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They may sound obvious, but these words from Paul Graham, the co-founder of Viaweb and Y Combinator, have grown into a truism for startup founders:
“A startup is a company designed to grow fast.”
And if that startup is a SaaS (software as a service) company, Graham’s words could perhaps become “designed to grow really fast.”
It’s often this speed, and the resulting pressure, that leads to SaaS founders and CEOs believing they need to always have a grasp on every SaaS KPI under the sun.
The result, aside from being overwhelming and nearly impossible, is inefficiency. And inefficiency will ultimately limit growth.
This inefficiency can take many forms, but here are the three most common ways it impacts SaaS leaders:
- They spend their energy thinking about obtaining venture capital or worrying about their LTV:CAC ratio (Lifetime Value to Customer Acquisition Cost) well before they've found product-market fit;
- They’ve attained solid market traction but fail to shift some of their attention from product engagement metrics to growth metrics like annual or monthly growth rates;
- They’ve been growing fast for a while but struggle to add efficiency metrics like CAC (customer acquisition cost) Payback and Revenue per Employee.
While the SaaS community is awash in metrics, and it can seem like new SaaS KPIs are being created each day, I’ve found it helpful to organize SaaS KPIs in relation to where they are most important in these three stages of a SaaS company’s lifecycle: Product, Growth, and Efficiency.
In the video below I delve a bit deeper into this topic, and in the infographic that follows you’ll find the SaaS KPIs organized by stage. I hope you find these resources valuable.
Here’s the SaaS KPIs infographic, made with the graphic design software Venngage:
Product Metrics for SaaS Businesses
Daily Active Users are the number of unique users of an application or platform that have interacted with it in a day. This metric is used to track daily user engagement. Daily Active Users includes both new users and existing users who have interacted with the application. Learn More.
Monthly Active Accounts measures the number of unique accounts with at least one user who has interacted with an application or platform in a month. An active account may include one or more users, who may each have varying degrees of activity. Learn More.
Net Revenue Retention (NRR) Rate is the percentage of recurring revenue retained from existing customers in a defined time period, including expansion revenue, downgrades, and cancels. Learn More.
Net Promoter Score or NPS® is a measure of a customer base's willingness to promote a product or service to colleagues and friends. It is based on the results of a current customer survey, which asks respondents to answer the following question: “how likely is it that you would recommend (brand or product X) to a friend or colleague?” Learn More.
Daily Active Users (DAU) to Monthly Active Users (MAU) is the ratio of the number of unique daily users of an application, to the number of unique monthly users of the same application. It is a useful metric to measure the stickiness of an application or platform. Learn More.
Growth Metrics for SaaS Businesses
Monthly Recurring Revenue (MRR) Growth Rate is the velocity at which MRR is being added to the business, expressed as a percentage. MRR Growth Rate is often cited as a monthly rate, but it's also possible to express it using an annual timeframe; for example, "we are targeting 10% MRR Growth for April", or "our MRR Growth Rate was 100% last year". Learn More.
The Rule of 40 is a SaaS financial metric that balances revenue growth versus profit margins. It’s a rule of thumb to quickly determine the health and/or attractiveness of your SaaS company. Learn More.
Logo Churn is the enemy of any subscription company. Logo Churn is the number or percentage of subscribers to a service that discontinue their subscription to that service in a given time period. Learn More.
Efficiency Metrics for SaaS Businesses
CAC Payback Period is the time it takes for a customer to pay back their customer acquisition costs. The value depends on how high the Customer Acquisition Cost (CAC) is and how much a customer contributes in revenue each month or each year. Learn More.
The Lifetime Value to Cost of Acquisition (LTV/CAC) Ratio tells you if the theoretical lifetime revenue you get from a customer is higher or lower than the sales and marketing costs needed to acquire that customer. Learn More.
SaaS Quick Ratio is used to measure the growth efficiency of a company, but is often overlooked by early stage entrepreneurs and investors. Think of SaaS Quick Ratio as a health measure of company growth. Learn More.
Annual Revenue per Employee is a measure of the total Revenue for the last twelve months (LTM) divided by the current number of Full-Time Equivalent employees. This ratio is among the most universally applicable and is often used to compare companies within the same industry. Learn More.
Gross Margin is the difference between Revenue and Cost Of Goods Sold (COGS). Typically, it is calculated as the selling price of an item, minus the cost of material and labour used to produce the item. Learn More.
If you want to learn how Klipfolio dashboards can help you track these SaaS KPIs, visit Klipfolio.com/SaaS. And if you just want to deepen your understanding on the SaaS metrics mentioned (and then some), check out our SaaS Metrics and KPIs resource page.
Allan Wille is a Co-Founder and Chief Innovation Officer of Klipfolio. He’s also a designer, a cyclist, a father and a resolute optimist.
Originally published March 30, 2017, updated Oct, 22 2020