Ten Essential B2B SaaS Metrics Every SaaS Business Should Track

The SaaS business model continues to grow from strength to strength and shows no signs of slowing down as various industries increasingly recognize its capacity to offer scalability, accessibility, and cost-effectiveness. While developing and expanding any business is challenging, many SaaS companies find achieving predictable revenue growth and profitability difficult. The subscription-based model of a SaaS business implies that the company’s relationship with its customers doesn’t end after a sale concludes. Instead, the only way you can gauge success is to quantify a SaaS business’s ability to retain its customers and increase their lifetime value.

This article will detail ten of the most crucial metrics your SaaS company must account for to give you a well-rounded perspective and a better understanding of its health. It will also help you identify areas for improvement, predict future trends, and make data-driven decisions to steer your business toward fulfilling its marketing, customer success, and sales operations goals.

What are B2B SaaS Metrics?

B2B SaaS metrics are critical key performance indicators (KPIs) that allow you to measure, evaluate, and optimize the performance of your SaaS business. These metrics encompass revenue patterns, how you secure new customers, how long your customers will stay with your service and your company’s overall operational efficiency. They’re the measurement building blocks you should consider to determine how well your subscription-based operations are doing and what steps you must take to ensure success in a competitive landscape.

These stats and figures will highlight how much your business earns each month, the financial value of each customer over a period, how satisfied your customers are, how good your service is, and what your customers think of your offerings. These indicators will help align your internal teams and allow them to communicate in the same language and synchronously row in the same direction.

While that might seem like a tall order, it is a necessity. Ideally, a reputed SaaS website design agency can offer insights into the best approaches to comprehending B2B SaaS metrics. To achieve true business potential, you must understand and leverage these metrics to scale your SaaS company and ensure success.

Why Tracking B2B SaaS Metrics is Important?

Unlike conventional enterprise software companies that rely on considerable upfront fees to deliver a solution, SaaS’s unique economic model relies on recurring revenues from monthly or annual subscriptions for a service provider to function. Monitoring B2B SaaS metrics is crucial for companies as it gives them a real-time snapshot of their business’s performance. It lets you know what’s working and what isn’t. Think of it as the heartbeat of your company’s operations. SaaS metric data is critical to managing a business’s sales, marketing, and customer success divisions.

Many often assume that SaaS KPIs and metrics are the same, but they’re not. SaaS KPIs are a broader category encompassing the most critical SaaS metrics that assess the company’s health and directly correlate to a business outcome. On the other hand, SaaS metrics are more intricate measurements that assist teams in understanding and tracking how specific aspects of a business are performing. Simply put, you can consider all B2B SaaS metrics as KPIs, but not all KPIs are necessarily B2B SaaS metrics.

Customer support units, sales divisions, teams that handle SaaS marketing services, and product managers leverage this information to optimize key areas in an organization’s operations for better performance. Decision-making becomes more practical and impactful when your teams implement insights from this raw metric data into actionable blueprints and strategic plans.

Ten B2B SaaS Metrics You Must Track

Understanding each SaaS metric’s role and importance is crucial to determining your business’s performance. Since every SaaS metric has a purpose and impact on a business’s operations, here’s a list of ten critical metrics you must track and analyze to ensure you make better strategic planning and daily operation decisions.

Monthly Recurring Revenue (MRR)

For any SaaS business, monthly recurring revenue (MRR) is the predictable monthly income generated from subscriptions. MRR is one of the most critical metrics as it will help you clearly understand your monthly revenue streams, let you budget accordingly, and forecast your company’s growth trajectory. Breaking down your company’s revenue into a monthly format lets you track how your customers’ behavior changes over time and determine noticeable trends that impact your business.

To correctly calculate your business’s monthly recurring revenue, multiply the number of paying customers by the average monthly revenue per user. You can further break MRR down into New MRR, which indicates new users; Expansion MRR, which means upgrades; and Churn MRR, which helps you understand the number of customers canceling their subscription service with your company. Apply this formula when calculating MRR: (Total Number of Active Customers) x (Average Revenue Per User).

When you club MRR figures with insights from a SaaS content marketing services provider, you will reveal customer acquisition and retention patterns, thus allowing you to plan more strategically. Regularly reviewing current performance data with your company’s historical track record gives you a better understanding of short-term changes and long-term trends, which lets you make adjustments to course-correct your business’s growth trajectory.

Customer Acquisition Cost (CAC)

Customer acquisition cost is the total expense your business incurs to acquire a new customer. This expense includes advertising costs, marketing and sales teams’ salaries, and software tools to set up that customer. A company’s CAC helps identify the most impactful and profitable sales and marketing channels. To evaluate the effectiveness of your company’s acquisition efforts, you must first understand its CAC. It will also help you determine the payback period, which is the time it takes for the revenue generated by a customer to recover the acquisition cost.

To calculate the customer acquisition costs of your company, divide the total acquisition costs by the number of new customers gained within a specific period. Use this formula: (Total Sales and Marketing Expenses) / (Number of New Customers Acquired). If your company’s acquisition costs are high, this indicates marketing or sales strategy inefficiencies, which warrants a considerable optimization of operational processes. On the other hand, if the CAC is low, it signals that a business can cost-effectively attract new customers, which is crucial when you want to scale your business.

As you track your company’s customer acquisition costs, you will understand your organization’s progress, know if you need to adjust your marketing strategies, and rationalize every dollar spent on garnering valuable customers for your service. You position your business to convert investments into meaningful relationships with your new customers.

Customer Lifetime Value (CLTV or LTV)

By definition, Customer Lifetime Value is the total revenue a SaaS company can expect to generate from a single business customer over the entire duration of their relationship with your company. In other words, it’s the value a customer brings to your SaaS business over their subscription period. It’s all about understanding the long-term impact of your customer relationships and how profitable your customer base is.

To calculate CLTV, consider customer churn rate, average monthly revenue per customer, and average customer lifespan. Here’s the formula to calculate CLTV: (Average Revenue Per User x Gross Margin) / Churn Rate. A high CLTV indicates high customer satisfaction, an optimal business model, and a strong product-market fit. It also shows that your customers are willing to continue paying for your service’s subscription and have a higher potential to purchase additional features or services.

Accounting for CLTV by analyzing renewal frequencies, subscription durations, and usage patterns is crucial when planning approaches involving SaaS link building services to keep your customers engaged. It lets you adjust pricing and customer support processes by identifying customer behavior trends. When you understand LTV, you optimally position your company to fulfill retention initiatives to make it more profitable.

Churn Rate

A churn rate refers to the percentage of customers who stop using a B2B SaaS service within a specific period. You can chalk this up to various factors. Still, it signals that your customers are unhappy and have found better or cheaper offers, have aggressive or successful competitor marketing initiatives, or for other reasons you can’t control, like strategy shifts or business failure. In a SaaS business, some churn does happen from time to time. The higher the churn, the more a company must spend to maintain its revenue margins; it could be disastrous for a business if it goes past an acceptable point.

Generally, SaaS companies can expect a churn rate of 5-7%. If your company sells its service to a smaller-sized company, it can expect a higher churn rate. Ideally, this figure should decline when selling to an established enterprise. You can calculate your company’s churn rate using this formula: (Lost Customers During a Period / Customers at the Beginning of the Period) x 100.

You must monitor the customer churn rate to identify and address issues before they escalate. A high churn rate is a massive red flag for any SaaS company. Conversely, a low churn rate is vital for long-term success and suggests robust satisfaction and customer loyalty. If you aim to launch a campaign with SaaS SEO services, monitor the churn rate to gauge whether initiatives are working. You can also review this metric to understand how to reduce cancellations, promptly address service discrepancies, and maintain a loyal customer base.

Annual Recurring Revenue (ARR)

This metric is an annualized version of monthly recurring revenue. Annual recurring revenue (ARR) represents a SaaS business’s total predictable subscription revenue it gains from a paying customer over 12 months. ARR is a particularly crucial metric for companies with an annual billing cycle, as it offers a long-term representation of revenue stability.

It’s easy to calculate the annual recurring revenue for a SaaS company, and businesses can do this in different ways. For instance, consider two customer plan cases: Customer ‘A’ and Customer ‘B.’ Customer A pays a subscription fee of $16 per month for one year. In this case, the ARR would amount to $192 for 12 months. Customer B pays a monthly subscription of $13 for two years. As such, customer B’s ARR would amount to $312 for 24 months. It’s relatively straightforward.

Calculating annual recurring revenue is critical for long-term financial forecasting and strategic planning. A clear understanding of your company’s ARR allows you to manage cash flow, secure investments, and make planning for growth much more manageable. You can also use ARR to benchmark performance against industry standards and competitors and gauge your company’s position in the market.

Customer Retention Rate (CRR)

As this metric term suggests, the customer retention rate is the percentage of customers who retain their subscriptions over a period and is a key indicator of customer satisfaction and loyalty. When you track this metric, you can assess the long-term success of your SaaS company’s relationships with its customers and the effectiveness of its retention initiatives. It’s the opposite of customer attrition or churn.

If you want to calculate the customer retention rate at the end of a month, consider repeat orders from repeat customers in the past month and make a comparison with those figures for the last two months. You won’t consider new customers acquired in the past month when determining the CRR. For instance, if your SaaS company had 300 subscribed customers at the start of the previous month and 270 customers who continued their subscriptions at the end of the last month, then you would calculate your CRR as 270 / 300 x 100 = 90%.

Regularly monitoring CRR enables you to identify customer behavior trends and single out segments where retention may be less substantial. This approach allows you to adjust your product’s features or refine your company’s customer support strategies. Suppose you need assistance in refining your approach to customer retention. In that case, you can always seek the help of a reputed SaaS specialist partner like Wytlabs for recommendations to push your company’s efforts ahead to ensure success.

Net Revenue Retention (NRR)

Net revenue retention takes customer retention a step further by measuring the total revenue your SaaS company keeps from your existing customers over a period. Consider this metric regardless of the number of customers your company may lose during the same period. You will also consider customer upgrades, downgrades, and cross-selling activities. It’s a crucial indicator of how well your company grows revenue from an existing customer pool.

The formula for calculating NRR is in percentage form: Starting MRR + Expansion MRR (upgrades + cross-sells) – Churned MRR / Starting MRR. For example, if your company’s starting MRR is $100,000, its expansion MRR is $35,000, and its churned MRR is $10,000, its NRR would amount to 1.25 or 125%.

Regularly monitoring your company’s NRR will allow you to determine if the generated revenue is sufficient to cover churn losses. A low NRR is detrimental to a company’s success, whereas a high NRR lets you know that your customer success strategies are working. This metric is a key indicator of growth potential and long-term revenue stability. It helps you correctly price your products or services and offer the ideal services your customers want or need.

Gross Margin

The gross margin metric refers to the percentage of revenue remaining after your SaaS company subtracts the direct related costs for its services. It lets you know how much remaining capital you have to cover additional expenses for future investment purposes. A company’s gross margins are a key indicator of its financial health and potential for future growth.

To calculate the gross margin of your SaaS company, follow this formula: (Total Revenue – Cost of Goods (COGs)) / Total Revenue. Your company’s COGs expenses include data storage costs, server hosting fees, and directly related employee salaries. If your SaaS company has a higher gross margin, this indicates that a more substantial revenue portion is profit or greater profitability.

Regularly tracking your gross margins allows you to highlight areas where costs continue to increase and segments your company can change to ensure a higher revenue flow. Optimal gross margins will enable you to experiment and implement company-wide changes to secure better outcomes. It’s an excellent way to manage expenses, strategize pricing models, optimize revenue channels, and plan future growth initiatives.

Net Promoter Score (NPS)

If your SaaS company wants to know how satisfied your customers are and how likely they are to recommend your services, your Net Promoter Score will do just that. You can determine how customers view and rate your services by leveraging information gained through simple surveys. It’s also a great way to understand if your customers will share your services through word-of-mouth among their professional circles.

To calculate your company’s NPS, subtract the percentage of detractors (Individuals who would not recommend your product/services) from the percentile of promoters (Individuals who would recommend your product or services); you won’t factor in passive customers (Individuals who are on the fence or neutral about your product or services). For instance, NPS surveys look like this: On a scale of 1-10, how likely are you to recommend our services to a colleague? Your promoters will fall under the 9-10 rating segment, passives between 7-8, and detractors between 0-6.

You must consider the scores and the subsequent attached feedback to gain deeper insights into your customer pool’s service perceptions. The feedback acts as a warning marker for companies and enables them to make appropriate changes to balance customer sentiment before it escalates and detrimentally impacts the company’s performance and profits.

Average Revenue Per User (ARPU)

The average revenue per user metric tells you how much money each active customer brings to your business over a specified period. This stat will help your SaaS company determine whether you’re charging enough for your services and whether your pricing strategy needs tweaking. It’s advantageous information to possess when altering your service prices, adding new features, and comparing different groups of customers.

To calculate your SaaS company’s ARPU metric, consider this formula: (Total Revenue / Total Number of Users). Ensure the timeframe is consistent for both total revenue and total users. Also, only accounts for active users, not just registered accounts. If your business offers different pricing tiers, apply a “blended ARPU” approach, which is the total revenue from all sources divided by the total number of users.

An easy way to decipher your findings is that if your ARPU increases, it means that your company is more successful at selling higher-priced products or that you’re adding features your customers want. You might consider lowering your product/service prices or changing your offerings if it decreases. A thorough analysis of your company’s ARPU metrics will allow you to make better decisions on how to market your product or services and alter the trajectory of your company’s growth.

Conclusion

For companies to grow successfully and impact the market, they must contemplate, analyze, and adjust critical findings of crucial B2B SaaS metrics. There’s no two ways about it. By leveraging detailed insights from these metrics, you can course-correct, apply further effort to a specific segment, and make notable changes that will result in optimal outcomes for your business. If you need professional assistance to ensure the correct application and best practice understanding of B2B SaaS metrics, consult a reputed specialist like Wytlabs for advice and suggestions to take your business to new heights. When implemented correctly, you can expect to break barriers, expand into new markets, and create the ideal conditions to guarantee your SaaS company’s success.