The world of SaaS marketing can feel like a maze, with so many channels to choose from, and constant reminders to ‘measure what matters’. But how do you know what matters, and what’s not worth measuring?
Today we’re sharing the most important SaaS marketing metrics, and how to use them to guide your SaaS marketing efforts. This post will introduce the metrics that are important, and we’ll share the context in which to use them. This will help you understand why they’re important, and how you can use each one to inform your marketing decisions.
We’re sharing three different types of metrics:
- Funnel metrics – metrics relating to the sales funnel / lead nurturing process / customer journey
- Acquisition metrics – metrics to help you understand how people find you in the first place, and become paying customers
- Monetisation metrics – calculations for working out the lifetime value of each customer, so you can understand if your marketing efforts are financially sustainable or not
Funnel metrics for SaaS marketers
The sales funnel isn’t a new concept. It’s built on the premise that, while a lot of people will visit your website, only a handful will actually become customers. The funnel breaks the sales journey down into six distinct stages, to help you understand what percentage of those visitors become customers, and identify any sticking points in the sales process.
As a marketer, understanding your funnel metrics is really important. Especially if you’re using lifecycle marketing as part of your customer acquisition and retention strategy.
Lifecycle marketing is based on the idea that potential customers want more detailed information about your SaaS product and business as they get closer to making a purchase. Therefore marketers create different types of content for each lifecycle stage, and provide that different content to customers as they move through each stage of their lifecycle.
So, let’s break down the most important funnel metrics for SaaS marketers:
- Email subscribers
People who have subscribed to your newsletter or mailing list. They’re interested in what you’re saying, but not necessarily what you’re selling.
People who visit your website and fill out a form, usually in exchange for some content, or on your ‘contact us’ page. Like your email subscribers, they’re mostly interested in what you’re saying. But they’re demonstrating a little interest in your company too.
- Marketing qualified leads (MQLs)
These are leads who are interested in what you’re selling, as well as what you’re saying. This qualification is based on the website pages they’ve visited, what content they’ve downloaded, and how they engage with your content across other channels.
- Sales qualified leads (SQLs)
These are marketing qualified leads who demonstrate genuine interest in buying something from you. For example, they may have downloaded a product information pack, booked a product demo, or started a free trial.
These are sales qualified leads who are in conversation with your sales team, and who have received a quote from you. For B2C or low-price B2B SaaS companies, you may not have an ‘Opportunities’ stage of your sales funnel – leads might go straight from SQL to customer. But for B2B SaaS companies with higher price points, where there’s often room for negotiation on contracts, Opportunities is an additional stage in the sales funnel.
This is someone who has signed up for your product or service, and started paying for it. If you have a freemium product, you may differentiate between paying customers and freemium customers, or you may count them all together.
- Conversion rates
As well as knowing how many people are at each stage of your sales funnel, it’s important to keep an eye on your conversion rates from one stage to the next. This will help you identify the sticking points in your sales process, and allow you to make improvements where they will have the biggest impact.
- Free trial or demo requests
These demonstrate genuine interest in your SaaS product. But for each of these keep an eye on your conversion rates: if hardly anyone turns into a paying customer, then high numbers of trials or demos are just vanity metrics and don’t deliver real growth.
Acquisition metrics for SaaS marketers
Now let’s take a look at metrics that will help you understand how people find you in the first place, and become paying customers.
Funnel metrics only really provide any information about how people act once they’re already in your CRM. But that’s the second part of their journey to becoming a customer. Acquisition metrics look at the activity of people who aren’t necessarily contacts yet – people beyond the top of the sales funnel.
For marketers, understanding your acquisition metrics is really important. It helps you understand what actually happens on a prospect’s journey to becoming a paying customer.
- Website traffic: users
Put simply, this is how many different people are visiting your website in a certain time period (normally measured on a monthly basis).
- Website traffic: source / medium
This is how people have found your website. For example, your analytics data might show Techcrunch / Referral’. This means this traffic is a referral from another website – in this case Techcrunch. You can use it to see which channels are driving traffic to your website – are your social posts or email newsletters bringing visitors to your website?
- Website traffic: time on page
How long are people spending on your website? A ‘good’ time on page will vary depending on what’s on the page: if it’s a highly visual home page with just a little content, time on page will be less than an in-depth article. But in general, time on page is a good metric to help you understand whether people are engaging with your content.
- Website traffic: bounce rate
This shows what percentage of website visitors view only one page on your website, and who don’t interact with that page at all. A high bounce rate may suggest that visitors aren’t getting any value from that page. Alternatively, if you’re using adverts to drive traffic to a certain page – for example a special offer – a high bounce rate can indicate a mismatch between what your advert promises and what’s actually on offer.
- Website traffic: behaviour flow
You can use Google Analytics to see how users navigate your website. This will help you build a customer journey on your website to maximise conversion opportunities.
- Visitor to lead conversion rate
This is the rate at which website visitors convert into leads. Tools like email subscriptions, free content downloads and landing pages can all be used to convert website visitors into leads, and it’s important to measure and optimise this conversion rate over time.
- Trial (or demo) to customer conversion rate
This is the rate at which free trial users (or users who receive a demo of your SaaS product) become paying customers. A poor trial-to-customer conversion rate suggests that potential customers aren’t seeing the value in your product – a clear sign that it’s time to review your marketing efforts (to make sure your message aligns with your product) and your onboarding process (to make sure you’re delivering value early and consistently).
Monetisation metrics for SaaS marketers
The final part of this post looks at the metrics that actually make a difference to your bottom line. While these metrics are whole-company metrics, and not just owned or influenced by marketing, they’re an important health check for your company, and your marketing activities.
For marketers, it’s really important to understand your monetisation metrics. It helps you understand how your marketing efforts actually grow the business in concrete terms, rather than measuring intangible (but still important) things like brand, reputation and leads.
- Customer acquisition cost (CAC)
Customer acquisition cost tells you how much it costs to acquire a single new customer. For SaaS companies, these costs are determined by two factors: the cost of generating a lead (marketing costs); and the cost of converting that lead into a customer (sales costs). The easiest way to calculate your CAC is to calculate your total sales and marketing expenditure over a defined time period (for example, a month), and divide it by the total number of new customers gained in that time period.
- Customer lifetime value (CLTV or LTV)
Customer lifetime value is the total amount of revenue generated by a single customer over the life of their subscription to your SaaS product. Calculating CLTV requires you to know some other key metrics: your customer churn rate and your average revenue per account. But it’s super important to know your CLTV, particularly in relation to your CAC. For an in-depth look at calculating customer lifetime value, check out this article from Chargebee.
- CLTV: CAC
Neither customer acquisition cost nor customer lifetime value mean much in isolation. But together they help you understand how profitable your SaaS company is. If your CAC is greater than your CLTV, you’ll be losing money on each and every customer. And worse, generating new customers won’t fix that. To become profitable you’ll have two options: lower your CAC or increase your CLTV.
- Revenue churn
Revenue churn is used to measure the rate at which monthly recurring revenue (MRR) is lost. It is often reported broken down into different categories of churn, such as lost customers, or customers who downgrade to a lower-priced plan. For more information on revenue churn, SaaS Optics offer a good explanation in this article.
- Customer churn
Customer churn measures the rate at which your existing customers cancel their subscription to your service. For subscription businesses, a low churn rate is essential for growth; if customer churn gets too high, you won’t be able to attract enough new customers to replace the ones you’ve just lost.
At face value, the calculation for customer churn is pretty simple: take the number of customers that churned during a specific time period (normally a month) and divide that by the number of customers you had at the start of that time period. However, there are lots of scenarios that can make calculating customer churn more complicated. For example, customers on a free trial, seasonal fluctuations, and customers who have cancelled but not yet churned. For an in-depth look at calculating customer churn, check out this article from ProfitWell.
What to read next
Looking for more information about SaaS marketing? Here are some articles to add to your reading list:
- SaaS Marketing: A guide to marketing your SaaS business
- 25 SaaS marketing channels you need to know
- Top SaaS marketing sessions from SaaStock 2019