Software as a service (SaaS) business models allow licensing and delivery of software upon subscription. These ‘on-demand software’ have become more popular with the incorporation of advanced technology in various aspects of a business.
If you’re running a SaaS setup or are planning to establish one, your focus will be to increase subscriptions. Higher subscriptions improve revenue and work as a marketing tool.
A few metrics can help you keep track of sales, revenue generated and business growth. We present you five KPIs that can offer a comprehensive view of its current performance.
1. Monthly Recurring Revenue (MNR)
SaaS business models depend on small monthly revenue instead of upfront software amount. You want to make sure it’s recurring. This is why you should track the amount that is being added (or lost) every month rather than just the amount collected.
Even if you had record-breaking sales in a month, the important question to ask is if it will be there tomorrow. Dive into your finances, pull out the numbers, and start tracking!
2. Customer Acquisition Cost (CAC)
Customers come via marketing—which is expensive. You should track the data to see if your initiatives are working. Record monthly marketing and sales expenses, and divide the cost by total number of acquisitions.
Notice a negative trend? Change your marketing tactics. Track individual campaigns and see which ones are bringing in more customers. You may need detailed customer analytics to proceed.
Spend more on the methods that are generating revenue and discontinue ones that aren’t.
3. Churn rate
You want to establish a sustainable business—one that retains customers and continues to earn revenue. Churn rate helps you determine the number of customers leaving every month.
Double digit churn rates indicate a problem. There may be something wrong with your product. To fix the issue, take customers’ feedback.
Ask previous customers why they left; ask the current ones if they would like to see an added feature. Note down every detail and implement the changes.
4. Average Revenue per Account (ARPA)
If your marketing is working well and the churn rate is under control, start focusing on revenue.
Up-sells, cross-sells and yearly subscriptions can help you earn more. Offer more resources or capabilities with up-sells, provide an added feature through cross-sells and offer annual plans for reduced price.
Check your average revenue per order and see which tactic you can adopt for higher revenue per sale.
5. Total revenues
The total revenue amount will offer an insight on how well your product(s) is performing. It’s easy to track—you need all your sales receipts in one place.
The revenue generated depends on the pricing and vice versa. You may want to offer discounts to see if it increases sales and generates more revenue.
If you’re wondering how to track all these metrics together, we have a simple solution for you. Here’s a ready-to-use SaaS metrics template by Adnia Solutions. It includes these five and several other metrics on the KPI dashboard in Excel.