It may come as a surprise to you, but many start-ups are not prioritizing the tracking of key performance indicators in a way that provides useful insights. Measurable SaaS product metrics need to be looked at if you are to achieve product success.
In this article, we are going to look at some of the most useful metrics, to help you ensure your product will achieve the success you are hoping it would.
Customer Acquisition Cost
The customer acquisition cost, or CAC as it’s called, is a metric that identifies how much money you are spending on acquiring new customers. When you are still early on in your growth, this is a very helpful metric, since it helps you ascertain whether you are operating efficiently.
To get as accurate of a CAC as possible, you first need to total up everything involving sales and marketing. This includes things like salaries and bonuses, as well as rent, vehicles, and more. Then, you have to divide that sum by how many customers who have attained within a defined period of time.
On average, it costs $1.32 to acquire just $1 in recurring revenue annually for new customers. This leads to the necessity to understand how to upsell existing customers, given how high the cost of acquiring new customers is.
However, the overall cost of acquisition can drop when you factor in upsells to existing customers. When that’s the case, the average drops to $0.71.
This metric is essential to your understanding of how valuable a customer needs to be, if you are to turn a profit. Thanks to knowing the CAC, you can figure out how much time it will take before you reach the breakeven point with a customer.
Monthly Recurring Revenue
Your monthly recurring revenue, or MRR, may very well tell you more about the health of your business than any other out there. This is why it’s considered the “holy grail” of all SaaS-related metrics. Simply put, this measures how much revenue your business has generated in a month, every month.
The MRR can be split up into more specific SaaS product metrics, such as ones related to new business, expansion, churn, and total MRR. However, it’s generally considered to only related to revenues received from the selling of software subscriptions and licenses.
There are other revenues that may also occur, but it’s advised that they are reported separately. This helps avoid any confusion later on.
Understanding churn is essential for every SaaS product manager to understand. Churn is when users stop using your product. The churn rate looks at the percentage of users who have either canceled or decided not to renew their recurring subscriptions.
Overall, SaaS businesses that make less than $10 million annually usually see a 20% churn rate. This leads to an average annual revenue loss of 5% due to churn.
When you notice a high churn rate, you will soon see it impact your MRR. From a user perspective, it may indicate that people are dissatisfied with your product enough to stop using it.
You can also get more specific with regards to churn. Taking MRR, you can figure out how much monthly recurring revenue you are missing out on due to churn.
Also, you can isolate churn down to one type of account, such as a premium subscription, to identify the percentage of customers who are churning.
As the name suggests, the lifetime value, or LTV, is the estimated amount of revenue a particular customer will generate over the entire time they use your product. It is no easy task accurately calculating the LTV. There are many variables at play, and nobody can accurately predict the future.
The LTV is especially helpful when your business is considering moving in a new direction. Depending on what LTV model you use, you can find out how much your customer acquisition cost will be, what the effects are when you lose users, and how product changes will affect revenue from a particular user.
You can measure the overall health of a product by looking at the LTV. When this metric increases, it suggests your business is performing well. Customers are satisfied and will continue generating revenue for you.
Do you know how many users are actively using your product? It could give you several indicators and act as a barometer of your product’s health. In a way, you could also consider this a business metric, which means it shows how much you are expanding into the market.
Overall, when you know how many active users you have on a daily, weekly, and monthly basis, you understand exactly how many people use your product.
You will have to determine whether it makes the most sense for your product to look at daily, weekly, or monthly users. Also, you can dive deeper into the active users metric by identifying how much acitivity that specific features within a product are getting.
These are the most useful measurable SaaS Product metrics. Each one of them will provide you with helpful insights and value that can identify issues when they are still manageable, as well as determine what is successful. These metrics work together, providing you with a well-rounded understanding of the health of your products. 22
They will help you with making any decisions concerning any shifts in the direction you head and whether to place more emphasis and advertising dollars towards a particular product or subscription tier. Measurable product metrics are essential in the world of SaaS, where data is king.
Anshi has over 12 years of experience in demand generation, digital marketing, and managing global teams. In her prior role as head of marketing operations for a high growth US healthcare tech organization she transformed marketing from cost to revenue center.
Published May 26, 2020, Updated May 31, 2022