Profit / Total Investment) x 100
To calculate net profit, subtract the total costs (including marketing, sales, development, hosting, etc.) from the total revenue generated from the SaaS product.
To calculate the total investment, add up all the costs associated with the product development and launch, including salaries, development, marketing and advertising, hosting and infrastructure, and other operational expenses.
Once you have calculated both net profit and total investment, you can use the above formula to calculate the ROI. The resulting number will be a percentage that shows the return on investment for the SaaS product.
It’s important to note that ROI is a critical metric for SaaS businesses as it helps measure the effectiveness of the investment made in developing and launching the product. By tracking ROI over time, businesses can identify areas for improvement and take action to optimize their investment to increase their return.