13 SaaS Metrics You Need to Track for Business Success in 2023

The winner takes it all.

Not only in ABBA's song, but also in the SaaS market.

If you want to establish yourself in the market and grow revenue, there are simply 3 things you need to do:

1. Get customers
2. Keep customers
3. Monetize customers

But easier said than done, I know.

There are tons and thousands of work that should be done to attract users, make them love your product, and keep them loyal to you for a long period of time. So strategies that no longer work or campaigns that need to be made more efficient may be overlooked.

This is exactly why every company needs to closely monitor metrics that are related to user experience, business performance, and marketing & sales efforts. Thereby you can keep everything under control and practice better strategies when it comes to pricing, customer engagement, or growth. 

In this article, you can find some of the most popular and crucial metrics that are used in the SaaS industry. 

• Conversion Rate
• Customer Retention Rate
• Customer Engagement Score (CES)
• Average Revenue per Account (ARPA)
• Customer Acquisition Cost (CAC)
• Cost of Goods Sold (COGS)
• Gross Margin
• Zero Cash Day (ZCD)
• Months to Recover from CAC
• Lead Velocity Rate (LVR)
• New Customer Growth Rate -Month over Month (MoM) Growth
• Customer Happiness Index (CHI) 

When you're ready 🏃‍♀️🏃‍♀️

TL;DR

• A SaaS metric is a measurement that provides insights and contextual information about the efficiency of customer success strategies, growth strategies, and marketing & sales strategies. 
• Most of the time, one metric can concern several teams. But if needed, SaaS metrics can be categorized into 4 groups.
• These groups can be listed as follows: growth, marketing, sales, and product. 
• Many product metrics are also mentioned as customer success metrics, as they provide information related to both customer experience and product development. 
• It's important for a business to monitor SaaS metrics since they show things going well and areas that need improvement. 
• Thus, you can optimize your campaigns and strategies and grow your business, as well as your revenue. 
• The conversion rate shows the percentage of your trial users who became actual customers after their trials. 
• The customer retention rate shows the percentage of your customers who stayed with your company over a specific time period. 
• The customer engagement score (CES) shows how engaged your customers and/or trial users are. In order to calculate it, you need to add engagement KPIs such as frequency of usage, depth of use, etc. You can calculate it both for individual users and different user segments.
• The average revenue per account (ARPA) is a metric that shows how much revenue you generate per account. You can also calculate average revenue per customer or average revenue per user only by changing the variables in the formula. 
• Customer acquisition cost (CAC) shows how much it costs you to acquire a single customer through marketing and sales campaigns in a certain time period. The more efficient your marketing/sales strategies, the lower the cost of acquisition. 
• The cost of goods sold (COGS) is a measurement that shows the real and total cost of a product to you. It takes not only sales and marketing expenditures but also others, such as website development expenses, employee training expenses, and 3rd party software spending. 
• The gross margin is the difference between your generated revenue and the cost of goods sold -a.k.a. the money left to you when you deduct your production expenses. 
• Zero cash day (ZCD) is the estimated date when you run out of your resources if you continue to spend at this rate and speed. 
• Months to Recover from CAC shows how much time you need to recover from your customer acquisition investments. 
• The lead velocity rate (LVR) is the percentage of the growth in the number of qualified leads in a single month. 
• The new customer growth rate/ month over month (MoM) growth rate is the measurement that shows the difference between the beginning and the ending of a month in terms of growth. It provides information about customer acquisition rate and the popularity of a product. 
• The customer happiness index (CHI) is a new and non-numeric metric that emerged by considering and interpreting many numeric metrics that provide insights about the product experience and happiness of users, such as product stickiness, feature adoption rate, customer churn rate, customer satisfaction score, and user engagement scores of an average user. 

What Are SaaS Metrics? 

 SaaS metrics are benchmarks (ratios, statistics, etc.) that are used to monitor the overall performance and success of a business as well as its growth. 

Beside providing insights and contextual information, they also make it possible for businesses to plan for the long term and build up future revenues, as well as update business strategies if needed. 

Though many metrics can provide valuable information to multiple teams and can be used for different reasons, there are mainly 4 categories when it comes to SaaS metrics.  

These are:

1. Growth metrics 
2. Marketing metrics 
3. Sales metrics 
4. Product metrics / Customer success metrics 

➡️ Growth metrics help you understand the efficiency of your growth efforts and strategies, as well as other money management issues such as your economic model/subscription model.

➡️ Marketing metrics include measurements such as lead velocity rate (LVR). They put your marketing expenditure into context and help you see whether your marketing efforts overall pay off or not. 

➡️ Sales metrics work very similarly to marketing metrics, as there are also many overlapping ones. They help us monitor how much it takes sales reps to close a deal with a qualified lead. Sales metrics can be about any step in the sales funnel or overall sales process.  

➡️ Customer success metrics, or, in other words, product metrics, are benchmarks for customer satisfaction/happiness. They include customer churn rate, customer engagement score, product stickiness ratio, feature adoption rate, and customer lifetime value (LTV). 

Why Should We Track Them? 

Because they show what works and what does not. 

✅ You can make more informed decisions.

✅ You can find explanations for your problems -and, therefore, solutions. 

✅ You can see the areas open to improvement and optimization. 

✅ You can make better and more effective improvements to your product. 

✅ And finally, you can ensure future growth. 

Essential Metrics to Track 

#1 Conversion Rate

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Though you're totally free to determine which actions/tasks to use as your conversion criteria, the most common ones can be listed as follows:

• Creating an account
• Enregistering to your newsletter 
• Contacting the sales team 
• Making a purchase on the website

Conversion rate helps you to see how well your overall marketing and/or sales efforts do in terms of turning leads into customers. Also, by defining different conversion criteria, you can check the efficiency of different aspects of your campaigns. 

Calculation:

• For free trials:

• For PQLs:

• For freemium:

#2 Customer Retention Rate 

It's just as important to keep the customers happy and loyal to us for a long period of time as to convert them from leads in the beginning.

Here's where the retention rate comes into our lives.

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👉 It helps the product teams to see if their product resonates with their customers or not. 

Increasing your retention rate should be one of your end goals as a company, as it would mean being able to satisfy the customers' needs and provide matchless services. 

Calculation

#3 Customer Engagement Score (CES) 

The more your users are engaged with your product, the more your business thrives. 

The secret to success and future growth is -almost- that simple.

Here's why:

▶️ Engaged users tend to renew their subscriptions regularly.

▶️ Therefore, they're a reliable source for your monthly revenues. 

▶️ They're also more likely to upgrade their plans. 

▶️ Most of the time, they do not abstain from providing feedback for a new feature or a piece of marketing content, which makes them even more precious to us! 

You can calculate your engagement score for both your trial users and active users. Monitoring them separately can help you to analyze not only your onboarding processes and marketing efforts but also your actual customers' behavior patterns. 

Calculation 

👉 If you want to read more on customer engagement score (CES) and how to increase it, let's take you here. 

#4 Average Revenue per Account (ARPA)

ARPA is a metric that shows how much revenue you generate per account/unit/user, and it provides insights into the profitability of your business. 

Moreover, by comparing your ARPA with your rival companies, you can have a clear view of your standing in the marketplace and take action and/or conduct campaigns accordingly. 

Calculation

⚠️ Though it's often referred to as the average revenue per unit/user (ARPU), too, they're not totally the same, as some of your customers might have various users within their own companies but only one subscription plan. 

Thus, if you charge per user, you might want to keep an eye on both ARPA and ARPU.

Also, if you do not offer monthly subscription plans but yearly plans, you can calculate your ARPA with your ARR (annual recurring revenue) too. 

👉 You can find more information on the topic here. 

#5 Feature Usage/Adoption Metrics -a.k.a. Feature Engagement

A successful SaaS company constantly updates its product features. You must detect and improve the unused ones and add new ones in accordance with your customers' needs and feedback if you want to be in the market. 

So you need to monitor feature engagement closely.

But there is no single formula for this. By using various analytical tools, you can observe many different things, such as which features are almost never used and which ones are used more by which user type or which ones got more popular among users after receiving an update. 

Feature usage/adoption metrics help you to;

• See which features of your product aligns with your customers' needs.
• Understand your customers' expectations of your product better.
• Optimize your onboarding material and introduce the new/updated features. 

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Also, examining the tendencies and preferences of different user segments separately could make it possible for you to offer them more personalized onboarding material and in-app content. 

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#6 Customer Acquisition Cost (CAC)

A lot of effort -and money- goes into turning potential customers into active customers. There's the sales process, content marketing, e-mail marketing, and sometimes even more...

Customer Acquisition Cost (CAC) is a metric that shows how much it costs to acquire a single customer by calculating all the expenses of the sales and marketing teams. 

Though it becomes more meaningful when considered and calculated in relation to Customer Lifetime Value (LTV), CAC still gives a lot of contextual information not only about the cost of a customer but also about your product's future and sustainability too.

Calculation

#7 Cost of Goods Sold (COGS)

Well, we talked about sales and marketing expenses, but it doesn't end there. Subscription businesses come with many expenses related to infrastructure and software development, as well as administrative expenses.

Cost of Goods Sold (COGS) shows how much a product costs to produce, market, sell, and deliver. It takes every spending that's gone to the product into the calculation, from the first step to the last one.

Some of the things to include in COGS can be listed as follows:

• Website development expenses 
• 3rd party software expenses 
• Customer support expenses 
• Spending on personnel training 

In order to come up with a sustainable and profitable pricing strategy, every SaaS company must calculate COGS. Otherwise, you might end up with a pricing model which either drags you to your end or pushes your potential customers away. 

Calculation

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#8 Gross Margin 

Once you've calculated the COGS, it's so simple to calculate your gross margin. 

Though there can be several margins you ought to calculate on a monthly basis in regard to your business model, the gross margin is basically what you have after you subtract your expenses -COGS- from your revenue. 

There are also;

▶️ Recurring revenue gross margins

▶️ Service margins

▶️ Transactional margins, and more...

Calculation

Ben Murray, a famous SaaS CFO, says that calculating and understanding the concept of gross margin and applying it to each and every revenue stream is crucial for sustaining a healthy revenue model as well as understanding your cash flow. 

#9 Zero Cash Day (ZCD)

A relatively less mentioned metric, Zero Cash Day (ZCD), is a metric that shows when you'll run out of money if you continue to spend at the same rate and pace. 

Let's be honest; no one wants to think that they will lose investors, face difficulties in finding customers, and consume all of their resources when they're starting a business. 

But it's crucial to keep an eye on your spending and keep it in balance with your resources, especially if you're a new start-up. 

With the help of ZCD information;

• You can arrange your expenses accordingly.
• You can set more realistic goals and prioritize. 
• You can have a more transparent relationship with your teams and investors. 

Calculation

#10 Months to Recover from CAC

Also known as the payback period, this metric shows how much time you need to recover from your customer acquisition investments and be out of the woods. 

The payback period provides SaaS companies with insightful context about the efficiency of customer acquisition processes, as well as that of capital management. 

Calculation

⚠️ According to the calculations, if it takes too long to recover from CAC, it might indicate some vital problems with acquisition efficiency and/or customer monetization, which means you cannot turn your qualified leads into customers over time though making a lot of marketing and sales expenses.

One of the strategies you might want to follow is changing your pricing/subscription plans, such as offering bundle payments or add-ons. 

#11 Lead Velocity Rate (LVR)

Lead Velocity Rate (LVR) is a measurement that demonstrates the growth in the number of marketing-qualified leads, showing whether your marketing campaigns and efforts work or not. It's an indicator of your pipeline's efficiency and your business' potential growth over time. 

Revenue growth metrics are open to fluctuation, as almost every decision/action affects it. Thus, if you want a reliable metric to see how well your marketing channels and efforts do, you must definitely calculate your lead velocity rate. 

Calculation

⚠️ An important note here is that you shouldn't mix up Lead Velocity Rate (LVR) and sales velocity rate, as the latter doesn't have much to do with the lead and customer counts or anything related to the customer base brought in by the marketing team. 

The sales velocity rate is a metric that basically shows how fast sales qualified leads go through the sales funnel. The whole process in which leads are in contact with sales reps is taken into account, from demo calls up until a closed deal. 

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#12 New Customer Growth Rate -a.k.a. MoM Growth

As the name also suggests itself, New Customer Growth Rate is a metric that shows your new customer acquisition speed. Mostly calculated on a monthly basis, it's also referred to as Month over Month Growth (MoM Growth).

One of the most crucial growth key metrics, New Customer Growth Rate (or MoM growth), helps to:

• See how good your product is at acquiring new customers.
• Understand the natural demand for your product in the market. 
• Notice the fluctuation and seasonal demand shifts, and come up with different growth strategies. 
• Estimate how long it will take you to proceed through different growth stages and therefore plan ahead of time what you need to do for consistent and sustainable growth. 

There are various things to consider when it comes to growth rates, therefore various formulas: 

1) You can calculate only the new customer growth rate without taking those who canceled their subscriptions and see how well you're doing in terms of acquiring new customers. But it wouldn't provide very realistic insights about your customer retention rates or how consistent and sustainable your growth is. 

2) If you want to get more accurate results and information about your growth efforts and see whether you're on the track for sustainable growth, you should calculate your net growth, which takes customer churn into account. 

3) Or, you might want to see if you have consistent growth and look into long-term growth rates to see how much you've grown on average over the course of a year and compare it to previous months and/or years. Then, you should calculate your average MoM (month over month) and/or YoY (year over year) growth rate. 

Calculation

#13 Customer Happiness Index (CHI) 

I believe you wonder how on earth you can calculate happiness and express it within a numeric system. 

Well, though there isn't a clear-cut formula for this one, it looks like by taking a few product-related and user experience-related metrics into account, you can get perspective about user experience.

Here are the metrics you can work on:

• Product stickiness 
• Product usage frequency -of both an average customer and an active user
• Customer engagement score 
• Feature engagement/adoption
• Net Promoter Score (NPS)

Why Is It Important to Calculate the Customer Happiness Index (CHI)? 

If it doesn't even have a formula and a numerical value, why bother to run through all those metrics and try to make something out of them? 

It's because together, they draw a clear picture of your users' product experience and provide insights about different stages of the customer journey. 

Moreover, if you increase and optimize your CHI, you can:

• Decrease customer churn rates. 
• Increase retention rates and conversion rates -from trial users to valuable customers...
• Increase the number of your active users and encourage them to upgrade their plans. 
• Get more positive customer feedback and customer success stories. 

👉 Don't forget: the happier customers are, the happier -and wealthier- you are. 

Conclusion 

Neither starting a business from scratch nor making it successful and profitable is easy. There are tons of things to do and just as many metrics to check regularly. And yes, I know, all those numbers, statistics, and ratios can be overwhelming from time to time.

But if you want to;

▶️ Make more money from each and every customer and keep them as your regular customers   -a.k.a. increase customer lifetime value (LTV) 

▶️ Increase the number of active users -a.k.a. improve your product's stickiness 

▶️ Get more out of your sales funnel, marketing channels, and overall sales/marketing efforts 

▶️ Acquire new users without losing many on the other hand -a.k.a. decrease monthly churn rate as well as increase customer retention rate 

▶️ Improve user experience and get better results from customer surveys 

Here are the SaaS metrics you need to monitor:

• Conversion Rate 
• Customer Retention Rate 
• Customer Engagement Score (CES) 
• Average Revenue per Account (ARPA)
• Customer Acquisition Cost (CAC) 
• Cost of Goods Sold (COGS)
• Gross Margin 
• Zero Cash Day (ZCD)
• Lead Velocity Rate (LVR)
• Months to Recover from CAC
• New Customer Growth Rate -Month over Month (MoM) Growth 
• Customer Happiness Index (CHI)