Every now and then I get asked what are the most important metrics to track for a SaaS business. Invariably, my answer is “it depends” as these can change based on many factors. What life cycle your company is in, what your business model is, or even how you structure your sales and marketing teams are just a few reasons why it’s impossible to have a set list of most important metrics.
Let’s be honest, ALL metrics technically matter! But I’m not here to inundate you with 20+ metrics. If you’re looking for that, you should check out David Skok’s For Entrepreneurs blog, specifically his post on SaaS Metrics. It’s all there. And it’s amazing.
Assuming you didn’t jump ship completely on this post to go read the above-mentioned blog, I’d like to share a few of my favorite metrics (in no particular order):
- MRR (Monthly Recurring Revenue) and Churn – Yeah, yeah, yeah…these are two metrics and they are the basics. Doesn’t matter. Your MRR will be the first thing you are judged on when you talk about your business, and your monthly Churn will directly affect your ending MRR for the month. Once you get to a decent size ($1mm+ of Annual Recurring Revenue), you’ll want to shoot for 10% or more month over month growth to be considered fast growing.
- CAC Payback – CAC (Cost to Acquire a Customer) by itself is super important to calculate, but I’m skipping a step by listing CAC Payback. The metric is as simple as it sounds: how long it takes you on average to recoup the cost you incurred to acquire this customer via customer recurring revenue (on a gross margin basis, of course). It probably goes without saying that you want this to be as low as possible (oops, I said it…). The benchmark to shoot for here is to be paid back in under 12 months.
- Sales and Marketing Efficiency – This one is ever so slightly off the beaten path, but I’m a big fan. S&M Efficiency is calculated by taking the new ARR booked in a time period and divide it over the total sales and marketing spend over that given time period (or a previous time period if you have a longer sales cycle). Cousin of CAC Payback, S&M Efficiency is essentially doing a rough ROI calculation of your sales and marketing, therefore you want to be greater than 1 or 100% if you are calculating in percentage form.
What’s fun about CAC Payback and S&M Efficiency in particular is that if you are sporting consistently strong metrics in both of these, that is a good indicator to GO with regard to scaling your customer acquisition process!
Again, there are a boatload of additional important metrics to track, and it’s a great exercise to get in an operational rhythm by tracking all the metrics you find important weekly, monthly, and quarterly on a dashboard spreadsheet. Find the metrics that are hyper relevant to you now and expand as your business grows!