A Key Performance Indicator (KPI) is a measurable statistic that shows how well a firm is accomplishing key business goals. Organisations use KPIs at many levels to assess their progress toward their goals. Low-level KPIs may focus on procedures in sales, marketing, HR, support, and others, whereas high-level KPIs may focus on the business’s overall success. KPIs for SaaS companies are a must for keeping track.
It is a performance measurement that evaluates the success of a business generally, or their success in a particular event, product, service, or project. Investopedia defines it as a set of quantifiable measures that a company uses to gauge its performance over time. Simply put, KPI is a way of measuring the effectiveness of an organisation and its progress towards achieving its goals.
Top Must-Have KPIs for SaaS Companies
Whether you are in your product development cycle, whether you are a new SaaS company or a software editor transitioning to SaaS, you need a set of indicators that help you track your development. You will be able to use them to find out how well your product is performing and what quality of customer relationship you have.
Monthly recurring revenue (MRR)
You can predict your monthly revenue significantly when you offer SaaS subscriptions. With MRR, you can calculate how much income you expect to generate annually based on how many customers you have and the scope of their contracts.
Net MRR can be computed by calculating expansion revenues, contraction revenues, and churn. It is easy for boards to assess the growth of the company using this KPI. To achieve actionable insights into how to adjust your strategy, you can also analyse MRR by segment. A positive MRR overall might be contradicted by a loss in one segment, indicating a poorly fit customer or a service delivery issue. In the alternative, you may be able to determine where to focus your customer acquisition and retention efforts to grow more sustainably even if your MRR overall is shrinking and the MRR in specific segments is rising.
Net revenue retention (NRR)
A Net Revenue Retention (NRR) is the amount of revenue that you keep and the amount you bring in. A good rule of thumb is to make more each month than you spend and grow the difference between those two amounts each month.
Over time, boards expect net revenue retention to increase. In the same way that you should analyse MRR at both the segment and the company levels to get the most valuable insight, you should also analyse NRR at this level.
Customer lifetime value (CLV)
A customer-centric business must consider its customer lifetime value (CLV) because it measures how much value your company exchanges with your customers for their relationship. CLV isn’t just about keeping your acquisition costs low compared to the contract value but also about retaining and expanding customers multiple times. There is a common problem for newer companies since they do not have enough historical data to determine their margins. As an alternative, you can approximate CLV by using average customer longevity (ACL) and a simpler version of the CLV equation.
An organisation’s quick ratio measures its new revenue against its losses during a specific period. This helps you determine income increased from expansion and retention against revenue lost from churn. In calculating this ratio, you can figure out whether your marketing, sales, and service efforts yield a return on investment. In addition, boards can use these figures to compare your growth rate and loss rate.
As you can see, the above-listed metrics are great starting points for a SaaS board deck, but you should also incorporate other KPIs to guide your growth strategy. In addition to the metrics listed in this post, you should build on them with other key metrics to guide your growth strategy.
Make sure to read Substance Valuation method – pros and cons.
Great pick of the most important KPIs for SaaS!