Having established how customer experience works, and how the purchase lifecycle works, one of the other important things to understand to successfully operate an SaaS provider. Understanding the more important SaaS KPI elements is equally crucial, because it is with these metrics that you can see the state of growth, and the effectiveness of strategies for various factors.
Your SaaS KPI are a series of metrics, basically, that measure a few different factors of your business. The problem that people have is that they try to look only at metrics that show levels of a positive objective, and ones with obvious direct implications. This results in some of these KPI factors being overlooked.
Along with this, the way of calculating a few of these can seem a little scary if you’re not used to them, which means that a lot of SaaS companies are discovering, sometimes too late, that their metrics are not giving them a clear picture of the state of things. This leaves them having to scramble, upon this revelation, to rethink strategies and their views of the status quo. It’s expensive and disastrous. I’d like to spare you that problem, but pointing out some of the KPI factors you may be overlooking, what they mean, and why they’re so crucial.
The first one is your CAC, or customer acquisition cost. It consists of the sum of all sales and marketing expenses divided by number of new customers, within a fiscal cycle. If you’re spending too much on acquisition, you may have to rethink your approach, and growth to combat another metric will be hard to accurately address.
Another issue is your churn, which we talked about being a big problem for growth recently. Churn is the loss of subscribers in a time period. This is an indicator of some possible problems, though some is inevitable. It may mean competitors have an edge, or you just don’t offer enough to justify the ongoing expense to large groups of people.
Next, you have your customer lifetime, which is just one divided by churn rate, and the value of a customer lifetime. This is a direct unit to show how much revenue a given customer, per subscription renewal, is worth. It should be obvious why knowing this is important.
Finally, similar to LTV, you have your ARPA, which is the average revenue occurring per month per account. With LTV and ARPA, you can measure how much total income is coming in, and with your CAC and overhead metrics, you can then determine how much actual revenue you are bringing in. Comparing this with your churn rate can indicate how much you are growing on a financial level.
If you don’t have clear pictures of these things, then you’re kind of working blind, and serious issues you’d otherwise be aware of may be left to run rampant and compound into serious catastrophes.
Now, I’ve given you some clues about how a few of these SaaS KPI factors are calculated, and the ones I haven’t aren’t much more complicated. If you’d like to know more about how to calculate these, we’ve recently done pieces that discuss it at length, and I suggest you take a look. You’ll find they’re not difficult at all, even if they seem that way at first.