SaaS companies, almost more than any other type of company, rely on just the right balance of a few key metrics. If all of these metrics line up right, your company can grow like a rocket ship. If any of them get out of whack, your best-case scenario is a long, slow struggle, and your worst-case scenario is a swift dive into bankruptcy. These are high stakes for just a couple of numbers! So let’s dive in and see what crucial marketing metrics your SaaS company needs to be tracking.
Is your content compelling enough?
What compels a person searching for x, y, or z to latch on to a website and continue the search when first visiting and not move on to other competitors? If your content strategy is working, contacts and prospects should be easily enticed to continue the search on your website. Learning which pages are performing, what is resonating with people when they're searching for solutions or wanting to learn something, and what information grabs their attention, all help take your marketing to the next level.
Website Visitor to Lead Conversion
Are you doing enough to convert leads into actual prospects?
Website visits are a great way to know if your content is being discovered and you've structured your website in a way that is attracting prospects, but now it's important to know if they are actually committed to following through with an actual conversion. Conversions are defined as the action they take to opt in to a relationship with you and share their information with you. Some commonly used types of conversions are newsletter signups, webinar registrations, eBook downloads, initiating live chat conversations, event registrations, online course signups, and free trial signups. To get more conversions, you have to pair your content with irresistible offers. If your offer is valuable enough to encourage people to share their information, you know it’s a winner. On the other end of the spectrum, maybe the layout and path throughout your website don’t lead people to the offers, maybe your call-to-actions aren’t powerful enough, or the content you're producing doesn’t give any value to your visitors. These are things to analyze and fix to ensure your website is producing the results you’re looking for.
Lead by Lifecycle Stage
Are your leads any good?
This question is so important because you may just be getting top-of-funnel leads that simply want free educational content, but what you really need are leads that are truly interested in buying your product. It's important to understand what kind of prospects are filling your pipeline, and change your content as necessary to entice the right kind of website visitor. Are the leads that are coming in converting to paid customers? Understanding this will help you determine what quality of leads you're getting. Maybe those sales qualified leads shouldn't be deemed sales qualified leads — maybe they’re more like marketing qualified leads. It’s important to have content throughout your prospect's buying journey, and analyzing your leads by lifecycle stage can help you understand what gaps in content you need to fill.
Here’s a quick breakdown of the different lifecycle stages:
- Lead: This would be deemed as a top-of-the-funnel lead, where someone has signed up for a newsletter or maybe filled out a form on your website to receive a piece of content, where they’ve only given you their first name, last name and email. Or if someone has manually created the contact in their CRM.
- Marketing Qualified Lead: This type of contact varies depending on the company and what you, as a company, would consider an MQL. But typically, these are leads who have shown continuous engagements with your content by converting multiple times and offering open more information about themselves. These leads could be anywhere from middle to bottom of the funnel.
- Sales Qualified Lead: Marketing and Sales deem this type of contact to be ready for pushing to the sales team to start working and closing deals. The contact has given them enough information to be worthwhile for the Sales team to start working the lead.
- Opportunity: A lead is in this lifecycle when a deal associated with them has been created by the Sales team.
- Customer: This one is self-explanatory — they are a paying customer and the sales team has closed-won the deal.
Lead to Customer Conversion
Are your sales and marketing teams effective?
The lead-to-customer conversion rate tallies up the qualified leads of the company that result in actual sales. It’s critical to measure this metric because it allows you to evaluate the performance of your company’s sales funnel and is usually one of the key performance indicators (KPIs) of your sales team. Not only can it help you analyze your sales performance, but also the effectiveness of all your marketing efforts. When evaluating if your lead to customer conversion rate matches up to other companies, it’s best to compare industry standards that fall within your company as well as your past performance.
Here’s how to measure your conversion rate: Number of qualified leads that resulted in sales divided by the total number of leads and multiply that by 100.
Customer Acquisition Cost (CAC)
Is the cost of doing business too high?
This is important because you want to understand your ROI on all marketing and sales efforts and understand how much value these customers bring to your business. You can calculate this in a few different ways, but one of the most straightforward ways is to add up your total sales and marketing expenses in a given time period (say, last month, or last year), and divide it by the total number of customers you acquired in that same time period. If you notice that you have high CAC but your customers aren’t bringing in much revenue, then you need to rethink things: you’ll either need to lower your CAC or increase your customer lifetime value (LTV, more on that below). Maybe you need to reduce the number of signups with a salesperson involved and move more signup tiers to a self-service model. Maybe you need to re-evaluate your advertising channels and move to channels with a lower cost-per-lead. Whatever you do, make sure your CAC is lower than your LTV. If it’s not, your company will go out of business!
Are your customers in it for the long haul?
It's important to understand if you're keeping your customers long-term. You can track this by measuring your churn rate: the rate at which customers cancel their subscriptions. You should track your overall churn rate on a monthly basis, and you should also track your churn rate by customer cohort as well -- for instance, comparing the churn rate of the customers who signed up in April 2019 compared to the customers who signed up in April 2020.
If you realize that your churn rate is too high, then maybe you need to develop a customer success branch in your company to continuously engage with your customers to understand what issues they're having and address them right away. Regular communication with your customer is good business, and a strategy of just giving them the product and hoping they’ll succeed on their own is a recipe for failure. Do your customers like your product? Is it improving their lives in a meaningful way? Are they actively using it, or do they fall off after a short amount of time? Knowing the answers to all these questions can help you reduce your churn rate and keep your customers happy.
Customer Lifetime Value (LTV)
Are your long term projections adding up?
One metric that is so simple but so crucial is to learn what the average amount of money each customer is paying during their lifetime as a customer. Your customers aren’t just worth the amount of money they spend on your business today. They have future value if you’re able to retain them as customers. Subscription tier upsells naturally increase your lifetime customer value (LTV). Reducing your churn rate also creates an enormous improvement to your LTV as well. Obviously the higher your LTV, the higher your profits. And once you know your LTV, you can then start to improve it. If your LTV is not high enough, you’ll need to figure out why and make a plan for how to address it. Do you need to have a scalable pricing model? Maybe you need to do more cross-selling or upselling? And lastly, do you need to expand your product line? These are all things to keep into consideration.
In a Nutshell
Having an understanding of these metrics can help you improve your overall marketing and sales efforts. The more you know, the better and more effectively your SaaS company will operate. Choosing the proper set of metrics and paying attention to what they say will allow your company to prosper and thrive.
This post was originally published in June 2020 and was updated in August 2021