Top 8 SaaS Usage Metrics To Track In 2022
The SaaS industry is expected to experience its most significant annual growth in 2022. So much so that, according to Gartner, the SaaS industry will reach a value of $171.9 billion by the end of 2022. It is also predicted that 85% of the software used by organizations will be SaaS by 2025. As you can see from these data, the use of SaaS is gaining more importance than ever before. As you will get more and more users, measuring and analyzing your SaaS product’s usage with SaaS Usage metrics is more important than ever as you need to make sure that those users are here to stay.
In this article, you will find 8 metrics that will work best for you when tracking your SaaS usage. Continue reading to learn how to apply these metrics to your SaaS usage and what these SaaS metrics can do.
#1 Daily Active Users (DAU)
Daily active users is the name given to the number of users who use your product following the active user measure you have determined that day. In other words, this ratio measures how many people who appear to be users of your SaaS solution actually use your product.
How to calculate daily active users?
To determine your daily active user count, you must first determine what it takes to count a user as an active user. For example, is logging in a good indicator for active use of your SaaS product? Or do they need to perform specific tasks with several stages? After deciding on this, you can find your DAU rate by proportioning the number of users who perform this task daily to all your users.
Why are daily active users important?
Your daily active user rate is significant because the purpose of your SaaS product is to provide value to your users at all times. Therefore, determining how many people use your product daily allows you to predict how much value you add to your users. In addition, the active users metric helps you measure sales, marketing, and development strategies. The active user rate also makes it easy to spot something wrong. If your active user rate is low, you can find out what’s wrong quickly and take action to increase this rate.
#2 Retention Rate
Retention rate is simply the percentage of users who use your product repeatedly. These users are loyal to your product, so the retention rate is an indicator of user satisfaction. In addition, attracting new users is much more costly than retaining your current users. For this reason, the retention rate is a metric that should be considered in SaaS companies, especially since their revenues are generally subscription-based.
How to calculate the retention rate?
To calculate the retention rate, you must have the following information:
- Number of users you have at startup (I)
- Number of new users who started using your product (N)
- The number of users you have at the end (E)
Based on these data, the formula is as follows:
(E – N) / I = Retention Rate
|Months||User Number at the Beginning of The Month||New Users||Retention Rate|
For example, as you can see in the table above, Company A has 80 users at the beginning of February and 100 users at the end of March. 20 of these users are new users. For this reason, Company A retained 40 users in February, so its retention rate is 50%.
Why is Retention Important?
Retaining your users is essential for many reasons. For example, retaining a user who already uses your product is much less costly than attracting a new user. Therefore, a high retention rate provides SaaS companies with much more profit than previously thought. Also, a high retention rate shows the loyalty of your users. That can be directly related to user satisfaction. Having a product with high user satisfaction will increase your power in the market and enable more users to prefer your product. In addition, it is much easier to sell to a retained user within a period than to sell to a new user in the same period. Therefore, your retained users enable you to profit faster from your new users.
#3 Churn Rate
In its simplest terms, the churn rate is the opposite of the retention rate. This rate refers to users who quit being users of your product within a certain period. The higher your churn rate, the higher the rate of users who renew their membership the next month and continue to benefit from your SaaS product.
How to calculate the churn rate?
The churn rate is the opposite of the retention rate. Therefore, if you know your retention rate, you can calculate the churn rate as 1 – retention rate. To calculate the Churn rate from the beginning, the same information needed to calculate the retention ratio is required and is as follows:
(I – E – N) / I = Churn Rate
|Months||User Number at the Beginning of The Month||New Users||Churn Rate|
In the example in the table above, Company A had 80 users at the beginning of February but had 100 users at the end of the month, despite the newly added 60 users. That means that Company A has 40 churned users. In other words, Company A lost half of its users in February, and the churn rate is 50%.
Why is the churn rate important?
Since retention rate and churn rate are complementary, reasons for the retention rate are essential for SaaS companies; churn rate is also crucial.
#4 Sessions per User
The success of a SaaS company cannot be considered independent of how frequently and actively the website is used by users. A high session per user rate is an indication that your on-site users are actively using your site. The session per user ratio also helps you measure the density of your users on your website and the density of your on-site traffic.
How to calculate sessions per user?
Sessions per user is the number of sessions on your site divided by the total number of users. The average session rate per user is between 1.2-1.6. That means that the website of a SaaS company with an average session-per-user rate is visited once or twice a day by its users. You should also note that background activity is not included in the session per user ratio.
Why are sessions per user important?
Sessions per user rate is a vital Usage metric for SaaS companies because it shows how attractive your website is to users. If you have a high session-per-user ratio, it indicates that your website is well organized and meets the needs of your audience; in other words, it was created to allow your users to use it more than once. On the other hand, if your session per user rate is lower than other SaaS companies in your industry, it’s good to identify and change what’s wrong with your website.
#5 Activation Rate
User activation is one of the pirate metrics, and it is when your users meet the criteria you set for them to be counted as active users. This criterion may be to use a particular feature of your product for a certain period or to make a purchase. As you can see, at the moment of user activation, your users understand the value of your product and start using it actively at that very moment. This activation moment may differ for each user group. For example, the time at which start-ups are counted as active users will differ from those of large companies.
How to calculate the activation rate?
User activation rate, in its simplest definition, is the ratio of users who have reached the moment of activation to all new users and is calculated as follows:
Number of Activated Users / Number of New Users = Activation Rate
Why is activation rate important?
Tracking the user activation rate is incredibly important for SaaS companies because a high activation rate is an indication that your purchasing cycle is running smoothly. You get the fruits of the strategy you set for your SaaS service at the first moment of user activation.
In addition, user activation is one of the pirate metrics that have the most positive impact on your MRR. As you can see in the table above, a 25% increase in activation per month returns a 34% increase in MRR in a year. This data alone shows how vital the activation rate is.
#6 Power Users
Power users are your ideal users who constantly use your product actively. These users are familiar with the features of your product and know which features to operate best for their benefit. In addition, these users do not neglect to give you feedback and offer their opinions about the product. They often post their comments on various media, and since they’re experienced users, other users and your leads are likely to trust the power users’ experiences. Observing how these users use your site, taking into account their feedback, and monitoring their activity on your site will be good for you to determine your product and feature strategies.
How to identify power users?
Determining your active users and looking at these users’ DAU/MAU ratios is a method often used to identify power users. However, this metric may not be sufficient to identify your real power users or may mislead you. Although a 20% DAU/MAU ratio is considered ideal for SaaS companies, for most SaaS companies, using WAU instead of MAU will give a more effective result. In addition, some SaaS companies don’t need to be used that often to create value. Therefore, before determining your power users, it is essential to decide how often and how a user should use your product to become a value-added user.
The most effective way to determine your power users is to take advantage of the power user curve. The power user curve has many advantages over DAU/MAU. For example, this curve shows whether you have a related user segment for your product that uses your product every day. Also, unlike the DAU/MAU ratio, power user curves convey whether your user interaction has improved over time. In short, the DAU/MAU offers you a single rate to review, while the power user curve offers several analysis paths over time.
Why are power users important?
One of the most important features of power users is increasing the Average Customer Value (ACV). Since SaaS companies mostly have subscription-based pricing, high user value and reducing user loss are essential goals. Since power users have been actively using your product for a long time, the more power users you have, the higher and desired ACV value you will have. In addition, the increase in the number of power users also reduces the cost of customer acquisition. Power users are a reliable guide to other users with their product reviews on various platforms. As these users express their positive opinions about your product and its benefits, potential users will be more likely to choose your product over all other products.
#7 New Users
New users have never visited your website before, have not used your product, and have never interacted with your company. A SaaS company needs new users and returned users for its success because both the companies’ increasing the number of active users and making more profits are proportional to the number of users. If new users are directed with a good strategy, it means potential returned users.
New users need a good onboarding process to have a targeted user lifecycle. Customer onboarding is your first step toward attracting new users and engaging them with your product. With this step, you can introduce the product to your users, show which features they can use most effectively, and create an insight into what awaits them in the future.
Why are new users important?
Monitoring the new user metric gives you many benefits. For example, you can determine how many unique users are converted in the first interaction with this metric. In addition, you can monitor which stages your new users follow in their first interaction and which channels and features they interact with your product. So you can observe whether your marketing strategies are effective and the success of your funnel.
#8 Feature Engagement by Cohort
In SaaS, feature engagement allows you to monitor how your users interact with which features of your product. With this metric, you can determine which features add how much value to your product and how they add this value. However, measuring your feature engagement by taking your users as a whole can be confusing. At this point, cohort analyzes will help you lighten your load.
What is cohort analysis and why it is useful for feature engagement?
Cohort analysis is to analyze your users by grouping them according to certain behavioral similarities and actions rather than analyzing them as a whole. On the other hand, cohort analysis for feature engagement is a way to segment your user group to examine users with similar feature usage habits or other similar characteristics together to measure the effectiveness of your product’s features. With cohort analysis, you can determine more effective strategies for your existing features. In addition, you can customize your test scenarios with a more user-based for the new features you will add.
Managing a general feature engagement strategy by treating all your users as one group may ignore your minority users. That will increase your churn rate. When you group your users with cohort analysis, you can create a personalized feature engagement strategy that appeals to all users. You can implement your adoption funnel without leaving any of your users behind.
Focusing on your SaaS company’s usage metrics and following these metrics well is very important for your company to reach a better point. Thanks to this 8 metric, you will have no difficulty determining an effective and sustainable strategy that will increase its use by identifying your product’s good and weak aspects.
When your users are not satisfied with your product, you will lose a large part of these dissatisfied users. That’s why it’s best to organize your product so that your users get the most out of your product. Taking advantage of product analytics and metrics in this process will provide you with the necessary insight to reveal the ideal product for user experience.
The North Star metric should serve three purposes: generate revenue, reflect customer value, and measure company progress. If the metric you set measures these three items and every department contributes to improving it, your company will continue to grow.
The job of product analysts is to determine marketing strategies for the product by following the market and data. They follow the market to measure the product’s profitability and its suitability for the market and make a decision by drawing a strategy accordingly.