The Software-as-a-Service platform (SaaS platform) has proven highly profitable for companies in recent years. As a result, many organizations have switched to such services.
SaaS platforms are centrally hosted software provided to users through a subscription. Users can access SaaS over the internet in exchange for a certain amount. They can rent a SaaS platform over a duration instead of licensing the entire software and its functionalities. Thus, SaaS platforms offer a better value proposition to the creators and customers.
However, SaaS platforms are difficult to manage, and their success depends on multiple factors. Engineering leaders, growth managers, and others must monitor some parameters called Key Performance Indicators (KPIs). This blog post shares nine KPIs for engineering and growth teams to measure to ensure the SaaS platform’s success.
Managers calculate NPS to determine if their SaaS platform is worth recommending to their friends, colleagues, and acquaintances. Developers ask users to provide a rating on a scale to calculate NPS. A high NPS indicates that the SaaS platform is appropriately catering to the users’ needs. On the other hand, a low NPS score suggests that customers are reluctant to share/recommend this platform to their peers.
Monthly Unique Visitors (MUV)
MUV allows the development team to evaluate the number of visitors to a SaaS platform. Monthly Unique Visitors measure the number of visitors that had never landed on the platform before. This KPI offers insights into the total audience of the SaaS platform. Company leaders must compare unique visitors with existing visitors. Unique visitors reflect the success of marketing strategies implemented every month.
Customer Acquisition Cost (CAC)
CAC indicates the total expenditure spent for acquiring a customer. To calculate CAC, add the total money spent on sales, marketing channels, and other expenses. Consider the amount spent for paying bills, salaries, tools, commissions, and auxiliary services. Divide the total costs incurred by all the teams of your company by the number of new customers you gain for your SaaS platform. CAC helps organizations have a realistic measure of net earnings and profits.
Average Revenue Per User (ARPU)
Average Revenue Per User (ARPU)
ARPU measures the average revenue generated by each customer of the SaaS platform. Divide the total revenue by the number of users active in a time period to calculate the ARPU. Calculate ARPU separately for new users and existing customers. Doing so will offer insights into the SaaS platform’s performance. This KPI helps product managers control SaaS prices over a month, quarter, or year. The ARPU is important for determining the right pricing.
Customer Lifetime Value (CLV)
Calculate the CLV by adding up all of the purchases done by the customer over the entire duration of your SaaS subscription. Divide the ARPU by Churn Rate to calculate CLV accurately. CLV provides the value each customer generates for any SaaS business and offers insights into how long a customer uses your SaaS platform. Measuring this KPI can help you manage the SaaS platform’s revenue, pricing models, and total contribution by individual customers.
Monthly Recurring Revenue (MRR)
MRR is the estimated monthly earnings a SaaS platform generates. Add up all of the revenue generated by your customers over a month to calculate MRR. Expansion MRR and Churn MRR are the two main types of MRR. ‘Expansion MRR’ measures the revenue from new customers and from people who upgrade their plans. ‘Churn MRR’ measures the revenue lost from the people who downgraded or stopped using the SaaS platform. MRR is one of the most critical metrics, along with its types. This KPI helps SaaS businesses to measure their income, rise in earnings, and graph of losses. MRR reflects any changes made to the SaaS products, services, and marketing strategies.
Churn Rate
It is more expensive to gain new customers than to retain existing ones. Thus, it is essential to measure the number of customers signing off from the SaaS platform. Churn Rate is the number of users that unsubscribe from a SaaS platform. Maintaining a low churn rate is essential for any SaaS business to stay afloat. An annual churn rate of around 5-7 percent is acceptable. Anything above that percentage can be detrimental to the profitability of the SaaS business.
Cash Burn Rate (CBR)
Cash Burn Rate (CBR) combines all of the expenses associated with the SaaS management platform. For CBR, consider the total expenditures, including ad campaign fees, marketing efforts, salaries, and other operational expenses. Companies can calculate CBR over a specific duration, like a month, a quarter, or a year. CBR measures the cash flow going outside the organization. The finance and sales departments must compare MRR with CBR to ensure net profits.
Number of developers on the payroll
Any SaaS platform requires capable developers to keep the processes up and running. And hence, companies must analyze the number of developers working on a SaaS project, their efficiency, and their ability to solve bugs to ensure optimum performance. SaaS development requires multiple coding professionals, Site Reliability Engineers (SRE), DevOps, and other developers. The size of your developer team indicates the scale of your organization. A higher number of developers means that your SaaS platform is well-maintained. As product managers, you need to hire experienced developers for your SaaS platform.
So how do you ensure the success of your SaaS platform?
Keeping these KPIs in check is a great way to ensure your SaaS business runs smoothly. As an engineering leader, you must employ effective strategies and properly execute them at every stage of your SaaS development. Also, employ an efficient team of developers to perform in sync with the sales, finances, admin, and marketing teams.
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The success of any SaaS platform depends on its Net Promoter Score, Monthly Unique Visitors, etc.! This post shares 9 SaaS KPIs every company must track.
Kedar is a skilled technical content writer and a social media marketer. He has worked with Apollo Hospitals, upGrad, Lumina Datamatics, and other companies.
