Why KPIs for SaaS companies are important?
SaaS KPIs (Key Performance Indicators) are essential for any SaaS company, as they provide a clear overview of the company’s performance and health. Without KPIs, it would be difficult to track progress, identify areas of improvement, or gauge whether the company is on track to achieving its goals. The most important KPIs for a SaaS company will vary depending on the specific business, but some common KPIs include customer churn rate, customer lifetime value, and gross margin. By tracking these and other KPIs on a regular basis, SaaS companies can ensure that they are making progress and moving in the right direction.
What are the common KPIs for SaaS companies?
MRR and its close cousin ARR – note that these combine BOTH Sales and Marketing efforts. Failing to separate these two separate functions will cloud visibility from these indicators. It is the CRO’s job to ensure that Sales and Marketing are operating in unison and that Marketing produces MQLs and Demo Requests and that Sales turns leads into revenue.
Lifetime Customer Value (CLV) – For any SaaS company, understanding customer lifetime value (CLV) is essential. CLV is a metric that measures the total value that a customer will bring to a business over the course of their relationship. While it can be difficult to calculate CLV, it’s important to have a general understanding of how it works. There are a few different factors that go into calculating CLV, including customer churn rate, customer acquisition costs, and average revenue per user. By understanding these factors, SaaS companies can make better decisions about how to invest in their customers. Additionally, CLV can help businesses to identify which customers are most valuable and worth investing in for the long term. Ultimately, by understanding customer lifetime value, SaaS companies can make smarter decisions about how to grow their business.
Customer Acquisition Cost – The customer acquisition cost (CAC) is the total cost of acquiring new customers, divided by the number of new customers acquired. For a SaaS company, CAC can be broken down into three main categories: marketing, sales, and product. Marketing costs include everything from advertising to trade show booth fees. Sales costs include salaries and commissions for the sales team. Product costs include the costs of developing and maintaining the software platform. To calculate CAC, simply add up all of these costs and divide by the number of new customers acquired during the period. The resulting figure will give you a good idea of how much it costs to acquire new customers for your SaaS company.
A Note about Churn – For a software as a service (SaaS) company, churn is the percentage of customers who cancel their subscription or do not renew it at the end of each billing period. It is a measure of customer satisfaction and retention. A high churn rate indicates that customers are not happy with the product or service and are cancelling their subscriptions. A low churn rate indicates that customers are satisfied with the product or service and are likely to continue using it. Churn can be measured for different time periods, such as monthly, quarterly, or annually. The churn rate can also be expressed as a number of customers lost, rather than a percentage. For example, if a SaaS company has 100 subscribers and 10 of them cancel their subscription each month, then the monthly churn rate is 10%. If the company has 1,000 subscribers and 100 of them cancel their subscription each month, then the monthly churn rate is still 10%.
Important marketing KPIs for SaaS companies
Marketing KPIs for SaaS companies offer more focused insight into the success of individual marketing strategies. They take into account the outputs for which Marketing is directly responsible and include the following:
Demo Requests – A demo request for SaaS company is a meeting arranged so that potential customers can see and experience the software product in person. This request is an important sales tool for any business because it allows people to get a feel for how the product works and what it can do for them. The goal of a demo request is to show off the software in its best light and convince the customer that it is worth investing in.
MQL’s – A MQL, or marketing qualified lead, is a lead who has shown interest in your product or service in some way. For a SaaS company, this might mean subscribing to a free trial, downloading a white paper, or attending a webinar. The key is that they have taken some action that indicates they are interested in learning more about what you have to offer. Once a lead becomes an MQL, it’s up to the sales team to nurture them and eventually turn them into a paying customer. While the exact definition of a MQL will vary from company to company, they all share one common goal: to identify and pursue leads who are most likely to convert into paying customers.
Organic Traffic – For a SaaS company, organic traffic is defined as traffic that finds your software through search engines, without any paid promotion. This can include both direct search traffic (someone typing your company or product name into a search engine) and indirect traffic (someone searching for a general term related to your software). Because organic traffic is unpaid, it can be challenging to generate high levels of it early on. However, over time, as your software becomes more popular and well-known, you should see an increase in organic traffic. In addition to ranking highly in search results, there are a number of other tactics you can use to improve your organic traffic levels, such as creating informative blog content and using social media to spread the word about your product.
ROAS – ROAS, or “return on advertising spend” measures the amount of revenue that a company generates for each dollar that it spends on advertising. In other words, it helps to show how effective an individual paid channel is in terms of driving new business.
Engagement Metrics for Email and Social – Email Open Rates offer a great deal of insight and are a barometer for how well campaigns are personalized toward individual personas. Further measuring Followers on social channels and Email Click-Through rates sheds light on how relevant your content strategy is to your audience.
Alignment mistake #1: Using Revenue to measure Marketing performance.
Many constituents, especially those outside of Marketing, often mistake revenue indicators for Marketing performance. For example, MRR combines both Sales and Marketing inputs and is therefore a less accurate indicator of campaign success.
Alignment mistake #2: Confusing strategy with tactics.
Many SaaS companies confuse tactics (activity) with strategy. Strategy defines your long-term goals and how you plan to achieve them. Without a strategy, it’s easy to get bogged down in the day-to-day grind (social media posts, ad-hoc design requests, etc.) and lose sight of your larger objectives (increasing Demo Requests and MQLs). For marketers, execution means carefully guarding the editorial calendar to balance the one-off needs of the organization with quarterly and annual objectives.
What is strategic intent?
To take this a bit further when we look at strategic intent this refers to defining a specific goal, finding a weak spot in the market, and concentrating force (resources) at the point of attack to affect a decisive victory (winning new customers).
SaaS companies compete on multiple fronts form feature sets, ease of use to price. Finding a weak spot on the battlefield centers around an important feature set where you outperform the competition and leveraging it to engage a specific buyer persona. For example, when working with StructShare, a cloud-based materials management software in the construction vertical, we focused on a specific feature that helped foreman document incomplete orders and damaged building materials right from the jobsite. The ability to document discrepancies was meaningful to finance teams because it allowed them to take discounts when they paid invoices rather than having to chase down refunds or credits. The strategy was to increase Demo Requests by targeting finance personas with messaging on this specific feature set. The tactics we used included eBooks, email campaigns, and explainer videos.
A Sample of Marketing Strategy and KPIs for SaaS Companies
|Increase Demo requests by 10% MoM by targeting a specific persona/feature.
|Demo Requests, Email Open Rates
|Increase channel partner referrals by 20% in Q4 by developing an engagement kit.
|Monthly Referrals, Close Ratio
|Generate a 20% increase in demo requests by running a PPL campaign on Software Advice.
|Demo Requests, Close Ratio
|Increase new MQLs by 10% next quarter by developing 3 lead magnets.
|MQL’s, Email Open Rates, Direct Traffic
Staying focused on results.
Management expert Peter Drucker said it best when he opined, “What gets measured gets done.” For CRO’s and marketing leaders keeping an eye on one or two indicators for each strategy and measuring on a monthly basis is a solid framework to test and evaluate marketing strategy. Bear in mind common pitfalls that mistakenly tie marketing strategy to revenue and instead focus on lead generation (MQLs or Demo Requests). Secondly, protect your editorial calendar and channel enough resources toward your most impactful strategies to generate overwhelming force at the point of impact.