There are many SaaS (Software as a Service) metrics to track when the goal is to measure business growth. However, not all are relevant to your business, and you can’t afford to waste time on irrelevant data.
Here are the top SaaS metrics to track and drive your MRR (Monthly Recurring Revenue) upwards:
- Active customers
- Churn rate
- Contraction MRR
- Average Revenue Per User (ARPU)
- Customer Acquisition Cost (CAC)
Increasing your MRR is incredibly effective when you are keeping track of the essential SaaS metrics that are relevant to your business. In this post, we’ll explore these relevant metrics in detail, discover why they are necessary, and how they can help you increase MRR.
1. Active Paid Customers (APC)
Active customers refer to users actively using your products on paid plans. They don’t include free trials or free plan users. Active users generate income for your business, not free users, so pay attention to them.
A mistake that many SaaS businesses make is grouping all users in one category. When you do this, you could have 1000 users, with 500 on free plans while 200 are free trial users. This leaves you with 300 active users.
If you think you have 1000 users, when you only have 300, you are being misled. The active customers metric is essential because having more active users increases your MRR.
This will also reflect in the growth of your profit margin and help you chart a way forward if your profit is declining.
How to use APC to increase MRR?
You can distinguish who is on a free plan, and then begin to find ways to get them to upgrade to a paid plan.
These are customers you have already won, so that means they have a higher chance of paying for a paid plan than new customers.
Methods you can use:
- Show how the paid plans will benefit them
- Upsell banners
- Limited time discounts to upgrade
2. Churn Rate
Churn Rate is the percentage of customers lost after uninstalling.
You can calculate the monthly churn rate to determine how many customers and revenues you’ve lost in a given month.
You can also see how common it is for customers to cancel after subscribing, which in turn allows you to dive deep and know why they are uninstalling, which helps to solve the problem.
There are a few types of churn rates; two of the most important are:
- Revenue Churn: This is the percentage of recurring revenue lost due to canceled subscriptions, downgrades, and unrenewed contracts.
- Customer Churn: This is the percentage of customers who have canceled their subscriptions.
Both are necessary metrics since the growth of any SaaS or subscription-based business relies on repeat customers and not one-off clients.
Tracking and analyzing your churn rate will show what percentage of your customers are leaving. It will also show why they are leaving and how much you lost from their exit. This data can help you work hard to retain customers and increase MRR.
Learn more on best practices for Churn Rate.
Customer Churn Rate
To calculate the customer churn rate, you divide the number of canceled customers in a month by the number of active customers in the same month, and multiply this number by 100.
Here is the formula: the number of canceled customers in 30 days/active customers in 30 days multiplied by 100.
Revenue Churn Rate
The formula for revenue churn is the MRR lost to downgrades and cancellations/MRR in 30 days multiplied by 100.
3. Contraction MRR
What is MRR? To summarise, it’s monthly recurring revenue, but what is Contraction MMR? It’s a bit different.
This metric refers to the monthly recurring revenue lost from existing customers, whether they downgraded from their plans or failed to subscribe in a given month.
It does not include customers who canceled, but existing customers who reduced the amount of money you earn from them monthly.
This is a sign that something is wrong, and you must act fast. Thankfully, they’ve not canceled yet, which is good.
However, they are reducing the number of users in the plan. Some are downgrading, while others are missing their payments.
What could be the problem?
You have to study this sign and improve on the value you are offering. When there is contraction, it’s always a value problem. Customers are downgrading because they are not getting enough value for the pricey plans they are on.
They are also reducing the number of users on their plans because you charge per user, and they don’t see the point in having multiple user accounts. Don’t ignore this warning sign because it can lead to high churn rates.
4. Average Revenue Per User (ARPU)
Average Revenue Per User is the total revenue generated from each active user in a month. You can calculate this for all your customers by dividing your MRR by the number of active customers you have.
You calculate the ARPU for only active users because they are the ones that generate revenue for you.
Calculating for total users will include customers that are on free plans and trial version users who do not generate any income.
This is important because the data obtained from this metric calculation shows you that your MRR connects to your ARPU due to active users.
Hence, if you can increase your ARPU, your MRR will also increase. With this information, you can determine what options are available for you to scale.
You’ll realize that having more customers with low ARPU isn’t a viable means to scale your business.
You have to maintain a high volume of customers by giving them support. Unfortunately, this will be expensive, but growth is impossible when you earn less from customers. Having a few customers with high ARPU shows that you don’t need more customers to succeed.
You can use a range of strategies to do this, including:
- In-app purchases
- Adding more value
- Conducting price variations
5. Customer Acquisition Cost (CAC)
As its description suggests, CAC is the amount spent to get one new customer.
You can calculate CAC by dividing the amount spent to acquire new customers by the total number of customers acquired.
This can vary for different companies. For instance, some companies prefer to calculate the cost of acquiring customers based on ad expenditure. Others include everything spent from ads to transportation and tools used in the process.
Whichever way you choose, ensure you are using this metric. It’s important because you will use it to determine if you are making a profit or not. If you spend more money to get customers but make less on revenue, you are running at a loss.
Profit is when you are making more money from the customers you acquired after spending less in the acquisition process. From this data, you can increase your pricing to match up, lower your ad cost and grow organically if you are not making a profit.
If you want to learn more about CAC, check out this complete guide for Customer Acquisition Cost.