With the recent release of our subscription analytics and reporting tools, we’ve been thinking a lot about the most important metrics a SaaS company should track. There are so many options, it is easy for companies to get lost in a sea of SaaS metrics.
The most successful companies narrow their focus onto a few key metrics, though those narrower set of metrics will be different for every company.
Which got us wondering about top SaaS companies and which metrics they track. So we asked! We reached out directly and asked SaaS leaders:
“What are the 1 or 2 key Saas metrics your company obsesses over and why?”
A huge “thank you!” to everyone who took the time to share this information with us (and with you, our readers)!
In the responses below you’ll see metrics you probably expected such as Monthly Recurring Revenue (MRR), conversion rates, and churn rates, but you’ll also see some you may not be as familiar with (such as Lead Velocity Rate).
There’s a lot of great information, so let’s go straight to their responses — pay particular attention to the “why” each company is uber focused on their particular metrics.
Head of Marketing
We track a lot of metrics, and make decisions across our company based on many different things.
But if you’re asking about obsessing? Well, we only have the time and mental bandwidth to obsess over one, and that’s Monthly Recurring Revenue.
It’s monthly. Our daily and weekly numbers are too volatile to be meaningful, and quarterly is too seldom to be able to spot and react to trends in time.
It’s recurring. That means that we’re not relying on one-time sales, but on customers who, for as long as we keep them happy, automatically pay us month after month.
And it’s revenue. Without revenue, there is no business. And without recurring revenue, there is no SaaS business.
MRR is our north star. We use it to track our progress, both internally and publically. In fact, we obsess about it so much, we built an entire blog about our pursuit of $100,000 in MRR, though we’ve since then set our sights on $10M ARR.
Co-founder & CEO
There are a BUNCH of things we COULD focus on (number of new leads per month, revenue MRR, churn rate, expansion rate, etc).
But we don’t obsess on them.
What we DO obsess about are:
- Conversion Rate – Sign up for Trial
- Conversion Rate – Trial to Paid
Firstly, percentages are better than absolute numbers. Period. Because your Conversion Rate this month vs last month tells no lies.
Secondly, because these are composite metrics – i.e. they tell a BIG story of several underlying themes.
Conversion Rate – Sign up for Trial
This tells us (at least) 2 things:
- how well we message our product (marketing asset quality/ customer benefits)
- how well we attract the “right” audience (distribution/channel and channel messaging/ lead gen)
The result is the multiple of two levers: Audience Quality X Message Quality
Conversion Rate – Trial to Paid
This tells us (at least) 2 more things:
- Product Quality (UX)
- Onboarding Quality (automated messaging, tech support, customer success etc)
Again, the result is the multiple of several levers: Product Quality X Onboarding Quality
So, by just focusing on 2 metrics, we learn a LOT about our business.
These metrics are especially applicable from Launch through Product Market Fit and, to a lesser degree Scale (because things like churn and expansion revenue can start to have a bigger impact).
For me, the most important metrics are revenue per employee and growth in paying users.
I like to focus on revenue per employee so we can make sure we have enough employees to keep up with our growth, without being overstaffed.
I pay close attention to paying user growth because if we can keep it increasing consistently each month, we’ll meet our revenue goals for the year.
1) Lead Velocity Rate (LVR)
When it comes to metrics, absolute figures don’t mean a whole lot: a 5% monthly churn rate might be the norm for some SaaS companies, and devastating for others; it might reveal a one-off seasonal blip in performance, or a systematic decline caused by an outdated and unusable product.
So instead of fixating on KPIs that offer a fixed snapshot, choose metrics that look at how your performance changes over time.
Lead Velocity Rate measure the rate of growth of qualified leads. Instead of distracting you with absolute figures (“we generated 87 leads!”), it shows how lead generation is improving over time (“lead growth is up 10%, month-on-month!”).
With a repeatable sales process, the rate of growth in your qualified leads should translate into a proportional increase in customers and revenue. With a little tweak, Lead Velocity Rate can also be used to measure the growth rate of MQLs (Marketing Qualified Leads) and SQLs (Sales Qualified Leads), revealing insights into the efficacy of your marketing and lead nurturing strategies in the process.
2) SaaS Quick Ratio
As well as measuring growth, it’s a great idea to measure the health of that growth. For example, monthly revenue growth of $1,000 might sound pretty great – especially if you assume that growth breaks-down as follows:
- $1,000 MRR, -$0 Churn
But there are all manner of other ways that revenue growth could be happening:
- £2,000 MRR, – £1,000 churn
- £5,000 MRR, – £4,000 churn
Though the growth rate of these companies is the same, the underlying health of each business is likely to be markedly different. So instead of blindsiding yourself with net growth figures, use a metric like the SaaS Quick Ratio to understand the make-up of your growth:
For a handy benchmark, best-in-class SaaS companies tend to have a Quick Ratio of 4: generating $4 of new revenue for every $1 lost to churn.
Co-founder & CEO
The two metrics I focus most on are ARR growth rate and active user growth rate.
ARR growth is important because it’s directly tied to money. Active user growth rate shows you are building a product that more and more people want.
I like tracking rates because it helps you understand momentum.
Director of Communications
We talk about this a lot at my company. The three we think are most important at JotForm are revenue, signup growth, and churn. If those three metrics are doing well, your company should be in really great shape.
We also pay attention to daily active users, but it’s a number that doesn’t indicate the health of the company like the other three mentioned.
Every SaaS company is different, but those are the metrics that we follow the most closely.
MRR: This is our core metric that we use to report to our investors and the board and shows the long term growth and stability of the company.
Monthly bookings: This is an important metric to understand how fast we can re-invest into marketing and sales spending.
Co-founder & CEO
MRR: this basically tells us whether or not our business is sustainable and we talk about this metric every week in our general company meeting.
CUSTOMER CHURN: this provides information complementary to our MRR and provides direct insight into what we’re doing wrong with our product (or pricing).
LTV:CAC Ratio: the ability to monetize our users is critical for us to know and to make decisions regarding users and acquisition channel costs.
Additionally, a game changer was to be totally transparent about these metrics with the entire company, and structuring teams OKRs in a way that every employee can track how all the work they do impacts MRR, churn and the LTV:CAC ratio.
Now it’s your turn: what are the 1 or 2 key SaaS metrics your company obsesses over and why? Let us know in the comments below.