SaaS Metrics - Customer Acquisition, Retention - Part 1

Here are SaaS metrics which I used in the past and continue to use. My thought process is to cover the SaaS business from all angles. So I divided the business into 4 parts. Part 1 covers two of them which are Customer Acquisition and Customer Retention. Part 2 covers Operations and Finance aspects of the metrics. 

This article assumes that you know what SaaS is and are aware of preliminary metrics around a business. All the metrics are inter-related to each other and create a cumulative impact on the SaaS business. 

Please note that - 

• This is my list based on my experience. I might have missed many. 

• Figure out what metrics depict your business and track those. It is very easy to get lost in metric paralysis which costs time and money … 💰 

• Start with the metrics that exist. It is not mandatory to set up weekly automations for these metrics. 

• Track metrics on weekly, monthly and quarterly basis. One of the best ways to compare is with last years metric to gauge seasonality.

• I have not given benchmarks for each; they exist on the internet or ask GPT engines. 

Customer Acquisition metrics - 

• MQL, SQL - All marketing, advertising, partner, sales efforts are towards acquiring leads which should follow a funnel - marketing qualified to sales qualified leads (SQL). Sales teams usually give demos to SQLs.  

• Number of Customers - This is the total number of customers. 

• MRR, ARR - This is annual recurring revenue for the company/ business. This means a total of what all customers together are paying per year. Divide it by 12 to get MRR. Because of the customer's contract signed date, MRR multiplied by 12 may not exactly give you the ARR; but it is expected to be close to it. So focus on your North star which is correlated to ARR … 👏 

• New ARR - if the business is in the second year, then revenue from the customers who are acquired in the current/ second year is considered as new ARR. It is better to also track Total contract value from all customers as it considers the contract length of each customer and ARR. 

• YoY ARR growth % - How much was the ARR last year (example Jan to Dec) and how much % it increased this year. This metric is very helpful to validate that our product continues to be relevant in the market and we are selling it well to the right customers. 

• YoY growth in Customers % - Lets say last year we had 100 customers and this year we have 146 customers then the YoY growth is 46%. Number of customers should grow in parallel with ARR; if not only one customers bringing in more revenue is not a scalable model in the long run … 👍 

Here is something very relevant to metrics. Good quote -

“The first draft of anything is shit.”

― Ernest Hemingway

Customer Retention metrics - 

• % of customers upsold - The more we upsell the higher chances of retaining those customers. Because customers who trust their software partner, usually buy more from them hence measuring this metric is crucial … 🙋 

• Upsell, Crosssell % of ARR - We expect that a lot of our existing customers buy more products from us and the amount they buy is also high dollar amount. This can be referenced to what is % of upsell and crosssell the current ARR. To do this effectively the saas business has to continuously innovate and launch customer centric products. 

• Gross Retention, Net Dollar Retention - this is an indication of churn as well. For example, if we had 100 customers last year, then did we retain that entire 100 this year too? This metric is an indication of downsell as well where the customer is retained however the annual money spent by that customer reduces from last year to this.   

• % of reference-able customers - As scale happens it is important to know how many customers we have good relationships with and can appear in front of a prospect as a good reference … 💐 

• Revenue Spread - Saas business should be built for stability and revenue forecasting. To do that it is important to get an understanding of what % of customers bring in 10%, 20% and 50% revenue. Broader the revenue spread, higher is the stability for the SaaS. 

• Gross margin, Net margin - Gross margin does not consider COGS in the calculation however net margin considers COGS which means king of the entire expense of the business. 

Hope this helps you grow and scale your SaaS. In part 2, I will cover Operations and Finance aspects of the metrics … 🏆 

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Swagat Irsale is a Growth and Scale Advocate. He works with start ups and scale ups and helps them grow revenue and build enterprise products which users use.

Connect with him for work, partner opportunities. 

https://www.groadv.com/post/grow-revenue-the-journey-zero-to-one-billion-swagat-irsale