“If you can’t measure it, you can’t improve it.” This well-known adage applies to many organizations, and SaaS companies are no exception. Here are some key metrics that every software business should be laser-focused on.
1. Customer Acquisition Cost/Lifetime Value of a Customer (CAC/LTV)
We would argue this may be the most important metric, as it reveals crucial dynamics about a company, including how efficient it is. As the name suggests, this ratio measures how much it costs to acquire a given customer and how much that customer is ultimately worth to the business. A low ratio (i.e., a short payback period) indicates that new customers can be acquired relatively inexpensively relative to the revenue they will bring to the firm. By contrast, a high ratio is cautionary. For example, perhaps a particular customer only sticks around for 18 months, but the payback period is 12 months. That’s not a very profitable business model.
Of course, the acquisition cost will vary depending on the customer in question. For example, a smaller customer might sign-on within one month and stay for a year. Meanwhile, it may take significantly longer to sign up a large enterprise account, but if they stay on for years it will pay off in spades.
2. Customer Churn
Every business gains some clients and loses others. It’s just how the world works. But while gaining new customers is great news, it’s crucial to analyze those who stopped using your product. Say that 10 customers you had last month didn’t renew. If you do some digging, you might find out that two went out of business. Unfortunately, not much you can do about that.
Yet you can look at the other 8 to figure out why they left and whether there are common threads. Maybe they were all a certain size, suggesting that you might be having issues addressing the needs of that segment of your business. Alternatively, maybe the eight former customers didn’t find your product valuable enough to justify the cost. What you uncover by measuring the kinds of customers you’re losing can tell you a lot about your product and how the market is receiving it.
3. Your Onboarding Process (Time to Onboard)
The faster a customer can be onboarded, the more efficient your business. Ideally, your customers can do most if not all the onboarding themselves. That’s easier for them and better for you, as you won’t have to invest heavily in employees dedicated to high-touch customer service.
As with anything in life, aim for your onboarding to be as fast as possible. For example, if it took an average of 5 days last year to onboard a customer, aim to get that down to 3 or 4 days this year.
4. ROI for Each Marketing Dollar Spent
You can have the most creative marketing campaign ever, but it wasn't a success if it doesn’t result in solid revenue generation. That’s why your marketing department (and sales, too) should always be mindful of the return it’s getting for its efforts. And to state the obvious, the higher the ROI, the better!
5. Revenue per Employee
This is another great metric that offers compelling insights into your business's efficiency. Among SaaS companies, revenue per employee of $100,000 is fairly standard. Below that and you might have trouble sustaining your business. Much higher, however, indicates that you’re very capital efficient and are doing some things very, very right.
Different departments should be focused on their own key metrics. That said, if the business is monitoring the ones that truly matter, it can really put your SaaS company on the road to even more success.
Looking to chat about how we might be able to help you take your software company from good to great? We’re Element Finance, and we offer easy to understand term loans for growing SaaS companies. We’re always happy to chat so feel free to reach out anytime.