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3 Most Important Saas Metrics

03.25.2013
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SaaS metrics are important, and we doubt anyone would argue the point otherwise. One of the first tools we adapt or formulate when operating an SaaS business are metrics to calculate overhead, success of a product, revenue and user experience among many other things. While SaaS isn’t really that conceptually new, it’s just now gaining steam, so it may as well be a new technology concept. Being a new and unique hybridization of a web service and traditional software, it’s going to have its own specifically important metrics to track.

We’d like to look at the three most important SaaS metrics you should always watch. We’ll discuss a little about their nature, their ramifications and maybe some simple first responses for metrics being poor. This is an important topic, and one that all interested in any facet of SaaS should read, be they new to the industry, an old hand or someone just curious about the concept in passing.

#1 – Customer Acquisition Costs (CAC)

Here lies some of your greatest overhead and business expenses. Acquiring customers can cost your company in a number of ways. Let’s tackle the obvious one first, which is marketing and outreach. This is a costly endeavor with costly individuals needing to be sought for service. As a result, this is a big expense, and an ongoing one that must be contended with.

On top of this, demonstrations, freemium models and other incentivizing models often cost in loss of paying customers when conversion rates are too low. This makes promoting the SaaS in and of itself costly.

To respond to this, consider reworking your incentivizing plan for customer conversion, if it’s called for in your model. If not, rethink your marketing techniques and outreach channels.

#2 – Churn Rates

Churn rates are a pain, and everyone audibly groans when they’re mentioned. Churn rates are the incremental loss of subscriptions over an annual period of fiscal months and/or weeks. A curve of gains over losses is considered ideal as long as the exchange allows for increase in gains but none in losses beyond a certain ratio.

However, churn rates of a certain level, be they superseded by great gains or not, should really be cause for concern. Is your product not showing itself to be long-term valuable to customers? Perhaps this is a pricing thing, so reevaluate if they will continue to see your SaaS as valuable past the expiration of novelty.

#3 – Return On Investment (ROI)

ROI actually rears its ugly head on both sides of the fence, both for the SaaS provider and the consumer as well. However we’re going to focus on it in the eyes of the provider here.

ROI is important, because if the investment is greater than the returns (the resultant revenue and growth) by a certain amount, problems will arise and progress will be too slow. ROI is important to watch, and hard to fix.

If your ROI is bad, but your numbers elsewhere are great, then chances are you need to cut corners on something customers don’t care about. You’re pouring money into this aspect and it’s not having an effect.

Otherwise, it’s probably one or a combination of the other two leading directly to this issue.

These are the three most important SaaS metrics you could ever make time to watch closely. Consider them the triad of SaaS success.

Published at DZone with permission of Omri Erel, author and DZone MVB.

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)