Every SaaS business is unique, and each business should consider measuring the mix of these metrics throughout their customer experience, but not all. B2B SaaS Metrics, in particular, are designed to help you understand and improve your ability to generate new visitors, leads, and customers.
You need to measure and obsess over certain B2B SaaS metrics to achieve business growth. For example, recurring monthly revenue, customer retention, and loyalty metrics help you determine how profitable your business is. This may be one of the most relevant metrics to adopt in combination with the next SaaaS marketing metrics.
7 B2B SaaS Metrics Critical to Your Business
We have listed the key B2B SaaS metrics that you measure as part of your KPIs. These metrics are relatively easy to measure, and as your business grows, you can expand and add additional metrics as deemed necessary over time.
- Churn Rate (MRR Churn)
Churn rate measures the number of customers who cancel or don’t renew their subscription at the end of the defined period. Churn rate is also termed as the rate of attrition.
Churn helps you understand the value the product is providing to the end-user. The simplest way to calculate churn is by dividing the number of customers churned for a given period by the number of customers on the first day of the period.
MRR (Monthly Recurring Revenue) is the most important version of churn. MRR churn measures explicitly the number of customers lost due to cancellations. It helps you to measure the impact churn has on your business.
If you are a B2B SaaS business, selling at a high volume measuring churn weekly or monthly is crucial. It is also essential if you have a tiered pricing structure where the amount of revenue generated from a single customer can vary from $5 to $500 per month. MRR Churn helps to identify the business’s weaknesses as a whole and for specific types of customers.
- Customer Acquisition Cost (CAC)
This metric is not unique to SaaS firms, but it is essential to track it. Customer Acquisition Cost (CAC) calculates the cash that your business has to burn to obtain new clients. The metric also
shows how long it will take for the firm to repay the original investment used to acquire those customers. SaaS businesses have to measure CAC to assess whether they should boost their marketing spending or scale down their expenses.
Successfully SaaS businesses are better at balancing CAC (Customer Acquisition Cost) to LTV (Life Time Value). But you don’t have to panic if your CAC is higher than your LTV. To balance your CAC, you have to pay close attention to three key factors:
- Sales: Ensure you have a shorter sales cycle, and you get your customers to use your products faster.
- Marketing: Optimize channels that actually bring in good leads and prospects
- Finance: Improve projects using statistical models and determine your business’s profitability.
Suppose you choose not to include customer success cost into your calculation of your CAC. Then the effectiveness of customer success has to be measured independently.
- Annual Run Rate
Annual Run Rate forecasts your future earnings based on past earnings data. ARR is an important metric for fast-growing SaaS companies, as you can calculate it using only a few months of data.
ARR is calculated by considering revenue earned over a defined period and multiplying it by 12 (to forecast a year’s worth of revenue). But the challenge with using this formula is that as a growing business is that your revenue changes quickly.
To measure ARR accurately, take MRR and add MRR from new customers for a month, then add MRR adjustments from the monthly expansion. Deduct all MRRs from the downgrades and the churn. Multiply it by 12, and you will have your accurate ARR.
Life Time Value or popularly referred to as Customer Life Time Value, calculates the total revenue that can be earned from a single customer.
Let’s look at the following example to understand how LTV has to be calculated. An average Starbucks customer spends around $5.90 per visit. We will measure this by estimating the money paid by the customer during each visit during the week.
For example, if a customer went to Starbucks three times and paid nine dollars, their average purchase value would be three dollars. After calculating the average sales amount for one customer, we will replicate the procedure for the remaining five customers. After that, put each average together and split the value by the number of customers surveyed (five) to obtain the average purchase value.
- Net Dollar Retention (NDR)
Net Dollar Retention (NDR) measures the changes in recurring revenue by accounting for fluctuations in the existing customer base.
Net Dollar Retention (NDR) of more than 100 percent suggests a spike in revenue derived from current clients. However, if the NDR is below 100%, it indicates possible contraction in recurring revenue due to downgrade or churn of existing customer revenues.
NDR gives you a complete picture of changes in revenue over time. This is important because it is possible to achieve net MRR growth while your current customer base is contracting. This happens because the new customer acquisition revenue is higher than the reduction in revenue from existing customers.
- Cash Burn Rate
Cash Burn Rate measures the rate at which the company is losing money. Cash burn is a result of various factors, including your go-to-market, industry, and competition. A recent study by Open View Ventures found that companies located in the high-cost area burn more than 2x that of other areas.
There are two types of burns that companies incur:
- Gross Burn: Measures the total amount of operating costs incurred by the company every month.
- Net Burn: Measures the average sum of money a company is spending per month.
- Monthly Recurring Revenue (MRR)
MRR (Monthly Recurring Revenue) measures the total amount of predictable revenue a business expects every month.
MRR keeps SaaS businesses focused on the present and helps them follow the market’s momentum as it expands. For investor-backed firms, the growth of their MRR over a month over a period of time is absolutely crucial.
Profitwell’s latest research showed that almost one in five SaaS companies removed some kind of cost when measuring MRR. Two out of five companies had trial users or free users in some way, and the rest were incorrectly allocating their annual or quarterly fees.
While each of the above B2B SaaS Metrics is essential, not to decide how your numbers relate to market trends or benchmarks. Every SaaS business is different, and you need to understand your business and what is relevant for your current circumstances.
Yes, benchmarks can provide background and frame realistic goals when you’re just starting to scale up a SaaS enterprise. But once you start monitoring your KPIs, it’s essential to set your own targets.