Software as a Service (SaaS) is becoming more popular as technology takes over the globe. The business advantages of SaaS companies are so compelling that founding a startup may look appealing.
One idea that you shouldn’t overlook is how you measure your company’s performance and growth over time. There are several ways to do so, and they are critical metrics for your business.
Here, we look at what those essential indicators are and identify why they are so crucial in the first place.
Why Are Metrics Important For SaaS Startups?
Having a great idea for a new SaaS business is only the beginning of starting a prosperous company. To grow and be successful, organizations need to adapt to changing market conditions. It is imperative to develop product offerings to remain relevant and competitive.
But to know the best ways to adapt and develop a business, SaaS startups should use key metrics to identify where their weaknesses are and where they can improve. Metrics are essential because they allow a company to resolve its pain points and leverage its strengths.
Key Metric Examples For SaaS Startups
Customer Churn Rate
Ask any SaaS business owner the metric they are most concerned with, and they’ll likely say the churn rate of their customers. It’s long been a business gold standard to achieve a high customer retention rate, and churn is simply another way of looking at that.
Every customer you keep, the better, since your revenue becomes more reliable. On the flip side, churn rates look at how many accounts the company loses each month compared to account totals. Ideally, you keep your churn rate as low as possible, and you must work hard so that it does not increase over time.
Revenue Churn Rate
In some cases, if a customer unsubscribes to a service, there is minimal impact on a company’s bottom line. Thanks to the tiered structure of subscriptions that many SaaS firms apply, a customer who leaves is not always paying a great deal to a business. As a result, losing them is not necessarily that bad for short-term profitability.
However, for a company to grow, it can’t keep losing revenue day after day, and that’s what the revenue churn rate identifies. Keeping these rates low means that a company's earnings are relatively resilient, making business income more consistent.
Another helpful way of looking at revenue for a SaaS is to look at its recurring revenue. For a company to improve its chances of growing, having a resilient and reliable income can prove vital. As a result, knowing how much revenue your company will make each month or each year can be beneficial in deciding where to deploy funds and capital investments more effectively.
Customer Lifetime Value
Just because your SaaS idea is innovative does not necessarily mean that your company will be a success. To make money, it has to have customers willing to pay a subscription every month or year continually. Importantly, they need to pay an amount high enough that keeps your business in the black.
Calculating how much you are likely to make from a customer over their lifetime with your firm allows you to look into the future to ascertain whether your current pricing structure will allow you to run your business profitably.
Customer Acquisition Cost
For a SaaS company to succeed, they need to grow a customer base, which requires investment to develop. However, if the investment required to produce is too high and outweighs how much income customers will bring in over their lifecycle, a company will not succeed. This metric is vital to keep an eye on. It helps a company ensure its expenditures are kept in line, allowing its ultimate growth.
Measuring Performance As A SaaS Startup
Regularly measuring performance at a SaaS company is essential to ensure that the business stays on a path toward growth and success. Running the same metrics every month, quarter, or year allows you to see which metrics are improving—and worsening. As a result, you have the best knowledge possible to help lead your company to prosperity by focussing efforts where they are required and further strengthening areas that are already proving successful.