8 SaaS Marketing Metrics That You Need To Track For Customer Success

Growing any company is difficult, but growing software as a service (SaaS) company is particularly difficult. The majority of SaaS businesses struggle to achieve predictable revenue growth, and even public SaaS businesses struggle to break even.

To be a successful SaaS firm, you cannot simply switch your software delivery methodology to the web and expect everything to work. When it comes to marketing, sales, and customer success, you must make informed, data-driven decisions and for that, there are some key SaaS marketing metrics that you need to keep in mind.

Consumers’ ability to utilize your product successfully is critical to your company’s revenue development, especially for SaaS companies because customers frequently explore your product on their own, without the benefit of a sales demo or account manager support.

SaaS Marketing Metric: 8 Key Metrics For Significant Decision Making 

Annual Contract Value

The annual contract value is the average revenue per customer contract. The name suggests it is calculated annually and does not include any one-time fee. The annual contract value is one of the most important metrics. It determines the time it takes to get the value of acquiring a customer. We can also say that Annual Contract Value comprises the revenue generated by subscription across the year. 

For example, if the company had a customer who signed up for a contract for 4 years at $36,000, the ACV is $8,000. 

The base formula for calculating the ACV is as follows; 

Total contract value (excludes one-time fee) / Total years of contract= ACV 

The annual contract value is calculated in two terms- Long-term customer and short-term customer. Let’s see how we can calculate the ACV;

ACV for long-term customer 

Let’s say we have a customer X. The customer has signed a -4 year contract worth $40,000 with your company. Customer X planned to pay yearly for the software service. Therefore, the ACV for customer X can be calculated as follows: 

$40,000/ 4 years= ACV of $10,000 

Note: Annual contract value is calculated only by the value of the contract and does not include any of the implementation or activation fees. 

ACV for short-term customers 

Now, customer Y has agreed to a 6-month contract of $40,000. But the customer decides to pay on a monthly basis. Now the ACV is calculated as follows: 

$40,000 (total contract value for 6 months) / 1 year (should at least be 1 year)= ACV of $40,000

Note: In case, after the end of the six months, the customer decides to renew the contract, the ARR would be $80,000 over their first year. 

Annual Recurring Value

Annual recurring value is a subscription metric. It determines the value calculated annually for the period of the subscription. ARR is considered the recurring revenue for the year. 

For example, if a customer gets a subscription for two years at $20,000, the ARR would be $10,000 each year. 

The ARR calculations include fees such as subscription charges, revenue from an upgrade or add-ons, or even the canceled subscription. The elements such as promotional offers for the customers are included in the calculation. ARR excludes the one-time fee, taxes, credits, or other recurring charges. For calculating the ARR, we need to divide the contract value by the relevant number of years. 

The base formula for ARR is: 

Value of contract/ number of years 

We take as customer A signing a contract of 3 years for $36,000. Therefore we calculate the ARR as follows; 

36,000/3= $12,000 

ARR is to be calculated with an annual term of 1 year. If there is any short-term contract, which is less than one year, it has to be canceled within 30 days. This short-term contract is considered calculated as Monthly Recurring Revenue (MRR).

Monthly Recurring Score

Monthly recurring revenue is simply the total revenue generated from the number of active subscribers in a month. It includes recurring charges such as discounts, coupons and add-ons. But it excludes any kind of one-time fee. 

For example, if we have 6 subscribers for a month on the plan of $400/month. Then the MRR will be,

6* $400= $2,400 

If the subscription is annual, the MRR is calculated by dividing the value by 12. Further multiplying the value with the number of customers on an annual plan. 

Here’s how you can calculate the MRR; 

MRR = Total Monthly Revenue (current + new revenue + upgrades) – Lost Revenue (canceled downgraded subscriptions)

I.e , if we have 

Starting month revenue : $10,000

New revenue:$5,000

Upgrades: $1,500

Canceled: $2,00

Downgraded: $500 

Therefore, 

Total revenue= $20,000 + $5,000 + $1,500 = $26,000k

Lost revenue = $2,000+ $500= $2,500 

Monthly Recurring Revenue= $26,000-$2,500= $24k 

The monthly recurring revenue is feasible to understand the business’s financial position and cash flow. 

Net Promoter Score

It is considered to be a metric for customer loyalty and satisfaction. The Net Promoter Score is measured by asking how likely the customer is to recommend the product. These measurements are considered to be the core metric for customer experience. 

The base formula for NPS is :

%of promoters- % of detractor= Net Promoters score 

The NPS is calculated by using the answers to the questions. A scale of 0-10 is used for answering. The respondents are segregated into groups according to their answers. They are as follows; 

• Promoters (9-10): They are considered the most loyal customers. 
• Passive (7-8): These are the ones who are satisfied by the service but considered to be enthusiasts. The respondents here are also vulnerable. 
• Detractor (0-6): The respondents here are unsatisfied. They are considered to be damaged by the brand with their negative responses. 

For example, we have 10% of detractors and 20% of the respondents who are promoters. 

Therefore the NPS will be; 

20%- 10 %= 10%

The Net Promoter Score is used to gain the customer’s perception of your brand. The score indicates the business growth.

Activation Rate

It helps businesses consider how quickly and effectively the new users gain value. The activation rate measures the number of users who perform the predefined “key action” within a given period. This is the number of users who get to your ‘ah ha’ moment and receive the core value of your product.

The activation rate is considered the acquisition rate that helps measure the success of a product. Activation refers to action encompassed as a success factor. If you want your activation rate to increase, it is very important to make the process simple for the user. 

For example, 

If we consider 400 new users, out of which 100 users perform the key action. Therefore, the activation rate calculated is 25%. 

Here’s how to calculate the activation rate, 

Total number of active users/ total count of user base *100 

I.e., if we take 

400 users take the key action

1000 new users in the user base 

Therefore the activation rate is, 

400/1000 *100= 40% 

Activation rate is important as it is established in the early customer lifecycle. A low activation rate is a sign of a user experience issue that prevents users from taking action. 

Average Revenue Per User

The Average Revenue Per Use is one of the most important metrics. The metric indicates how much an average user spends. Through this, businesses can optimize their support budget, pricing and product positioning. 

Average Revenue Per User indicates the revenue generated from each user. It has to be calculated monthly. This gives an idea of how much a user spends per subscription. 

How to calculate the average revenue per user; 

Amount of revenue/number of users

For example, if the business has a revenue of $20,000 and 100 users.

Therefore the average revenue per user that is calculated is; 

$20,000/100= $200  

Churn rate

The churn rate is also known as the attrition rate. This indicates the rate at which the user stops having transactions with the company. It applies to the number of subscribers who don’t renew their subscribers. The churn rate evaluates the marketing efforts for the customers. Businesses should try and understand why their customers are churning. 

There are two forms of churn rate; customer churn and revenue churn. Customer churn refers to the cycle of losing and acquiring customers. The lower the churn rate, the better it is for the businesses. 

To calculate the churn rate, consider the monthly recurring revenue at the beginning and divide it by the lost monthly recurring revenue for that month. It excludes sales in the month. The revenue gained is from existing customer revenue.  

For instance, if a company has a $20,000+ MRR. The company is experiencing a 5% churn rate; you are losing customers of about $1,000/month. Therefore, the company’s churn rate is about 10% to 15%. 

Customer Churn Rate 

The formula for the customer churn rate is;

Canceled customers in the last 30 days / active customer 30 days ago *100 

For example, 

Canceled subscription this month:5 

Total customers at the beginning of the month: 50 

Customer churn rate = 5/50= 0.1*100= 10% 

Revenue Churn Rate

Formula for the revenue churn rate is; 

Total MRR churn (canceled + downgraded)/ Total MRR at the start of the month *100 

For example, 

Canceled Subscription this month: $2,000 

Downgraded Subscription: $500 

Total MRR at start of the month: $35,000 

Revenue churn rate = $2,000+ $500 / $50,000 = 0.05*100= 5% 

Customer Acquisition Cost

The customer acquisition cost is the amount of revenue a company spends to acquire a new customer. It is calculated by adding the costs of converting the prospects into customers and dividing the amount by the number of customers gained. 

The customer acquisition cost determines the amount a company spends on acquiring a new customer. The cost is used to raise the organization’s popularity, which is gained through analytical decision-making. Through various digital marketing techniques, you can target specific customers at a deeper level. 

How to calculate the customer acquisition cost; 

Total marketing cost/ number of new customer 

For example, the organization spent $1000 on the marketing effort in a year, and it was able to gain about 1,000 new customers. Therefore, the customer acquisition cost would be $1.