So your SaaS company is doing really well, hey?
Are you 100% sure about that, or is that just your gut feeling?
We get it: numbers are hard. When you search online for SaaS financial metrics and other common KPI’s, it seems like there are hundreds of different calculations you have to do to figure out whether your Software business is actually doing well or not.
Wait, you didn’t think you actually had to do these calculations manually, did you?
Well thankfully, you don’t. That’s why we have computers.
The only thing you need to do is figure out which calculations to focus on.
And that’s what we are covering today: which SaaS metrics are the most important for accurate reporting.
Let’s get straight into it.
Why is SaaS Reporting Important?
SaaS reporting uses specific metrics to measure the revenue growth rate of a SaaS company, which is arguably the most important metric for determining its success.
We know that SaaS businesses provide customers with a service by using software, which is typically accessible to the customer through a subscription. The software itself isn’t a physical product that the customer holds in their hands, rather it’s typically something that is downloaded online. The SaaS business is the one that created the software and maintains it over time through servers, updates, and IT.
But ignoring important metrics means that you’re also ignoring long-term revenue growth for your SaaS company—or lack thereof.
You don’t want to wake up one day and realize that the company is hemorrhaging money because you haven’t recovered the investment you made to acquire customers fast enough, or you’ve unintentionally ignored signs that things were going downhill because you weren’t looking at the numbers.
SaaS companies grow fast, but the real way you can evaluate where your company is at in terms of growth is to compare it to similarly-sized companies.
The chart below shows the average and median growth for companies in SaaS Capital’s survey of over 1,400 private B2B SaaS companies. According to SaaS Capital, common SaaS statistics show that a growth rate of 80% for a $3 million business is below average, while a SaaS growth rate of 80% for a $20 million business is twice the average.
From this chart, we can see that the growth rates of companies tend to decline as the revenue increases. While it’s a simple metric, this would be an important consideration if you wanted to determine, let’s say, why revenue growth isn’t as lucrative as it used to be.
In short, reporting helps keep your SaaS business on a growth train and ensures you know where you stand at every stop along the way.
Metrics in Saas Reporting are relatively static throughout the industry. Some of these metrics might go by slightly different names, or some SaaS companies might measure specific metrics that they’ve determined are important for their company.
In general, though, you can expect to see the following metrics in a typical SaaS report:
SaaS Financial Metrics
MRR (Monthly Recurring Revenue) refers to the amount of revenue your SaaS company can expect to generate each month.
MRR is calculated by taking your total number of customers and multiplying it by the average billed amount.
MRR helps you evaluate your company’s overall success. If your MRR increases over time, your company is growing. If MRR is shrinking, then your company could be in trouble. The MRR metric is especially important for subscription-based SaaS companies, as MRR trends tend to compound over time, whether that be in an upward or downward direction.
Different types of MRR calculations:
Type of MRR
What it measures
The level of monthly revenue generated by new customers
The recurring revenue of your current customers
Revenue lost because of cancellations or downgrades
Net New MRR
Lets you know the amount of MRR that you are losing or gaining (calculated using the three MRR types listed above—New MRR + Expansion MRR - Churn MRR = Net New MRR)
Revenue churn rate, on the other hand, focuses specifically on the revenue lost over a given period. It’s measured by taking your Churn MRR and dividing it by your total MRR for a specific period.
ARR (Annual Recurring Revenue) refers to the amount of revenue your SaaS company can expect to generate each year.
To calculate ARR, you need to multiply the number of monthly subscribers by the average revenue per customer (ARPU), which is a metric we explain in more detail below.
Cohort Analysis SaaS
SaaS Cohort analysis allows you to target problematic points in the customer lifecycle. Instead of focusing on high-level metrics like customer churn rate or conversion rate, cohort analysis offers a more actionable way to view data.
A Cohort is just a grouping of customers based on a specific set of criteria. For example, you could group customers that signed up in the same month together.
Let’s say you do so and find out that the customer churn rate is up by a certain percentage for that month. Now that you know the churn rate is up, you have to figure out an actionable way to reduce it.
With cohort analysis SaaS, you might see that the churn rate is highest in the first month of a customer’s life cycle. That’s a more actionable statistic because now you know you need to figure out why customers are leaving in their first month in order to reduce the churn rate.
SaaS Sales Metrics
Using SaaS sales metrics in your reporting is extremely important to not only help your salespeople know how their efforts are impacting the business, but also to help you understand your customers better.
Customer Churn Rate and Revenue Churn Rate
On the surface, it might look like these two metrics measure the same thing. After all, the amount of customers you lose translates directly to the amount of revenue lost, right?
Well, not exactly.
Here’s how it’s measured:
- Find your total number of subscribers at the beginning of a period. This metric is usually calculated on a monthly basis, so 30 days would be a good period to go with.
- Subtract your total number of subscribers at the beginning of a period with the total number of subscribers at the end of that period.
- Divide the number you get in step 2 by the total number of subscribers at the beginning of the period.
Another SaaS sales metric that is important to measure is ARPU (Average Revenue Per Customer, or Average Revenue Per User). ARPU measures how much money a company can expect to get per customer or user. This metric is important to know for salespeople especially since it gives them an idea of their customer’s spending habits.
To calculate ARPU, take your MRR and divide it by the number of active customers.
SaaS Conversion Rates
When it comes to key SaaS metrics, conversion rates are everything. Conversion rates give you insight into how well your website is optimized to convince people to buy. It can be used to give you a better understanding of the efficacy of your product or service, and how much value it provides to your target audience. It can even help you determine your ideal SaaS pricing.
Let’s take a look at a few key SaaS conversion rate measurements.
Base conversion rate
Your SaaS conversion rate can typically be found by using a tool like Google Analytics, but you can also calculate it manually if required.
At a high level, your SaaS conversion rate can be calculated by taking the total number of website visitors divided by the total number of conversions. For example, if your website has 500 visitors a month and 125 sales, then the conversion rate would be 4%.
So now you have your base conversion rate.
But of course, there are several ways to measure your SaaS conversion rate that can give you a better idea of what’s actually happening with buyers on your website.
Lead to Sale Conversion Rate
How it typically works is that the SaaS marketing department is responsible for obtaining leads. They do this through advertising, lead fill forms on your website(s), social media, organic search, content marketing, and more.
When those leads are obtained by marketing, they are filtered through to the sales team. Usually, there’s an automated process for qualifying and assigning leads to specific salespeople through a CRM like Salesforce or other systems.
Once the sales team obtains leads, you’ll want to measure how effective they are at converting those leads into paying customers. Enter Lead to Sale Conversion Rate.
A simple way to calculate Lead to Sale Conversion Rate is to take the total number of new customers for a given period and divide that number by your total number of leads for that same period.
That calculation should look like this:
You probably also want to know where your best leads are coming from. That’s why it’s important to track the source of your leads using a tool like Google Analytics and/or Semrush or Ahrefs.
These tools allow you to track the source of your leads, so you know if they are coming from organic search, advertising, or social media, for example.
Once you have the numbers behind your leads, you can use the same Lead to Sale Conversion Rate calculation above to determine where your best leads are coming from.
Of course, there are automated tools out there that can keep track of all this data for you so you don’t have to manually calculate everything. Most sales CRMs like Salesforce can keep track of these calculations, but you can also use standalone tools like Ruler Analytics.
Typical SaaS Customer Lifecycle
Customer Lifetime Value (CLV)
Customer lifetime value estimates how much money a customer will generate for your business over the entire time they will be with your business.
This is how CLV is calculated:
Calculating CLV is important because it paints a picture of the value of a customer throughout the entire SaaS customer lifecycle. In addition, it helps you understand how much money is worth spending to acquire a new customer for things like marketing campaigns.
SaaS Customer Acquisition Cost (CAC)
The cost of acquiring new customers is important to know for any business. The basic formula is relatively simple:
Total sales and marketing spend / total number of customers acquired = CAC
As an example, let’s say that you spent $30,000 on sales and marketing efforts over one month. At the same time, you acquired 250 new customers. Your total CAC would then be $120.
There are other calculations when it comes to SaaS CAC that you should also consider:
Months to Recover CAC, or the CAC Payback Period refers to the number of months it takes to generate enough revenue to cover the cost of acquiring a customer. To calculate this SaaS metric, Take your CAC and divide it by your Average MRR, then multiply it by your Gross Margin percentage.
So the Months to Recover CAC formula would look like this:
CAC / Avg MRR * Gross Margin % = Months to Recover CAC
Gross margin is a calculation of your business revenue, minus the cost of business operations for each department in your company. For instance, a gross margin calculation could look like this:
- Customer success
- Dev ops
= Gross Margin
CAC to LTV Ratio is the lifetime value of your customers and the total amount you spend to acquire them. By paying attention to this metric, you can determine how efficiently you acquire new customers.
A 1:1 CAC to LTV ratio means you’re breaking even. Anything higher than 1 for the first number of the ratio means that an existing customer is more valuable than the cost needed to acquire a new customer.
You can calculate your CAC to LTV Ratio in three steps:
- Determine your CAC. You can calculate your CAC with the following formula: Total sales and marketing spend / total number of customers acquired = CAC
- Determine your Customer LTV. You can calculate your Customer LTV with the following formula: Average purchase value * purchase frequency rate * average customer lifespan (how long a customer stays with your business)
- Take the two numbers you got from steps 1 and 2 and divide the larger number by the smaller number to get the ratio.
What is an ideal CAC to LTV Ratio for SaaS?
An ideal ratio for CAC to LTV for SaaS businesses is typically anything over 2:1. As the first number in the ratio gets larger, the better your CAC to LTV ratio. 4:1 is considered the most ideal ratio for this metric.
Customer Engagement Score (CES)
Customer Engagement Score is a measure of how engaged your customers are with your software and brand. It isn’t a financial metric, so why is measuring customer engagement important?
Think about all the ways a customer regularly interacts with your brand—through logging into your software every day, interacting with you on social media, leaving reviews, attending webinars or other events, and more. A customer who does all or even just a few of these things is probably less likely to churn, values your product, and is likely to be or become a long-term customer.
Although we can’t give customer engagement a specific monetary value, it’s clear that it affects the bottom-line financial metrics that do have monetary value, so customer engagement should demand an equal if not higher amount of attention.
How to Calculate Customer Engagement
Customer engagement score doesn’t have a standardized formula that everyone in the SaaS industry uses, so what you want to do first is keep track of customer events that make sense for your business.
Here’s what that may look like:
- Active users over time
- Website visitors—how many users visit your website and when (in Google Analytics, this could be Pages per Session, Avg. Session Duration, and Bounce Rate)
- Social media metrics like Reach, Likes, Comments, Shares, and Clicks
- Daily software logins
- Usage milestones (e.g. created a landing page, gathered 500 leads, went through the onboarding process)
Some customer events might have more engagement importance than others, so one way to visualize engagement importance is to assign a value to a customer event, such as 1-10 (with 1 being the least important, 10 being the most important).
Once you’ve assigned a value to a customer event, you can use a simple formula to calculate an engagement score:
Customer engagement score = (w1*n1) + (w2*n2) + (as many events as you need)
Using this formula, “w” is the weight you gave to a customer event (remember that score between 1 and 10?), and “n” is the number of times the event occurred.
Following this so far? Let’s take a look at an engagement calculation example:
Key Event Name
Event Importance (scale of 1-10)
Number of Events (last x months)
Key Event 1
Key Event 2
Key Event 3
Now that we have this data, we need to determine the value of each event. The value for each event is how many times the event occurred in the last x months multiplied by the event score.
Now we have an extra column on our table:
Key Event Name
Event Importance (scale of 1-10)
Number of Events (last x months)
Total Event Score
Key Event 1
Key Event 2
Key Event 3
Using the Customer Engagement Score formula from above, we can make the following calculation:
18,240 = 1500 + 4000 + 12740
So our total Customer Engagement Score for this example is 18,240.
This number might not mean a lot now, but if you measure the CES consistently, you can start to see patterns emerge that might indicate a warning, like churn. Remember to give the same event value (1-10) to a key customer event every time so your data remains correct.
Conclusion and Key Takeaways
When you have a SaaS business, reporting on key SaaS metrics is super important for making sure your business stays profitable.
With the fast-paced nature of online business, it can be easy to get trapped in a cycle of continuous work without taking the time to analyze important numbers. But, like most things in life, you can make time to do SaaS reporting, even if it means executing fewer tasks.
To recap, here are the important SaaS reporting metrics we discussed in this article:
- MRR (Monthly Recurring Revenue)
- New MRR
- Expansion MRR
- Churn MRR
- Net New MRR
- Revenue Churn Rate
- Annual Recurring Revenue (ARR)
- Cohort analysis
- Customer Churn Rate and Revenue Churn Rate
- ARPU (Average Revenue Per Customer, or Average Revenue Per User)
- Base conversion rate
- Lead to Sale conversion rate
- Customer Lifetime Value (CLV)
- Customer Acquisition Cost (CAC)
- Gross Margin
- CAC to LTV Ratio
- Customer Engagement Score (CES)