INNOVATION

How SaaS Metrics Are Driving Corporate Innovation

Churn

This fig­ure analy­ses how loyal your cus­tomers are to your com­pany. Customer churn looks at the per­cent­age of pre-ex­ist­ing cus­tomers who un­sub­scribe to your ser­vice on a monthly ba­sis. If you sign up 100 new cus­tomers a month, that’s ter­rific but that fig­ure is tar­nished sig­nif­i­cantly if you were to lose 75 pre-ex­ist­ing cus­tomers a month. A high cus­tomer churn rate should prompt im­me­di­ate ac­tion. It costs a cer­tain amount to ac­quire a new cus­tomer (which will be ad­dressed shortly) high­light­ing the im­por­tance of re­tain­ing ex­ist­ing cus­tomers. If you have a high cus­tomer churn rate, your first ac­tion point should be to re-as­sess your prod­uct and find out why peo­ple are leav­ing. Fixing in­ter­nal prob­lems will gen­er­ally im­prove cus­tomer sat­is­fac­tion thereby low­er­ing your churn rate.

Cost Per Acquisition

This was eluded to ear­lier but the cost per ac­qui­si­tion is the amount it costs to ac­quire a new cus­tomer. Essentially, this is your mar­ket­ing bud­get per month di­vided by the amount of new cus­tomers for that month. If your cost per ac­qui­si­tion is higher than the amount you’ll re­ceive per cus­tomer then you re­ally need to re­con­sider your mar­ket­ing strat­egy. This fig­ure at a glance shows how ef­fec­tive your mar­ket­ing and sales strat­egy is.

Monthly Recurring Revenue

MRR (monthly re­cur­ring rev­enue) is the amount of money that you ex­pect to re­ceive in sub­scrip­tion fees every month. Because SaaS busi­nesses are so re­liant on sub­scrip­tion fees for their rev­enue it’s im­por­tant for the busi­ness to keep track of this fig­ure as a bench­mark. For any busi­ness to be sus­tain­able it needs a re­li­able rev­enue stream. Hence, if your MRR is too low as a SaaS busi­ness, you could find your­self in a lot of trou­ble.

Lifetime Value

This fig­ure looks at the amount we ex­pect to re­ceive from a cus­tomer over their life­time. To cal­cu­late the life­time value, take your av­er­age sub­scrip­tion length (how long on av­er­age cus­tomers stay with you) and mul­ti­ply it by your av­er­age monthly rev­enue per cus­tomer. You can take into con­sid­er­a­tion other fac­tors like cus­tomer ac­qui­si­tion cost for a more com­plete pic­ture.

SaaS busi­nesses some­times strug­gle to ac­cu­rately de­ter­mine their fi­nan­cial vi­a­bil­ity due to the na­ture of their rev­enue stream. That’s why it’s im­por­tant for these com­pa­nies to fo­cus on SaaS met­rics and not generic fi­nan­cial met­rics to eval­u­ate their fi­nan­cial po­si­tion. The most im­por­tant point to take from this ar­ti­cle is to fo­cus on cus­tomer loy­alty. If cus­tomers are con­tin­u­ously churn­ing, it does­n’t give your busi­ness an op­por­tu­nity to grow and in­no­vate. See our blog for more on cus­tomer re­ten­tion.

ABOUT THE AUTHOR

David Burkett

Growth en­thu­si­ast and res­i­dent pom

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