8 SaaS Product Metrics To Track In 2022
The number of customers of SaaS products has been increasing more and more in recent years. Each year the SaaS market grows by 18% and SaaS products are placed in a larger territory in the market. In this case, leading to better product decisions is vital for your SaaS business.
To be able to improve your product, you need to track certain metrics, so that you can measure your customer engagement, marketing strategies, customer churn and retention, and overall satisfaction with your product. Being aware of your measurements is a crucial step for improving your SaaS product effectively.
Keep reading to learn more about some of the most important SaaS product metrics, why they are important, and how to calculate them.
Expansion Rate is the percentage that shows the excess revenue from your existing customers. This is simply the new revenue from your current customers without including the revenue from your new customers. The expansion rate is, in fact, a quite beneficial product usage metric for your SaaS business because expansion revenue especially indicates profit depending on the product usage of your current customers without spending any money on acquiring new customers.
The three drivers of Expansion Rate are:
- Upselling is when your customers upgrade to a more expensive version of your product. For instance, upgrading from a free trial to a premium version is considered an upselling.
- Cross-selling is when your customers buy additional products that are related to the current version they use.
- Add-ons are additional features your customers buy to add to their existing plans.
How to calculate Expansion Rate?
Note that, you should not include your new customers while calculating your expansion rate.
You can calculate it with this formula:
Why Expansion Rate is important?
A high rate of expansion revenue indicates the efficiency of your SaaS product. Since your SaaS business grows on customer retention which I’ll explain below, a high expansion rate is great. It shows you have happy and loyal customers, in other words, an efficient product. It gives you the message that your SaaS business both expands the revenue and keeps the customers.
The churn rate gives you the percentage of customers who unsubscribe or leave your SaaS product. Keep in mind that, churn is inevitable. The goal is to keep it low. For SaaS companies, the average churn rate is 5%, and measuring your churn rate is vital to be aware of the performance of your product.
How to calculate churn?
- Choose a time period you’d like to learn your churn rate. This could be monthly, quarterly, yearly, and so on.
- After choosing the time period, you need to know the customer number at the beginning and at the end of this specific time period.
- Next, divide the number of lost customers by the customer number you had at the beginning of the time period, and then multiply by 100.
Customer Churn Rate = (# of churned customers lost during the period / # of customers at the start of the period) x100
Why Churn is important?
As I’ve stated, churn is inevitable. Either way, you will experience a certain number of customer losses, however, it is important to know your churn rate because it can indicate a huge problem with your product. Churn prevents growth, and so does the increase of your revenue. Your SaaS product grows with your loyal customer base and a big number of losing them is definitely not a good sign. By calculating your churn rate regularly, you can avoid an alarming problem in your SaaS product.
Retention is being able to keep your customers in your product and hold them engaged with it. A high rate of retention indicates a low churn rate since they are opposites. Customer retention is the base of your SaaS product since acquiring new customers is five times more expensive than retaining them. Eventually, SaaS companies grow successfully by focusing on their customer retention.
How to calculate Retention?
You can calculate your Retention Rate with this formula:
# of active users who continue their subscription / Total # of active users at the beginning of the time period = Retention Rate
Why is Retention important?
- Retention is one of the top priorities in the SaaS industry since customer acquisition cost (CAC) is much more expensive than retaining them.
- As the opposite of churn, increased retention rates by 5% can actually increase your profit up to 95%
- It can help you notice defects if you get low retention rates so that you can improve them for the growth of your product.
- Being aware of your retention rate is being aware of your SaaS product. It shows you whether your customers are satisfied with it or do you need to make some changes to your service.
Monthly Recurring Revenue (MRR) Growth is the metric that gives you the percentage change in MRR on monthly basis. You can see the inclines and declines of your monthly recurring revenue by calculating your MRR Growth rate.
How to calculate MRR Growth?
You can use this formula:
MRR Growth Rate = (Total MRR at the end – Total MRR at the beginning) / (Total MRR at the beginning) x 100
Why is MRR Growth important?
Calculating your MRR Growth gives you the whole picture of your month-by-month growth. You can detect the velocity of the growth whether it’s a slow or a fast-growing business. It is more likely to have a higher MRR Growth in startups, and along the way, it is important to focus on customer acquisition, retention, and expansion since they are the main factors that affect your monthly recurring revenue. It is also an important metric to give investors an idea of your business and its potential.
NPS is the metric to target customers’ potential level of recommending your service to their friends and families. By sending in-app surveys or email campaigns to customers for them to rate their likelihood of referring your service on a scale of 0 to 10, you can detect the potential promoter, passive, and detractor customers. In other words, NPS helps to measure customer loyalty and how happy they are with your company.
How to calculate NPS?
By subtracting the percentage of detractors from the percentage of promoters, you can get the Net Promoter Score.
NPS = % Promoters – % Detractors
Promoters are detected from the customers who rated 9 or 10. They are happy with the service and more likely to promote it while passive customers rate 7 or 8. They are still satisfied with your service but not likely to tell about it. Customers who rate between 0 and 6 are detractors who are not satisfied with your product at all.
Why is it important?
Using NPS is a powerful and important survey system to detect promoters, passives, and detractors to notice possible churn rate and retention rates. While promoters contribute to your company by recommending, detractors may bring the opposite effect. Identifying these rates can help you to prevent the churn and work on your service. Also, it is a much more convenient metric than traditional surveys that have multiple questions. A single question helps collect responses in higher numbers for its user-friendliness.
Active user, as a product analytics metric, gives you the number of users who have interacted with your product in a certain period of time. This could be daily (DAU), weekly (WAU), or monthly (MAU), depending on what you are willing to categorize. Also, it is better to decide according to the type o your service because checking out your daily active users (DAU) may not work for you if it is not for frequent use.
How to calculate Active Users?
The easiest way to calculate your active users is to use a SaaS product analytics tool so that it can calculate for you automatically.
Why is it important?
Tracking your active users is important because through this metric you will be able to see your customer engagement and also it helps you detect users who convert to paying customers from your free trial. This benefits you in the sense that noticing your conversion rate. If you have a high rate of active users but a low conversion rate, this may indicate a problem. The active users metric can help you improve your SaaS product.
Adoption Rate shows your customer satisfaction by measuring the number of people who adopted your service and become customers that use your product regularly. In other words, it gives you the percentage of customers who actively use your product after a certain period of time.
How to calculate Adoption Rate?
You need to decide a time period (monthly, quarterly, yearly) to calculate.
The formula to calculate your product adoption rate is:
Active users / New users = Product Adoption Rate
Your new users are the number of signups in a specific time period.
Why Adoption Rate is important?
It is a great metric to see how successful your customer onboarding and integration processes are. The success of your product adoption shows you whether your service has a good user experience or not so that you can work on improving. Since your SaaS business is a subscription-based service, increasing the number of adopted customers plays a big role. A high adoption rate means you have a high number of frequent users. In other words, your customer engagement is on the right path. Your adoption rate tells about the journey a user has on your product from their initial interest to their product usage.
Time to Value
Time to value (TTV) refers to the period starting from when your customer purchases a product until the return of the received service as a value. Keeping TTV as low as possible allows customers to take more advantage of the value provided by the offerings. TTV varies due to factors such as the customer, the services, and the industry of the business. Even if these parameters vary, there are 5 types of TTVs to keep in mind.
1. Time to basic value: It is the time elapsed until the service provided starts to provide its benefits to the customer. Customers may not try all the features that are offered at this stage. Time to basic value is an important clue about how effective and successful the service is.
2. Time to exceed value: It is the stage where the benefit to the customer becomes deeper. Time to exceed value can be experienced at every stage of the service, but the end of the free trial usually represents the most appropriate moment for this value.
3. Short time to value: A product has a short time value if it can produce a solution for the consumer in a short time, if not immediately. Since the rapidity of the service is important, it carries a risk that a competitor business to serve the consumer faster. Short time to value is a significant reference for the consumer to continue with a business.
4. Long time to value: Although keeping TTV as short as possible is intended for your business, there are some SaaS products that require more time in terms of realizing value. These products generally require considerable time for customers to adapt and integrate them.
5. Immediate time to value: A product with immediate time value provides customers its value immediately. The customer enjoys the benefits of the product as soon as it receives the service.
How to Calculate TTV?
For TTV to be measured, the importance of value for customers must be determined. Customer profile, business model, and the software that is offered are also other important parameters in calculating TTV.
As noted, value can be evaluated by customers in different ways, such as:
1. Time to increase revenue
2. Time to upgrade from free to paid
3. Time to decrease spending
4. Time until new features are launched
5. Time to reach target ROI
In the light of the parameters sorted, different values can also be derived by considering specific requirements and needs. After the value is determined, TTV is found by calculating the time it takes until that value is provided to customers.
Why TTV is important?
The effectiveness of your SaaS product is measured by the value created. Keeping TTV low allows customers to get the value for their investment quicker. A short TTV will build consumer confidence in your business, as it enables consumers to easily access the value of the service. With the decrease in TTV, there will also be a decrease in the churn rate because consumers will tend to stick with the gains from your service in a shorter time.
Tracking your SaaS product metrics is a crucial step for the improvement of your SaaS business so that you can be aware of your profits, churn, growth, and in which parts you need changes. By measuring product metrics, you can get a good understanding of your SaaS product performance whether it is efficient or needs more work to better.