KPI Focus: Know Your SaaS Company’s Key Performance Indicators

Cloud Capable Devices

What are the most important metrics for SaaS? Here are 5 big ones, one of which is churn. After looking over the metrics, we will review a simple way to reduce churn.

  • Key Performance Indicators
  • Monthly Recurring Revenue
  • Churn
  • Cost per Acquisition
  • Mean Revenue per Customer
  • Lifetime Value
  • Reducing Churn with Speed

Key Performance Indicators

What are the key performance indicators for your company? In other words, what metrics do you most need to watch to figure out the best direction and how you might need to change?

There is a lot of overkill with metrics. Data is helpful, but it quickly makes a situation chaotic and even more difficult to understand if you’re trying to focus on dozens of metrics at once.

As a basic rule of thumb, it’s a good idea to eliminate the amount of metrics you track simultaneously to 10, according to KISSmetrics market analyst Lars Lofgren. Otherwise, you can end up in the classic situation of “not being able to see the forest for the trees.”

“When you’re tracking dozens of metrics at once, it’s nearly impossible to focus on the most important trends and act on them,” says Lofgren. “There’s just too much going on. So help yourself focus, by limiting what you track from the beginning.”

Different businesses will need to look at different metrics, but Lofgren provide a strong perspective specific to software as a service (SaaS) businesses because that’s exactly what his company does. Regardless of that direct relevance to what you do, the broad lesson here is to carefully select five metrics that together can truly serve as fundamental Key Performance Indicators.

Here are the five metrics that have been of most use to KISSmetrics:

  1. Monthly Recurring Revenue

Anyone launching a software-as-a-service company knows that you have to create your app and pour funds into marketing it. Only then can you actually start collecting revenue. The challenge is that once you are getting income, it’s for a small monthly fee rather than all at once. Over time, your startup will potentially be fine – provided that you stay solvent.

KISSmetrics has found that monthly recurring revenue truly belongs within the top five KPI because, as opposed to the flat figure of monthly revenue, it tells you specifically how much the monthly repeat revenue is rising or falling.

This number is actually the most pivotal one, Lofgren explains. “[I]t’s the most important number you should be tracking if you have a SaaS business,” says Lofgren, “and it will serve as your primary benchmark for progress.”

  1. Churn

Sure, it helps to know what monthly recurring revenue is like, but you also need to know that your customers aren’t fleeing. Churn lets you know if you need better retention strategies by giving you the percentage of customers that stop using your service monthly.

You should be concerned if you have a churn rate that is 10% or more. If you do, you need to improve the product. Ask your customers why they are leaving, and survey potential customers so you can better understand their needs.

  1. Cost per Acquisition

You also want to figure out how to use your marketing budget as wisely as possible. The most straightforward way to do that is to figure out the cost per acquisition related to each individual campaign.

Obviously it’s necessary that your figures are accurate, which requires customer analytics, explains Lofgren. “Regular web analytics won’t show you where customers originally came from, only were they came from most recently,” he says. “And when a customer makes multiple purchases over time, there’s no way to know.” Customer analytics allow you to understand customer behavior more comprehensively.

  1. Mean Revenue per Customer

What is the mean or average amount that you make on each one of your customers? You obviously want to get that number up as high as you can.

One of the standard way to do that is with up-selling and cross-selling. You can also get more people on annual plans rather than monthly ones, boosting revenue because customers are paying ahead.

If you can successfully expand this average number, you can increase revenue substantially without having to add a huge amount of new customers. A related metric that is important for e-commerce companies is mean revenue per order.

  1. Lifetime Value

Now by looking at the mean revenue in relationship to churn, it’s possible to determine the lifetime value of your typical customer.

Determining lifetime value can get complex. The easiest way for you to do it in a software-as-a-service business is by simply multiplying the average length of subscription by the monthly average revenue per customer. If you want to refine that metric, also include the costs of supporting and acquiring customers.

Reducing Churn with Speed

Key Performance Indicators give you a sense of how well your business is performing on the market. The fact is that your business will perform well on the market largely because of how well your systems perform. That’s going to be evident in your churn rate, whether you can detect it or not.

“How fast your website typically loads will negatively impact your churn rate if it’s slow,” says tech entrepreneur John Rampton. “If it takes longer than a second or two to load, I’m going to ditch your app for another one.”

At Superb Internet, we use distributed storage in conjunction with Infiniband networking technology, and we never oversell. Those decisions allow us to typically deliver 4 times better performance than AWS cloud instances with similar specs.

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By Kent Roberts

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