Saas software: what metrics should we focus on?

Software as a service (SaaS) makes it possible to collectively deliver service resources and know-how to companies wanting to outsource their information system (messaging, security, etc.).

This organizational model offers companies a good capacity for evolution, in an age of virtualization and the automation of tasks via the Internet. But it can still be quite hard to operate. To make sure you understand the level of service quality of your structure, with the help of different articles on the Internet, especially Eleken's article, I have determined the SaaS metrics essentials for the stable development of your company, your business.

CMRR / ARPU

CMRR, also known as “monthly recurring revenue”, is a SaaS metric that allows you to determine the average revenue received per customer. It is very useful, this metric gives excellent visibility on income and general business activity.

The goal of your business is to build a system that steadily increases the average revenue per customer. The challenge, therefore, is to manage to acquire enough customers and to reach the period of cash flow as quickly as possible which precedes the total reduction of your cash funds.

The CAC (Customer Acquisition Cost)

SaaS marketing can be very expensive and reduce your margins to zero depending on your marketing actions. To alleviate this phenomenon, it is necessary to closely monitor your acquisition costs per campaign. Thus the CAC makes it possible to:

- Measure all the expenses allocated to the acquisition of new customers (marketing budgets, sales),

- Define the value that each customer brings to your business.

The CAC is therefore an excellent profitability factor. The lower it is, the better your financial gains. Otherwise, the higher the CAC, the longer the time to compensate for this expense. Together with CLV (Customer Lifetime Value), this indicator helps companies ensure the viability of their business model.

To optimize your marketing mix and preserve your profits, it is essential to measure your acquisition cost.

Tip: Eliminate your most expensive actions to focus your efforts and budget on the actions that work best.

The Churn

Most SaaS companies are based on annual subscriptions, and from a strategic standpoint, need to keep old customers as well as acquire new ones.

With Churn, also known as the "attrition rate", you will be able to measure the percentage of customers lost each month.

Churn Rate = the number of customers who leave each month / the number of active customers per month

A Churn Rate less than or equal to 5% is considered satisfactory. Beyond that, you should think about working on your retention and loyalty strategy for your customers to ensure your good scalability.

To achieve this goal, work on these factors, essential for any good digital marketing strategy:

- Identify the best prospects and potential users for your service, those who bring the most value,

- Convert leads when they're hot, not when they're not yet ready to use your solution,

- Support your new customers so that they get the most out of your solution and recommend it to their acquaintances,

- Find the problem within your product and solve it as quickly as possible: interview your lost customers and your oldest customers.

Long-term customer value

Also known as "Lifetime Value", the LTV is the total revenue a customer will generate while using your product.

We calculate it as follows:

LTV = Monthly revenue per customer x Customer life cycle (number of months).

This method of calculation is particularly suitable for companies whose revenues are recurring and predictable. It provides an accurate representation of their growth and also allows a business start-up to show the value of the business to investors. It is generally calculated over 3 to 4 years for SMEs and over 5 to 7 years for large companies.

A Customer's Lifetime Value is a measure of precisely who your best customers are.

The Month to Recover CAC

The Month to Recover CAC is a SaaS metric that indicates the time taken to become profitable. Ideally, the result should be in less than 12 months. This means that the longer your coverage period is, the lower your growth will be and the more complex your profitability is to deploy and achieve.

The calculation formula is as follows:

CAC / MRR x GM (gross income - cost of sales).

A ratio of less than 12, therefore, means that you use your own cash flow to finance your CAC, and therefore, that you depend less on credit organizations and crowdfunding.

In conclusion, a number of metrics should be considered when reporting marketing and sales data for SaaS organizations.

Obviously, these measures can be applied to all sectors and all types of business and should be monitored regularly through proper IT systems. Examining the data from your last year or your last quarter, defining a baseline to use, evaluating your growth or stagnation over the upcoming months is giving yourself a chance to be profitable in the long term.