Metrics that Matter: The Essential 5 Metrics for B2B SaaS Companies

The SaaS market has never been more competitive, the digital transformation is exponentially rising and every business is dying to build its unique value proposition.

Businesses are facing an enormous amount of data that is lacking their decision-making capabilities.

In this article, we are going to talk about B2B SaaS metrics and their help in making data-driven decisions and taking action accordingly.

What the hell is a metric

Metrics are designed to organize the chaos generated by your data sources and help you see clearly what has been rising or falling in a specific period of time. They help you read, understand and the whole picture.

Why leveraging metrics is crucial for SaaS businesses?

If your eyes are hearting you every time you look at your data dashboard, then your product will not last long. The failure rate for startups is shocking, and the ability to make data-driven decisions is one of the most impactful factors. and This is where metrics come.

Every SaaS startup is unique and different. That said, businesses can’t just define a set of metrics to track and act accordingly.

The thing is to define the metrics that best provide you with the numbers that matter.

by leveraging metrics you can:

• set objectives that trigger growth and customer conversion.
• measure and track overall health and long-term sustainability.
• align your team with tasks based on the result of the metrics.
• keep an eye on essential rates like; customer retention, churn rate, acquisition costs, and a lot more.

MRR: Monthly recurring revenue

MRR is the metric that you can’t avoid looking at, almost every SaaS business uses it to evaluate the overall performance of marketing or sales. why is that? Well, because it is linked to many metrics like churn rate, acquisition cost, lifetime value, etc. -which will be discussed in a bit-.

It is simply your growth index since it is a metric that helps you not only to know how much you’ve made in the current month but also to expect the income of the next month

Considering those expectations, you can see how sustainable your business is and when to rise or reduce your budget.

To calculate it:

How to analyze your MRR?

customer behavior and demand shift are two factors that heavily affect the MRR. In order to analyze and decide what should be changed or altered, we need to take a look at the types of MRR

Types of MRR

1. New MRR: simply, total new sign-ups or payments that can seem to be an indicator of your conversion rate.

1. Expansion MRR: if we look closer into the expansion MRR rate we can see the ARPU rate which stands for “average revenue per user” and optimizing ARPU contributes to the whole MRR level eventually. You can increase your ARPU rate in 3 ways; Upsells, Cross-sells, and Add-ons

• Upsells: A customer upgrades to a more advanced plan to meet his needs

• Cross-sells: additional feature to enhance the same selected plans, here is an example from Dropbox

• Add-ons: add-ons are features or backups that assist your customer while using your products, take databox here for an example:

3. Reactivation MRR: the amount of revenue earned from previous customers who are back in your customer base
4. Churn MRR: the amount of revenue lost by customers who gave up your services and now paying for your competitors

CAC: Customer acquisition cost

It is a basic logic that a business wants to generate more than it cost to. Add up all your marketing and sales expenses, which are mostly salaries and bonuses, and divide them over the number of customers converted in that period of time and that will give the average amount of money spent to add a customer to your customer base.

Optimizing CAC

CAC is another growth metric that is crucial in the SaaS landscape and optimizing it is considered to be challenging in the competitive SaaS market. Let’s break down some related insights about it:

• If the calculated amount of CAC has exceeded the revenue of that single customer, that means there is something wrong going alongside your campaigns and that’s even dangerous to be overlooked

• But what if it was low, or even too low, that means that you are not leveraging your whole potential and giving up on opportunities. That’s why calculating CAC for each marketing channel can help you decide where you should be focusing on.

• Let’s say that your CAC was getting higher and higher in the last few months, then you should leave the number alone and start to refine your marketing strategy and product improvement by enhancing your customer experience, retention, and support to see where are you doing wrong, which will eventually help you to keep your CAC stable and lower.

Churn rate

It is basically the number of your customers that have stopped paying for your services,

To calculate it: take the number of churned customers over the active ones and multiply the result by 100.

There will always be businesses that struggle to find the perfect fit for them, and your churn rate cannot be zero. However, some of the big boys are managing to have negative churn rates, by generating revenue that covers their loss of the churning customers.

Optimizing churn rate

There is no SaaS solution that is perfect for every targeted business around, and businesses always seek the best, but in order the reduce the churn rate as much as possible, there are a few ways:

• Make sure you are in the right place: based on false market research, you may find yourself acquiring the wrong personas who will eventually realize that they are in the wrong place and churn up, that's why defining the perfect-fit persona and enhancing your marketing funnel is critical to avoid such experiences.

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• Talk to them: instead of brainstorming and thinking of what made them churn, go and speak to them directly, you might find that a bunch of churning customers have a common issue, and solving it could be a life savior for you.

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• Ask the remaining ones: Ask your current customer what keeps them with you and what could be improved in order to avoid more loss.

Keep that in mind that the average churn rate for SaaS startups is ideally 5-7%, and if that number went double-digits, then there is something wrong at the root of your product and needs to be fixed before it’s over

CRR: Customer retention rate

Your customer success manager’s best metric. CRR is basically the percentage of customers retained during a specific period of time.

CRR rate is the opposite of the churn rate, lowering the churn rate results in a higher retention rate, and vice versa.

To calculate it: take your annual cost of customer success and retention team and initiatives over the number of active customers.

Insights about CRR:

• CRR can express the level of engagement of your customers and how long they plan to do business with you
• low CRR means a higher churn rate, yes, but it also means that customers are not liking you for some reason, in other words, a low satisfaction level.]
• A falling retention rate gives an early warning of issues to address as soon as possible.

LTV: Lifetime value

LTV is a metric that helps you predict the revenue from a customer throughout his entire relationship with your business. please don’t confuse it with ARPU. We are talking about the predicted not the already received amount.

To calculate it: For SaaS businesses, the average subscription length times your average monthly revenue per customer. This will give the result that could be used to predict the value of each customer.

That said, businesses can't use this metric as a benchmark. Although It’s possible in some industries, SaaS startups, and especially subscription-based ones, use it for other purposes like:

• Segmentation: LTV is a pain reliever when it comes to segmentation. having an idea about which customers are delivering the higher value, you can refine your customer retention strategy and enhance their experience to eventually reduce the churn rate.

• Tracking LTV alongside CAC: Combining LTV and CAC, businesses can predict the duration of their ROI, which is money spent to acquire new customers. That’s why, ideally, LTV should be three times the CAC ( 3:1). Lower average means that the churn rate is climbing or the CRR rate is falling, while a higher average such as (5:1) means that you are missing out on business by not leveraging your potential.

• LTV for each marketing channel: It is also beneficial to know where those high-value customers are coming from, by calculating the LTV for each channel, you can start to hang out where your prospects are active. For example, LinkedIn is the go-to platform for 76 percent of B2B SaaS marketers.

The bottom line

When I did my research on B2B SaaS metrics, I came across headlines that say; The best 15 or even 50 SaaS metrics to track, etc. The problem is, not every SaaS startup has the same objectives and benchmarks to track in this competitive field.

Those metrics discussed above are the ones almost the highlighted metrics in the dashboard of many businesses.

If you want to see the whole picture of your journey, you need to match the dots. In order to do that, you need to combine metrics together to analyze and go smoothly. And yep… It is hard to do this on your own, you need a software tool because google analytics is not enough

Here is a list from Userpilot of the best analytics tool in 2023

Those are the essential B2B SaaS metrics to raise your decision-making capabilities, and It is not my fault if I didn’t mention an important metric for your product. No one knows your product better than you, and it is your job to complete the puzzle.

Cheers.