Software-as-a‑Service (SaaS) is an on‑demand software distribution model that has revolutionized the way businesses use software. Instead of buying, installing, and running their servers in‑house, companies can now choose to rent access to SaaS products over the internet without worrying about managing the underlying technology infrastructure.
This article introduces some of the most important SaaS metrics and discusses finding actionable insights from each. As many products like Buffer, Intercom.io, etc., have already made a great list of metrics, we wanted to make a list even more helpful and provide more valuable information on optimizing the performance of your product’s key SaaS metrics. But if you need even better understanding of you business, ServiceNow Power BI integration helps track personalized metrics, KPI, overall team performance in real-time by scheduling refreshes, and also visualize team contribution to the overall result.
What Is Software as a Service (SaaS)?
Software as a Service (SaaS) is also known as Application Service Provider (ASP). SaaS is a cloud computing model that provides applications or software to customers over the internet in the form of service available on any device.
Instead of buying software and installing it on their computers or servers, customers pay for access to the software applications in a SaaS model. This ease of access enables them to pay for only the functionality they need.
What Are the Key Benefits of SaaS-Based Services?
The benefits of SaaS are significant. Most importantly, time to market is reduced by not building and supporting a back-end infrastructure. In addition:
-SaaS-based services can scale more rapidly than on-premise services, which require investment in specific software and hardware systems that only allow a limited capacity. This is beneficial for startups or companies with limited budgets.
– You can update the software without significant disruptions or the need to wait for new versions or upgrades. This feature can also benefit businesses constantly trying to improve their software and process models. When these updates or upgrades are made, customers see them as soon as they start using the new version of the software, which can minimize time lost due to updating and upgrading their systems.
– SaaS provides easy access to a constant stream of data related to sales, performance, finances, etc. This data is easily accessible without installing additional software because it runs on the provider’s servers.
– The SaaS provider can provide a single login to all aspects of the customer’s business. This means that customers do not need to manage multiple logins for each service they leverage.
– Software as a Service (SaaS), by design, eliminates the need for maintenance and customizations. Customer service teams can focus on more valuable tasks such as product development and customer support without worrying about the software being in place, ready to be accessed by customers.
Common SaaS Product and Business Metrics
What are SaaS product metrics and SaaS business metrics? This article will look at the standard SaaS metrics and SaaS marketing metrics that all companies that use this software distribution model need to be aware of.
While many of these metrics are core to any business, some are specific to the SaaS model. Below we outline the types of product metrics that directly impact your bottom line, so you can start working on your growth strategy for your SaaS product and business.
Churn is the percentage of customers who stop using a product or service. Since SaaS companies typically provide access to their software over the internet, this metric is measured monthly.
2. Monthly recurring revenue (MRR) / annual recurring revenue (ARR)
MRR is the money generated from a company’s monthly subscription payment. You can calculate the amount paid for software or services over time by dividing the annual recurring revenue (ARR) by 12. MRR is an important KPI for SaaS companies.
3. Customer Engagement Score
Customer Engagement Score is the percentage of active users providing positive feedback through ratings and reviews. The metric does not consider the number of active users but instead looks at how engaged these users are within a given time frame. This metric can be used to measure customer satisfaction or loyalty.
4. Qualified Marketing Traffic (QMT)
QMT is any traffic, i.e., visitors that resulted in a sale, regardless of whether they converted. The metric considers the sales and marketing channels used to drive traffic to a website.
5. Leads by Lifecycle Stage
Leads by Lifecycle Stage is the number of leads in a given lifecycle stage, such as qualified and unqualified. Sales staff have reviewed qualified leads and only need to be called by customer service to become a closed deal. Unqualified leads must be worked on by sales or customer service before they can become closed deals.
6. Lead-to-Customer Rate
Lead-to-Customer Rate is the percentage of leads that become sales within a given period. This metric can measure a deal or customer’s lifetime value (LTV).
7. Release Security Metrics
This metric indicates the number of new features released and the percentage of defective ones. By using this data, businesses can better estimate how long it will take to put out a particular update or fix and what resources will be needed to complete the project.
8. Active Users / Lifetime
Active Users are the number of active users a company has at any given time. It can also be referred to as a “user base.”
9. Customer Lifetime Value
Customer Lifetime Value (LTV) is the amount of money a customer will spend with a company before churn. LTV is calculated by subtracting the cost of acquiring a customer from the revenue they generate over their lifetime.
10. Customer Acquisition Cost
Customer acquisition cost (CAC) is the money it took to acquire a customer; this includes marketing, sales, and advertising costs. CAC is calculated by taking the total marketing & sales cost divided by the number of customers acquired through those costs in a given time.
11. Months to Recover CAC
This is the time it takes to recover a company’s budget spent on customer acquisition. This metric measures how long it takes a company to bring in new customers after acquiring them through either marketing or sales channels. This can be calculated by taking the cost of acquiring a customer divided by the number of months it takes to recover that cost.
12. CAC: LTV Ratio
CAC: LTV is the Customer Acquisition Cost divided by the Customer Lifetime Value. This metric tells how long it will take to recover CAC using LTV. This is similar to how one might compare interest rates on mortgages or any other financial acquisition cost with a rate of return.
This metric tells how many people tried your product but ultimately decided not to use it.
Using SaaS metrics to make better growth decisions
SaaS metrics help measure and understand customers, keep up with the changes in their business, and improve customer experience.
SaaS metrics enable companies to determine the best fit for their needs when choosing SaaS tools, such as an internal-facing SaaS solution or an external-facing solution.
Developing a SaaS product
After you have set a goal and established what metrics to track, you will need to figure out how to collect meaningful metrics to help you reach that goal. Create SaaS application in five stages: opportunity identification, idea evaluation, development, testing, and launch.
The metrics listed in this article are just some of the available product quality metrics that you can use to measure the success of a SaaS business.
However, it is essential to note that many more metrics are specific to each SaaS tool. In addition, every metric needs to be tailored and customized according to the company’s needs and goals.