August 3, 2022
A Guide to SaaS Sales Metrics and How to Improve Them As A Growing Enterprise
From customer satisfaction to sales performance, if you’re not tracking your metrics, there’s no way you’ll ever know whether what you’re doing is working. However, with so many different metrics available to track, sometimes it can be hard to know what to focus on.
That’s why we’ve gathered a list of some of the most influential SaaS sales metrics, along with helpful advice on improvements if they’re not performing as well as you might like.
Why Is it Important to Pay Attention to SaaS Sales Metrics?
Running a SaaS business and not monitoring your sales metrics is like playing a game of basketball blindfolded. Every shot you take could be a slam dunk, but it could just as easily be a total miss, and there’s no way you’ll ever know.
Monitoring your SaaS sales metrics allows you to judge the success of your business. It can give you insights into:
- what is and isn’t working with your marketing campaigns
- whether or not your customer acquisition strategies are working
- how satisfied your customers are with the service they’re receiving
- if the technology you use to aid the sales process, such as a sales dialer, is effective and allows you to make more accurate projections for the future.
SaaS Sales Metrics and How to Improve Your Performance
Monthly Recurring Revenue (MRR) & Annual Recurring Revenue (ARR)
Monthly recurring revenue is the income your business expects to make each month, based on your current number of subscriptions. To calculate it, add together the monthly fee paid to you by your subscribers.
A healthy MRR indicates that your business is performing well - month to month - and calculating it allows you to predict whether you’ll have enough income to cover your expenditure monthly.
Annual recurring revenue is similar to your monthly recurring revenue but covers a full year rather than a month. It is valuable for tracking long-term trends and analyzing the growth of your business over a long period.
If you wish to calculate your predicted ARR to set targets, you should multiply your average revenue per account by the number of subscribers in a month, then multiply that figure by 12.
You can improve your MRR and ARR by increasing your income through acquiring new customers or upselling your existing ones. If your MRR and ARR are lower than you would like, you could also consider reducing costs.
This could be by looking for a better value sales call plan or reassessing your marketing costs.
Customer Acquisition Cost (CAC)
The customer acquisition cost is one of the most crucial metrics for any SaaS business, as it will tell you how effective your sales tactics and marketing strategies are. It measures how much money it costs to acquire a new customer, including sales and marketing costs and any costs involved with onboarding new customers.
To calculate the CAC, divide the total marketing and sales spend over a set period, and divide it by how many new customers were acquired in that same time frame. It tells you the average cost of acquiring a new customer.
The average customer acquisition cost has risen sharply due to increased competition in recent years, but you can reduce it in several ways. These could include retargeting your marketing to focus on more appropriate audiences, ensuring your sales team are as efficient as possible by giving them access to the best sales apps or investing in marketing automation.
Customer Lifetime Value (LTV or CLV)
Calculating the customer lifetime value will give you an idea of how much revenue you can expect to make from a customer during their relationship with your company. To find your CLV, you should multiply the average purchase value by the average purchase frequency, then again by your average customer lifespan.
If your CLV is lower than your customer acquisition cost, then you know the methods you’re currently using to acquire and retain customers are unsustainable.
You can improve your customer lifetime value by improving your customer lifespan, which means doing more to encourage customers to have a long relationship with you. You could engage more with your customers - providing more efficient customer support through workflow automation, or optimizing your pricing to improve retention.
Measuring the activation rate of your customers will give a percentage figure of how many users reach a particular milestone. You can set this milestone as whatever you wish, but it’s best to make it something relevant that makes sense for your business.
For example, if you offer a free trial, you could work out the activation rate as the number of users who proceed to make their first payment after the free trial expires.
You can calculate the activation rate by dividing the number of people who reach the milestone by the total number of users who signed up, then multiplying the result by 100 to get a percentage figure. The SaaS industry typically has good activation rates compared to other industries, but there are still ways to improve it.
You can improve your activation rate by offering a top-notch onboarding process that encourages users to actively use your product. You can achieve this by offering robust customer support, and by having a detailed FAQ section or conversational AI on your website to answer queries. You could also offer training and tutorials on how to get the most out of your software.
Customer Churn Rate
Your customer churn rate tells you the percentage of users leaving your service. To calculate your monthly customer churn rate, divide the number of users who left your service in a month by the number of total users for that month, then multiply the result by 100 to get a percentage.
If your customer churn rate is low, your customers are generally happy with your services. If it’s higher than the industry benchmark, that likely means that you’re losing customers to your competitors. To reduce your customer churn rate, focus on improving customer retention. Many customers leave a business because of poor customer service.
For example, if your customers leave because their problems aren't solved when they contact your business, consider taking steps, like introducing a phone number forwarding service so that when customers phone your business, they can be directed to the relevant department.
Therefore, you can reduce customer churn by improving your customer service by embracing cloud computing or incentivizing loyal customers with special offers.
Lead Velocity Rate (LVR)
Lead velocity rate is a great metric for measuring the growth of your business. It measures the number of leads in your sales funnel from one month to the next. If your LVR is increasing each month, demand for your service is rising.
You can calculate your LVR by subtracting the number of leads from the previous month from the number of leads for the current month. Then divide this figure by the number of leads from the previous month and multiply the result by 100 to give a percentage.
If you find that your LVR is falling month by month, there could be a problem in your sales department. Invest in the best sales enablement software to ensure your sales teams have all the tools they require at their disposal. The best tools will offer features such as Salesforce integration, that allow your sales teams to effectively track leads.
Net Promoter Score (NPS)
Your net promoter score is valuable for measuring your users' satisfaction. It is based on how many customers would recommend your service to a friend or colleague. The data used for this metric is gathered through customer surveys.
It requires sending out surveys to active users and tracking their responses, which is easier with effective CRM software. Ask your users whether they would recommend your service, and invite them to rate you on a scale from 0-10, with 10 being the best possible score.
Anybody who scores you a 9 or 10 is classed as a ‘promoter.’ Those who score you a 7 or 8 are ‘passives,’ and anybody who scores you a 6 or lower is a ‘detractor’. To find your NPS, subtract the percentage of detractors from the percentage of promoters. It will give you a score that you can then monitor each quarter.
One of the most valuable aspects of your NPS is that it provides customer feedback, giving you valuable insights into what can improve your service and increase customer satisfaction. Acting on this feedback should help to reduce customer churn and increase customer retention.
For example, if your customers express dissatisfaction with the price they’re currently paying, you could consider lowering the costs to your subscribers by reducing your overheads. This could be done in various ways, such as by moving enterprise-wide applications to the cloud.
Track Your SaaS Sales Metrics and Boost Your Growth
Tracking your SaaS sales metrics is crucial if you want to know how well your business is performing and growing and how to boost that growth in the future.
Metrics such as the customer acquisition cost will tell you how well your advertising is working, and whether it's time to consider alternative methods like performance marketing. Looking at your customer churn rate and your net promoter score will tell you how satisfied your users are and indicate what you can do to boost retention.
Calculating your monthly recurring revenue, annual recurring revenue, and lead velocity rate will tell you how well your sales teams are doing and highlight any opportunities for improvement. Track as many metrics as possible, as each will provide you with important information. Draw conclusions from the data, and act upon them to help boost your growth.