When the boss asks “how are you doing?” they probably don’t want to hear “I’d like some more me time.” More likely they’re expecting an answer about mystical mathematical figures like CAC and MRR. If the metrics are getting mixed up in your mind, here’s a quick-and-dirty overview of the five most common SaaS sales metrics, and what they mean for productivity.
What Are SaaS Sales Metrics?
SaaS sales metrics are the numbers that show how sales, and only sales, are going. There are lots of general SaaS metrics out there, such as annual contract value (ACV) and activation rates. But not all of them relate completely to sales. For instance, ACV touches on pricing strategy and product features, which are issues that people outside the sales department also influence.
Keep in mind that different metrics become more important over time. A company with a low churn rate will be more interested in customer lifetime value. Figuring out which metrics count right now can be determined by looking at your go-to-market strategy.
But when it comes to sales, your main concern is signing up new clients and keeping existing ones happy. We’ve outlined below the most important numbers that successful salespeople keep their eyes on at all times.
The 5 Most Important SaaS Sales Metrics
The SaaS sales process is different from other types of selling, and so are the figures that go along with it. Many B2B SaaS companies, for example, live month to month because that is the most common subscription model. In comparison, other sales revenue happens at a constant rate (like food), or seasonally (like gifts – Merry Christmas!).
Trials are a central part of the SaaS sales funnel. Keeping track of how many users complete their trial and become subscribers is critical. On the other hand, it’s unusual for people to give food a tryout period and then pay for it.
So, in general, the basic sales numbers to analyze are about how many users come on board every month, how many stay, how much they pay, and how much it costs to keep them that way (we’ve added this rhyme as a bonus).
1. Monthly Recurring Revenue (MRR)
Perhaps the best “catch-all” metric is MRR. Essentially, it tells you how many customers you have and how much money they pay on a monthly basis. The formula is:
MRR = total accounts x average payment per account, calculated each month
Obviously, you’ll want to calculate MRR at the same time each month. This calculation is most useful as a comparison. Simply examine the figures each month to see if this number is growing or shrinking (hint: growth is a good thing).
There is no average MRR because no two companies have the same number of customers. But there is an average MRR change rate, which is calculated like this:
MRR change rate = ((MRR for month 2 – MRR for month 1) / MRR for month 1) x 100
According to KeyBank, the average annual MRR change rate is 52%.
By itself, MRR doesn’t tell you much. Think of it as a thermometer of business health. If you notice that it is going down, or isn’t growing all that quickly, take a look at closely related figures like churn.
2. Churn Rate
As mentioned above, the word “recurring” is key. SaaS companies need to keep those customers renewing. When they don’t succeed, the result is churn, meaning that the customer cancels their subscription. Here’s how to calculate it:
Churn rate = (number of customers canceling / total number of customers) x 100
Once again, the monthly churn rate is what you see most often when SaaS companies talk about performance. But here, let’s diverge a bit from the norm. SaaS sales can be affected by issues like year-end budget constraints, when a prospect simply needs to wait until Q1 before they can buy your product. So taking a look at quarterly or half-year stats might be more informative. By the way, the average B2B annual churn rate is about 5% for smaller companies.
When churn is high, then everyone needs to do some serious thinking. Does the product fulfill the value proposition? Is customer service doing its job? Do we have competition? Paying attention to churn is super-vital, and figuring out why it happens can go to the heart of the company’s reason for being.
Churn is a good example of a metric that gets less attention over time. For example, enterprise SaaS sales companies usually experience comparatively low rates of churn, so it becomes more important to them to examine metrics like CLV (see below).
3. Customer Acquisition Cost (CAC)
All the sales in the world won’t help if you are spending too much to gain revenue. That’s why there’s CAC. By adding up all the sales and marketing costs that are invested to attract new customers, you can get an idea of how efficient your sales strategy is. CAC is calculated by:
CAC = total cost of sales and marketing / number of new customers
It is typical to define CAC on a monthly basis. But, if you are targeting large organizations with a drawn-out purchase process, a monthly figure might not give the full picture. In such cases, it will take a while to see a decent CAC.
4. Customer Lifetime Value (CLV)
One measure that goes hand in hand with CAC is lifetime value. It somewhat relieves you of the problem associated with sales cycles. To determine CLV, there are several methods. Here is one:
CLV = average revenue per customer x annualized length of the contract
So, if a customer typically buys a $10 monthly subscription, the annualized CLV is $10 x 12 months = $120.
By looking at the ratio between CLV and CAC, you can get an idea of how revenue will cover your sales and marketing costs. A healthy CLV: CAC figure is 3:1.
5. Conversion Rate
One crucial metric that can tell a salesperson exactly where improvement is needed is the conversion rate. In this case, conversion refers specifically to how many trial users move on to buy a subscription. It’s easy to figure out:
Conversion rate = monthly number of trial users / monthly number of new subscribers
A good conversion rate for opt-in trials is 25%. If you suspect that your conversion rate is low, take a look at the customer journey and trial feedback to discover where things might be going wrong.
Key Takeaways:
- SaaS sales metrics are critical for monitoring the health of SaaS sales strategy
- These figures are particular to SaaS businesses because they rely on tactics like monthly subscriptions and trial periods
- Essential SaaS sales metrics are monthly recurring revenue, churn rate, customer acquisition cost, customer lifetime value, and conversion rate
- To calculate the value a tool like Lusha could add to your sales metrics, use our free sales revenue calculator.
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