With the value of the software-as-a-service (SaaS) market estimated to hit $225 billion in the US by 2025, the industry offers lucrative opportunities for tech entrepreneurs. However, launching a SaaS company can be risky. Recent stats suggest over 90% of SaaS startups fold within three years due to the intensely competitive nature of the market.
So, how can SaaS platforms nurture customer loyalty, attract new subscribers, and maintain reliable revenue streams? One of the best ways to grow your business is to track several customer success metrics and use this SaaS valuation data to make effective decisions. If you’re wondering what kind of data to collect, these metrics will help you measure customer satisfaction levels and develop strong retention strategies.
1. Customer Churn Rate
The customer churn rate tells you how many subscribers you’ve lost in a given timeframe. It’s one of the easiest customer success metrics to measure, and tracking your churn rate on a monthly, quarterly, or even biweekly basis will help you catch and address retention problems early. However, while churn rate is helpful for flagging general customer success issues, it won’t necessarily help you diagnose their root causes. To optimize your offering, you’ll need to dig a little deeper.
2. Customer Acquisition Cost
The customer acquisition cost (CAC) indicates how much you’re spending on acquiring new customers through advertising and digital marketing strategies. You can calculate the CAC by dividing your total sales and marketing expenses by the number of new customers you attract within a given time frame. If you need to lower your CAC, it’s worth experimenting with a range of innovative marketing strategies, such as search engine optimization (SEO), to find the most cost-effective solution for your business.
3. Customer Engagement Score
Customer engagement scores offer insights into how subscribers are using your software. The way you calculate engagement scores will depend on the kind of platform you operate, but inputs could include:
- How often the customer uses your platform
- How often the customer attends online events such as webinars
- How many features the customer uses
- Whether the user is actively engaged in your online community
If you feel some factors are more important for your offering, you can assign them a relevant weight and calculate an average score accordingly.
4. Customer Lifetime Value
Customer lifetime value (CLV) refers to the average amount of money customers pay for the duration of time they’re subscribed to your SaaS. You can calculate CLV by following three simple steps:
- Divide the number one by your customer churn percentage to find your customer lifetime rate
- Calculate your average revenue per account (ARPA) by your total revenue over time by your total number of customers
- Multiply the ARPA by the customer’s lifetime rate
As your business grows, your CLV will rise and appear much more attractive to stakeholders and potential investors. To boost your CLV, you’ll need to incentivize customers to stick with your brand while maintaining high revenues through tactics such as upselling, customer training programs, online community initiatives, free upgrades, and, if possible, boosting your annual billing rates.
By comparing your CLV to your CAC as a ratio, you can ascertain how well your marketing strategies are working. Broadly speaking, CLVs should be at least three times higher than CACs to be cost-effective. However, too high a ratio could indicate that you need to boost your marketing budget.
6. Lead-to-Customer Rate
Lead-to-customer rates indicate how well you’re converting leads into paying subscribers, indicating whether your sales strategies are working. To calculate the lead-to-customer rate, simply divide your total number of customers by the total number of leads secured within a given timeframe.
If possible, you should also ascertain which of your sales and marketing strategies yield the highest lead-to-customer rates. According to recent stats, online forms tend to generate a conversion rate of 2.4% for SaaS companies, compared to over 10% for paid advertising clicks. If pay-per-click (PPC) advertising seems to work effectively, you may wish to consider more of your budget into this approach.
7. Free Trial Conversion Rate
Free trials represent the backbone of many SaaS models, giving customers enough confidence in your brand to take out an annual subscription. To calculate the free trial conversion rate, simply divide the number of free trial users by the number who converted into paying customers. If your free trial conversion rate starts to drop, it’s worth assessing the competitive landscape and altering certain aspects of your offering. For example, customers may require more flexible subscription packages or more innovative features.
8. Average Time on the Platform
Assessing how much time users spend on your platform will help you understand their behavior and improve your software accordingly. Similarly, you should track metrics such as the number of active users on your platform to ascertain whether you’re successfully serving all subscribers. If the number of active users starts to fall, you may need to communicate more effectively with customers or launch more engagement initiatives. Failure to address the issue could lead to high churn rates.
9. Net Promoter Score
Net Promoter Scores (NPS) assess the likelihood that customers will recommend your goods and services to their friends, family, and colleagues. As well as collecting quantitative data about your company, Net Promoter collects qualitative feedback about customer experiences that you can harness to improve your customer service position.
A customer health score should tell you how much value you’re delivering to your customers, incorporating factors such as how your SaaS product benefits their organization, how often they use your product, and whether you’re successfully addressing their pain points. The method you use to calculate a customer health score will depend on the purpose of your platform.
Growing a SaaS company? Start tracking metrics today!
Accurate SaaS valuation data is vital for business owners hoping to understand their customers, improve their offerings, and ultimately enhance revenues. As well as offering reassurances to investors and stakeholders, customer success metrics will help you channel your budget into profitable investments and secure healthy long-term growth for your SaaS platform.
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