Scaling a software-as-a-service (SaaS) company is different than growing other types of businesses. Revenue is highly dependent on the number of users you have in a month, and to scale your business, you need to be able to accurately track the marketing analytics that matter the most to SaaS companies.
Taking the time to track — and analyze — these marketing metrics allows you to make decisions based on solid data. Data is logical; it explains the why behind every important customer behavior and helps you make informed decisions about how you should tweak your marketing efforts.
In fact, leveraging data is part of how top SaaS companies such as Hubspot and Salesforce were able to scale to mass success. And according to Kissmetrics co-founder Hiten Shah, growing your business without tracking your marketing performance is like driving with both hands over your eyes.
One major influence on the success of your SaaS company is your website. If your numbers aren’t looking great for any of the 5 marketing metrics for SaaS companies we list below, a low-performing website might be to blame. Take our Mod Website Profits Quiz today to get our quick guide that will help you edit your site so you can convert more visitors into clients.
Here are the top 5 marketing metrics your SaaS company needs to pay attention to:
- Recurring Revenue (RR)
- Active User Growth Rate (ARR)
- Lead Velocity Rate (LVR)
- Product Qualified Leads (PQL)
- Organic vs Paid Traffic Rate
1. Recurring Revenue (RR)
If you only measure and track one marketing metric, make it your recurring revenue.
According to Len Markidan, Head of Marketing at Groove, recurring revenue is the most important metric to note because it demonstrates how many customers are happy with you to the point that they’ll gladly and continuously pay for your service.
Revenue affects your SaaS company’s bottom line — in essence, it’s how you afford to run the business and show investors that the company is profitable. Depending on the nature of your business (and your stage of growth), you might opt to measure this metric monthly or annually.
To calculate this metric, SaaS companies need to consider new MRR, expansion MRR, and churn MRR:
- New MRR: New revenue brought in by acquiring new customers
- Expansion MRR: Increased revenue you earn if a customer upgrades their plan to a more expensive level or buys additional products or services
- Churn MRR: Revenue lost when a customer cancels their plan or downgrades to a lower, less expensive level
2. Active User Growth Rate (ARR)
The Active User Growth Rate (ARR) is another important metric for a SaaS company to examine. Not only is it directly tied to your future revenue, but it also demonstrates that there’s a growing interest in your product.
The operative word here is active, meaning that you’re measuring those that frequently use the product, versus measuring the more simplistic user growth rate. This distinction is important because, although you might have an increase in user growth rate in general, it doesn’t necessarily mean that all of your new subscribers are actually using your service.
A general SaaS marketing metric to be aware of is the fact that many people download an app and then never use it.
Note that this marketing metric should be expressed as a percentage, not an exact number of active users. Measured as a percentage, you can determine the change in behavior with respect to another time period.
3. Lead Velocity Rate (LVR)
Lead Velocity Rate (LVR) is another marketing metric to track for your SaaS company, as it measures the growth of qualified leads. In the same vein as the ARR, instead of showing you how well you did in a specific month (for example, getting 95 leads this month), the LVR shows you how your lead generation efforts are improving over time.
Some companies might instead refer to this as the “lead momentum” or “qualified sales lead growth”. The LVR is also telling in terms of your future revenue potential. It’s fair to assume that if leads grow over a period of time, there is also a bigger chance for conversion (or sales).
Related: 8 Ways to Repurpose Your Content
4. Product Qualified Leads (PQL)
Before, companies used to measure Market Qualified Leads (MQL) or Sales Qualified Leads (SQL). But for a SaaS company, especially those operating in the “freemium” model, Product Qualified Leads (PQL) is the metric to watch.
PQLs are based on the activities users execute within your SaaS product, showing a pattern of being ready to purchase. Essentially, you use it to measure the what (activities) and the who (users). Activities may include things like login frequency and session length.
You should be able to use this marketing metric to answer the question: we sold what to whom? Shifting to PQL aligns everyone to the product at the core instead of qualifying leads at different stages in the funnel. SaaS marketers have even found that using the PQL (as opposed to MQL or SQL) has shown up to 10x improvement in conversions and sales.
5. Organic vs Paid Traffic Rate
When measuring applied marketing metrics, it’s important to note the difference between traffic that comes from organic or advertising efforts.
Ideally, your marketing analytics will show your organic traffic rate as higher than your paid traffic, due to people purposefully searching for you (or following you on social media). This shows that people are genuinely interested in your service — not to mention that fact that it’s free traffic.
But PPC (pay per click) advertising also has its advantages, and can be a better focus when it comes to marketing efforts that include short-term conversions, testing, and/or product sales. Still, it’s important to note that paid advertising can be difficult and expensive, with the average conversion rate in AdWords across all industries at just 2.70% for search and 0.89% for display.
Scale Your SaaS Company with Mod Girl Marketing
When marketing a SaaS company, it’s important that you know what metrics are most important to your success. Cutting back and focusing on just a few important metrics can paint a clearer picture as to what you must do to achieve success.
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