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Metrics for B2B SaaS and how to measure them

Metrics for B2B SaaS and how to measure them

Metrics for B2B SaaS: Since every B2B SaaS brand has its unique characteristics and challenges, it’s impossible to measure the sales and success with just a specific set of KPIs. It’s recommended to measure these metrics throughout the buyer journey. These SaaS metrics help to understand your target audience and generate more leads for your business. 

7 Key metrics for B2B SaaS

Below are some of the important key metrics to consider in your KPIs. The following key metrics are easy to measure, and you can always choose to change or add more metrics as per your requirement.

Churn rate (MRR churn)

The churn rate key metric measures how many users cancel or don’t renew their subscription at the end of the billing period. In other words, it tells the number of customers who decide not to use your product after the first time. That’s why it is also known as the rate of attribution. 

The churn rate tells you what value you’re giving to your users. 

You can calculate the churn rate by:

Number of customers churned in a given time / total number of customers on the first day

Monthly recurring revenue or MRR is another essential version of the churn rate as it allows you to measure the impact churn on your business. It showcases how many customers cancelled the subscription. 

Depending on how big your business is, you can measure churn weekly or monthly. MRR will also tell your business weakness for particular customers and as a whole.

Customer acquisition cost (CAC)

The customer acquisition cost metric is not considered unique, but it is an important metric to measure. It helps calculate how much money you have to spend to bring in new customers. It also tells how much time it will take to repay the original investment that is paid to acquire new users. Companies use CAC to figure out whether they need to cut down their expenses or increase their marketing budget. 

Successful companies know how to better balance the CAC and LTV (Lifetime Value). To perfectly balance your CAC, you need to keep in mind the following three things:

  • Make sure to have a shorter sales cycle.
  • Focus on those lead generation channels that bring in quality customers.
  • Work on your projects based on statistical models and figure out your business profits.

Lifetime value (LTV)

Also known as customer lifetime value, it is used to measure the total revenue that can be earned from one customer. 

To calculate LTV, you can consider the following example: suppose a customer spends $6.00 on a coffee in his local coffee shop. Now you can calculate LTV by estimating how much is spent by a customer in the coffee shop during each visit for the following week. 

Let’s say if the customer went to the coffee shop three times. They spent $18 on coffee in one week. After finding it out for one customer, you can calculate the same for the rest of your customers.  

Average purchase value = total average from each customer/total number of customers.

Annual run rate

ARR or annual run rate is an important metric as you can calculate it from a couple of months of data. It tells you your potential future earnings which are based on your past earnings data. 

You can calculate ARR by: revenue earned over a couple of months times x 12. 

It is an easy way to calculate ARR but not accurate.

To calculate accurate ARR, take MRR and add MRR from new customers for a month and then add new MRR adjustments into the monthly expansion. Subtract the MRR from churn and downgrades and multiply it by 12. 

Monthly recurring revenue

MRR or monthly recurring revenue calculates potential revenue your business can earn every month. It helps to focus on the present earnings and also lets you walk alongside with the current market trend. 

Suggested reading: A B2B sales funnel to win more sales 

Cash burn rate

It measures at which rate your business is losing money. Cash burn rate is calculated on the basis of competition, industry and market. 

A study by OpenView ventures mentioned that companies in the high-cost area lose 2x more money than companies in other areas.

Generally, companies has to face two types of burn:

  • Gross burn: it measures the total amount of operating costs spent by the company every month.
  • Net burn: it measures the average money the company is spending each month.

Net dollar retention

NDR or net dollar retention tells how much the recurring revenue fluctuates in the current customer base.  If the NDR is greater than 100% then it shows a rise in revenue. On the other hand, if the NDR is less than 100% then churn rate has increased. 

Calculating NDR is important as it gives you the overall picture of how your revenue changes over time. 

What key metrics to consider for your B2B SaaS

While all the above mentioned key metrics are crucial for a B2B SaaS business. It’s also important to take those metrics that are relevant for your company. And you can figure it out by understanding your goals, your business needs and what metrics will work best for your current circumstances.  

Also Read: What Data You’ll Have Access to With Workforce Software

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