Clearly defined and closely monitored marketing metrics are critical to the success of any SaaS company. Not only do they help measure the effectiveness of your marketing campaigns, but they also help diagnose risk and identify opportunities to accelerate growth.
How do I know? I’ve spent the last six years of my professional life tracking a small list of SaaS marketing metrics very closely -- maybe even somewhat obsessively at times.
In doing so, I've found that these metrics function much like a scorecard for marketing. By highlighting the performance of particular tasks or initiatives, these metrics hold the keys to what almost every growth oriented-marketer wants: bigger budgets, accelerated growth, and bigger opportunities.
Below I've detailed 12 of the most important metrics I've kept my eye on over the years. While these metrics have helped fuel the SaaS companies I've worked with, it's important to keep in mind that all businesses are a bit different. To help move your company forward, pull from this list as you see fit.
12 SaaS Marketing Metrics That Matter
1) Unique Visitors
Unique visitors are simply the amount of unique individuals coming to your website. To be honest, this is the closest thing to a “vanity metric” on this list because unique visitors gives you no sense of the quality of the visitors to your website.
That said, it’s a helpful measure of how accessible your website is, and it’s worth keeping tabs on the mix of visitors that come to your site organically, directly, and from paid programs.
It's critical that sales and marketing teams hash out and agree on the difference between “leads” and “qualified leads.”
In the vain of keeping this simple, I like to refer to “leads” as any lead that’s closer to the top of the funnel. In other words, maybe they've expressed interest in a topic related to your product by reading a blog, but they are yet to show direct interest in the product itself.
To help you gain a better understanding of how to weed out leads that aren't a great fit, check out this post.
3) Qualified Leads
When I say “qualified leads,” I’m generally speaking about leads that I’d classify as living in the middle of the funnel -- commonly product demos or free trials.
A prospect that requests a demo has signaled a desire to see how your product works. Even better, a free trial is interested in kicking the tires on the product to see how it works for their business.
These types of leads are frequently referred to as “marketing qualified leads,” and I like to report on them as such.
4) New Customers
This one’s as straightforward as it gets: How many new customers signed up for your product this month? This quarter? This year?
While revenue typically trumps new customer sign-ups in terms of importance, it’s still useful to know how often you’re winning and how much of the addressable market you are capturing.
Cash on the books means a great deal to the success of your business. By tracking monthly recurring revenue (MRR), annual recurring revenue (ARR) and average revenue per account (ARPA) you'll be able to strengthen your understanding of how much money is actually coming in.
6) Qualified Lead to Customer Rate
If you’re interested in “growth hacking,” there’s no better place to start than trying to improve the rate at which you convert qualified leads into paying customers.
What percentage of free trial sign-ups end up buying your product? What percentage of prospects who request a demo buy?
7) Unique Visitor to Qualified Lead Rate
So you have thousands of unique visitors coming to your website every month ... that’s great. But what percentage of them actually interact with your site and become a qualified lead?
Once you know this number, you can use A/B testing software to run experiments that can influence your conversion rate. For guidelines on how to run an effective A/B test, check out this resource.
Churn can be expressed in terms of either revenue or customers, and it’s absolutely one of the most important metrics for any SaaS company. In essence, churn tells you how much business you are losing over a given period of time.
While many argue that churn is a product or customer service metric, I’d argue that it’s an "everybody metric," including marketing. There is not a more sure-fire way to increase your churn rate than to market and sell your product to people who don’t truly need it.
To measure customer churn, take the number of customers you had at the beginning of the month, say 500. Once you have this number, subtract the number of customers you lost in that month, say 50. Your customer churn rate (expressed monthly) would be 50/500 = 10%.
9) Customer Lifetime Value
Customer lifetime value (CLTV) refers to the amount of money your average customer pays over the course of their relationship with your company.
To calculate CLTV, you must first calculate your average customer lifetime. To do so, use this formula: 1/customer churn rate (expressed in months or years). For example, if you have a 10% monthly churn rate your customer lifetime is 1/.10 = 10 months.
Once you know your average customer lifetime, you must then multiply it by your average revenue per account (ARPA) over a given time period. To do so, use this formula: Total revenue/total number of customers. For example, say your business made $5,000,000 in revenue last month off of 5,000 total customers. $5,000,000/5,000 = $1,000 in revenue per account.
Finally, to determine customer lifetime value, you'll simply multiply customer lifetime (CL) by your average revenue per account (ARPA). In the example above that would be 10 months*$1,000 = $10,000 in customer lifetime value.
10) Customer Acquisition Cost
Customer acquisition cost (CAC) divides your total sales and marketing spending by the number of new customers you add in a given period. For example, if you spent $250,000 in sales and marketing expenditures last month and added 250 customers, then your CAC would be $1,000.
It’s important to note that CAC calculations should include personnel-related expenses -- the cost of your sales and marketing teams (both salaries and benefits).
As your company scales and spends more money on marketing expenses not as tightly correlated with customer acquisition (think PR), you may want to filter some of these expenses out of your calculation of CAC. However, for earlier stage start-ups, I’d recommend that all sales and marketing related expenses be folded into your CAC calculation.
11) CLTV:CAC Ratio
The relationship between the lifetime value of your customers and the amount you spend to acquire them is the single metric I rely on most to measure the health and growth potential of customer acquisition programs within any SaaS company.
A general rule of thumb is that your company must have a CLTV three times greater than your CAC in order to be a “healthy” business. If your CLTV:CAC ratio is greater than 3:1, then you have a customer acquisition engine that is working and likely warrants additional spending in sales and marketing. (Depending on the nature of your product, you may fall slightly outside of this baseline.)
Pour money into the machine, and favorable returns will be spit out.
12) Gross Margin
Gross margin is commonly considered a financial metric, but I think it’s an important marketing metric because marketing should play a role in pricing your products and services -- which contributes significantly to your gross margin.
Quite simply, gross margin looks at the percentage of sales revenue that a company retains after it subtracts the costs associated with delivering their products and services. (Gross Margin (%) = Revenue - Cost of Goods Sold/Revenue.)
For example, if a company made $10,000,000 in revenue and it cost them $2,000,000 to deliver their products and services, then the company’s gross margin would be ($10,000,000-$2,000,000)/$10,000,000 = .80 or 80%.
Keeping Tabs on Measurement
While tracking these metrics well is critically important for any SaaS company, it’s worth mentioning that doing so isn’t always so easy.
Issues with data integrity and simply defining what measurement systems you’ll use are not always so straightforward. To ensure you're reporting on factual numbers, here are two pieces of advice:
Declare “systems of record” for each metric. This ensures that your measurements will be consistent. It also makes it easy for everyone to understand where you’re getting your data from each month. When determining which system to use, take the time to understand how each option calculates the number you're looking for so that it can be easily explained to others.
Use a business intelligence toolthat pulls data from multiple sources into one dashboard. There are many tools on the market today that pull together your data from CRMs, spreadsheets, marketing automation systems, and other data sources into a single repository. This typically allows data from different sources to be used in the same calculation if necessary.
Metrics Don’t Matter If Nobody Cares
While it's typically the responsibility of your company’s marketing leadership to track these metrics and be able to explain the relative importance of each of them, it's also important that they are drawing connections between the numbers and the people on the team.
This starts with making your data accessible, and then hinges on making your data easy to understand. Everybody on your marketing team should know very clearly that success for them means influencing one of these metrics in a positive direction.
In other words, if you want to move numbers in the right direction, you need to get people to care about them.
What metrics to you track? Let us know in the comment section below.
Originally published Nov 10, 2015 12:00:00 PM, updated February 01 2017