The 5 most important SaaS business metrics according to industry experts November 27, 2018

The 5 most important SaaS business metrics according to industry experts

There’s no shortage of content on the web about which metrics SaaS business metrics you should be tracking - and there are certainly plenty to choose from.

How many? I counted about 50 in an audited of seven blog posts that rank on the first page of Google search results for the query “SaaS business metrics.”

While I wouldn’t be surprised if there were companies out there tracking every single one of them I wondered if there were a handful that most of the experts agree on; so I further analyzed all posts to see which ones were recommended in at least four of the seven posts, and I’ll discuss them below, but before I do that, here are the posts I reviewed:

And here they are, ranked from most, to least mentions:

  1. Customer Churn (6/7): Customer churn is the percentage rate at which customers cancel their subscriptions. A low churn rate is a good sign for recurring revenue, and an increasing one could spell trouble. It’s an important metric for both historical SaaS business performance and also figures heavily into revenue forecasting. Customer churn is calculated by subtracting the number of customers at the end of the month from the number of customers and the beginning of the month and dividing the result by the number of customers at the end of the month.
  2. Customer Lifetime Value (6/7): CLTV tells companies is a measure of how much a SaaS business can expect one customer to generate over the course of the business relationship. When used in relation to cost of customer acquisition (CAC, below), it enables companies to measure how long it takes to recoup the investment required to acquire a new customer.CLTV is calculated by multiplying customer value by average customer lifespan. For more on calculating customer value, take a look at this blog post from HubSpot.
  3. Monthly Recurring Revenue (5/7): MRR indicates the predictable and recurring revenue of a subscription-based business, excluding one-time and variable revenue. It’s calculated by adding all subscription payments over a given period.
  4. Customer Acquisition Cost (4/7): As the name implies, CAC is simply the average cost of convincing a potential customer to subscribe. Subtracting CAC from LTV gives investors a view of how long it should take a startup to achieve profitability.CAC is calculated by dividing money spent on customer acquisition by the number of customers acquired in the period the money was spent.
  5. Average Revenue Per Customer/User (4/7): ARPC/ARPU is the average revenue generated from each customer per a given time period. It can be further broken down by customer segment or product type, which is useful in identifying your most valuable offerings or customers. ARPC is calculated as total revenue divided by total customers.

As I pointed out earlier, there are many more SaaS business performance metrics to choose from, but trying to focus on too many, especially at the beginning stages of a SaaS startup, can cause managers to lose sight of the truly meaningful metrics - and I think the five listed above are a pretty good ‘starter set.’

What do you think? Do you think I missed any or included any I shouldn’t have? Let me know!

Marling Engle

Written by Marling Engle

Metisentry president Marling Engle wrote his first line of code as a curious nine-year-old, and his life has been dedicated to tackling tough problems with software ever since.

Marling founded Metisentry in 2006 after graduating summa cum laude from Kent State University with an MS in Computer Science. He, and his young company, quickly earned a reputation for delivering elegant solutions incorporating high performance, highly-scalable web development, image processing and signal analysis, data mining, and software/system security.

Over the next decade, he started and grew additional ventures, including StationCheck, a SaaS product developed and incubated by Metisentry; while simultaneously expanding the company's capabilities and geographic reach through mergers and acquisitions.

Today, Engle leads Metisentry's team of open-source experts in creating and growing value for client partners through services spanning the entire SaaS product lifecycle.