Determining Key Performance Indicators for Software & SaaS Marketing
SaaS marketing is all about technicalities.
You have a reputation to maintain in the IT industry, and for that reason, it's crucial to track your business' performance frequently.
Your business' performance is linked to effective marketing. For that reason, you should follow the performance of your marketing efforts too. You can easily do so using key performance indicators for software and SaaS marketing.
Being a full-fledged software company, your key performance indicators (KPIs) for marketing must be synchronized with the goals of your business. Ninety-five percent of leading marketers agree that marketing analytics KPIs must be tied to broader business goals to matter truly. To draft a data-driven marketing strategy, you should track the right KPIs and SaaS metrics.
When it comes to KPIs, software and SaaS marketing beg to differ, SaaS industries use a different set of metrics to measure their marketing performance using KPIs. These polished KPIs are of great value to SaaS marketing and can easily align with your marketing strategies to guarantee a mightier marketing approach.
About this article:
- What are Key Performance Indicators?
- Top SaaS Metrics for Software Companies
- Concluding Thoughts
What Are Key Performance Indicators (KPIs)?
A Key Performance Indicator (KPI) is a measurable value that shows how successfully a company achieves key business objectives. Organizations use KPIs at different levels to assess their efficiency in meeting goals.
High-level KPIs may be concerned with the business's overall performance, and low-level KPIs may be involved with procedures in departments such as sales, marketing, human resources, support, and others.
Marketing KPIs are marketing metrics that businesses use to measure a specific marketing goal through the marketing channels they're using. These marketing metrics differ if you talk about software or SaaS marketing. They may look at the number of demos, free trials, or freemium accounts that are later upgraded to paid versions. This information is extremely useful for marketing teams to determine what's working and what needs to be improved.
Insivia Seminar Series: Determining Your KPIs
Top SaaS Metrics For Software And SaaS Marketing
Having different KPI metrics, SaaS marketing takes a more technical and complex approach when compared with other businesses. Use these SaaS metrics to analyze your software and SaaS marketing using KPIs.
Churn rate is the essence of understanding marketing KPIs for SaaS marketing. Customer churn rate is the annual rate at which customers stop subscribing to your SaaS services.
Any sort of churn helps your software company understand if your software is providing value to the customers and is still desired by them. If all is going well – your software is priced reasonably, you have a good marketing strategy in execution, and you are targeting the right audience; the churn rate of your SaaS business shouldn't be high. The median annual churn rate of SaaS businesses that make less than $10 million annually is 20%.
While the number of customers is how 69% of SaaS firms evaluate churn, there are numerous additional methods to utilize churn to analyze business performance. Churn may also be measured using user numbers, revenue, and product downgrades.
Using churn rate as a KPI in SaaS marketing, your software business can easily project its future growth and profitability. Being a SaaS company, nothing matters more than retaining your customers and acquiring new ones. Using churn rate as a marketing KPI, you can analyze your weakness and work on them to decrease the amount of churn your software company is getting.
Bottom line: Retaining current customers and thus reducing your churn rate can significantly improve your recurring revenue. After all, retaining customers costs you less than acquiring new ones.
Average Revenue Per User (ARPU)
One way to analyze your SaaS marketing efforts is by using ARPU as marketing KPIs. ARPU is one of the most critical metrics in determining revenue from SaaS subscription businesses. It also considers how many free software users have upgraded their accounts to a paid version.
As of 2022, revenue from the SaaS market is predicted to reach $369.4 billion in a little under three years. Using their revenue, SaaS organizations can easily calculate their ARPU and use it as a KPI to analyze the effectiveness of their marketing strategy.
ARPU is the formula that is used by SaaS businesses to calculate the average revenue that your software company receives from a single user. This SaaS marketing metric helps your software business analyze its future growth and model their revenue-making capacity. To calculate ARPU, all you need to do is divide your total revenue by the average users in a period.
For use as a SaaS marketing KPI, the ARPU of your software business should constantly be increasing. This is indicative that your sales and marketing value propositions are getting better. This means that your software business is getting more efficient in its functionality.
An increasing ARPU means that you are targeting the right audience for your SaaS, and your services are living up to your customers' needs. This is conducive to creating a better marketing strategy.
When you understand the trends in customer revenue, you can easily identify which marketing tactics are working best for you so that you can focus on those and adjust your strategy accordingly. By keeping track of ARPU, your SaaS business will be able to create a long-term plan that helps it remain competitive while also generating higher profits. This will allow your software business to continually grow and remain successful in the future.
Customer Acquisition Cost (CAC)
This metric is absolutely critical when it comes to measuring the performance of your SaaS marketing efforts. Customer Acquisition Cost or CAC is the cost incurred while convincing a customer to buy your software services. The goal of b2b SaaS marketing is ultimately to acquire customers at a cost that is lower than the lifetime value of those customers.
CAC comprises all your sales and marketing costs incurred to gain these customers. It also indicates how long it will take to recover the cost initially incurred to acquire these new customers.
The CAC is calculated by dividing all your sales and marketing expenses by the number of new customers acquired.
Once done with the calculation, SaaS companies can use this KPI metric to analyze their sales and marketing tactics. It helps SaaS companies gain insight into their operations and answers whether they can afford to boost sales and increase marketing expenditure or not. A deep understanding of CAC can help improve a company's marketing return on profitability and investment.
It is important to note that the higher the CAC, the longer it will take for your SaaS business to become profitable. Therefore, b2b SaaS businesses should focus on reducing their CACs and strive towards increasing their return on investment through effective marketing strategies.
Cost-To-Serve or CTS is the calculation of the total cost incurred by your SaaS business to provide top-quality services and top-notch software to your customers. When paired with your revenue, it allows you to calculate the profitability of your SaaS business by customer, software, facilities, and processes.
To calculate the CTS for your software business, you can add all marketing, infrastructure, and product costs, including the cost incurred in providing cloud functionality. You must include all your customer retention costs as well. This cost can be the marketing costs spent on promotional offers and other incentives offered to your customers.
A critical CTS analysis will allow your software company to identify unprofitable areas of your business. You can then work to mitigate these factors that contribute to your SaaS marketing efforts being unfruitful. You can use your CTS analysis to target your ideal audience and concentrate your marketing efforts on this audience.
Additionally, the CTS analysis can help you make decisions about how much to invest in different marketing tactics. By analyzing your cost-to-serve metric, you can gain invaluable insight into your marketing efforts and can effectively use this data to create realistic KPIs for your SaaS businesses. This will help ensure that marketing costs are not wasted on ineffective strategies and allow your company to focus on achieving the desired ROI from your marketing initiatives.
Leads And New Visitors
Leads in SaaS marketing can be seen in the form of people from whom you've gathered positive responses about your software marketing. Examples of these leads are people who have traded their contact information in exchange for the gated content available on your SaaS website. Leads that speak with a sales representative on the phone are 70% more likely to become paying customers.
You can use leads as your SaaS marketing KPI by evaluating how many leads your website has been able to generate recently.
The different types of leads you must be familiar with for a deep understanding of SaaS marketing are:
MQL (Marketing Qualified Leads)
These are the leads that have responded positively to your SaaS marketing efforts. These responses include downloading how-to guides, free demos, free trials, etc. for your SaaS. These leads may also try to get in touch with your customer representatives.
For example, if you have a high MQL conversion rate but low website traffic, then it could mean that visitors are not engaging with your content or that there is a disconnect between what they're looking for and what's being offered on the website. By tracking MQLs you can adjust your B2B SaaS marketing strategies to better target potential customers and increase the effectiveness of your campaigns.
SAL (Sales Accepted Leads)
These are the leads that have contacted you for more information regarding your software, and you'll be getting in touch with them soon over a scheduled phone call.
In order to ensure that all SALs are accounted for and tracked correctly, it is important to set up a system and stick to it. This can be done by assigning leads to the appropriate sales personnel, setting up regular follow-ups with prospects, and tracking progress over time to measure success. By optimizing your B2B SaaS marketing processes utilizing Sales Accepted Leads and other KPIs, you will increase your chances of success and ensure continued growth in your business.
SQL (Sales Qualified Lead)
This is when you've gotten in touch with your leads, and your marketing staff now hands over the process to your sales team to convert these leads into your customers.
A Sales Qualified Lead should include all the details that your sales team needs to convert them into loyal, paying customers: contact information, company size, budget, timeline expectations, and other factors that would help classify a lead as “qualified” for further consideration.
To identify any unique visitors and leads on your SaaS website, all you need to do is use online tools like Google Analytics. Unique visitors are a green signal that shows that your SaaS marketing efforts have been fruitful. Don't let these potential customers go to waste. Pay attention to these metrics and continue with the tactics that you recognize are working.
Customer Lifetime Value (LTV)
The customer lifetime value is the measurement of revenue a user brings in over the customer lifecycle. Companies should track their LTV for different sets of customers, such as those acquired through different channels, in order to understand the effectiveness of each marketing channel. The LTV calculation takes into account several factors:
Cost of acquisition (CAC)
Average revenue per user (ARPU)
By taking these three metrics into consideration, marketers are able to determine what kind of ROI they are getting from their marketing campaigns. They can then use this information to make better decisions going forward and be more strategic when it comes to the company's marketing spend.
You can also find new ways to acquire additional revenue like giving offers for features that current users can upgrade their plan to gain access to. It's important to acquire new customers, but your current customers are vital to your business growth as well. You always want to keep thinking of new ideas to enhance the customer experience. This will naturally increase your LTV. Invest in improving your customer engagement, upsell to your current customers, and collect feedback from them on what you should make improvements on. Your customer relationships are an invaluable source where you can find new areas to improve your business growth.
It costs 5-25 times more to acquire a new customer than it does to keep an existing one. So make sure you're nurturing the users you have and ensure they get the best experience possible.
Monthly Recurring Revenue (MRR)
Your monthly recurring revenue (MRR) is the revenue you make monthly from the total accounts you have. The previous KPIs we've mentioned go hand in hand with this. Knowing your average customer lifetime value (CLV) and customer acquisition cost (CAC) ratios for your company are important KPIs that affect MRR. Understanding how to effectively track these will help you understand your overall business health. Your main goal should be to increase MRR through customer retention initiatives that churn out lower CACs while maintaining a healthy CLV.
In order to have a healthy MRR, you have to provide a strong customer experience. This is a common theme with most of the KPIs we've gone through. Customers are at the core of everything you do. When you make any decisions for your business, they should be at the top of your mind. If you do this, then you should be able to generate a significant monthly recurring revenue.
At Insivia, we have a specialized methodology that nurtures FrictionlessMRR. We help businesses streamline user acquisition and retention for scalable recurring revenue.
Lead Velocity Rate (LVR)
Calculating your lead velocity rate helps you frame your perspective toward the future of your business. This will be a percentage of your lead growth month over month. In order to find this number, you have to subtract the number of qualified leads you attained last month from the number of qualified leads you acquired this month. Then, you want to take that number and divide it by the number of qualified leads from last month and multiply it by 100. This will give you a percentage that you can use as a reference. It's a great metric to keep track of your business's overall progress.
Determining your LVR helps you to recognize any potential changes in your lead generation efforts and determine if adjustments are needed. If the number of qualified leads decreases significantly month-over-month, it indicates that you need to adjust or replace certain elements of your marketing strategy.
Utilizing your previous lead generation data can be a key component in figuring out what your next steps should be for the future. Your business should be constantly evolving to meet the needs of your target consumers. Don't stray away from these numbers but instead, embrace them and use them as a tool to get you to where you want to be.
Net Promoter Score (NPS)
This KPI is information pulled directly from your customer base. It's when you ask them survey questions that measure the satisfaction they have with your product/service. NPS is important because it drives customer loyalty and provides insight into how your customers view their experiences with your product. The higher the NPS score, the more satisfied your customers are. As you can imagine, having a loyal customer base is extremely beneficial as they will be more likely to continue using and recommend your service/product.
When you collect this feedback from your customers, responses that fall between 0-6 are considered Detractors, 7-8 are Passive, and 9-10 are Promoters. Any result higher than 0 is considered a positive score while anything less is considered a negative score. To calculate the NPS score for SaaS marketing, you subtract the percentage of Detractors from the percentage of Promoters. The higher your score, the better.
Taking this data into consideration will help you significantly save money for your marketing budget. You can really hone in on what's working and brainstorm new ideas that may perform better.
A KPI for SEO marketing could be the number of times your website appears in SERPs when you type in your targeted keywords on the search engine. This should be related to the accounts converted from organic traffic as well as accounts upgraded to paid versions of your software. Additionally, it can also include the time spent on your website by those visitors and their bounce rate. Looking at the quality of leads generated from organic search traffic is another important SEO KPI to consider for b2b SaaS marketing.
Another SEO KPI could be the number of backlinks from other websites that you have pointing back to your website as well as how authoritative these websites are. This will help increase your page ranking in search engine results and also give you more visibility among potential customers. To execute this effectively though, you need backlinks from reputable sources.
Looking at the click-through rate of organic search links should also be considered when tracking SEO KPIs for B2B SaaS marketing.
Finally, tracking impressions, the total number of visits, and conversions are important KPIs to measure the overall success of SEO efforts. By tracking these metrics, you can get an idea of what kind of content is resonating with customers and which keywords are most effective in driving leads and conversions to your website. This information will also help you better understand which channels are working best for your business so that you can focus more resources on those areas for even greater ROI. By optimizing your B2B SaaS marketing through the use of SEO, you can ensure that you’re reaching the right potential customers.
Besides using these key metrics to analyze and monitor your marketing strategy, you can also use other, much less complex procedures. You can use your information on the number of accounts you have in your free and paid versions of your software. The increase in the number of paid accounts due to the conversion of free accounts into paid accounts is a KPI and proof that your SaaS marketing efforts have been beneficial.
Overall, your marketing team needs to keep these KPIs in mind when planning your business's digital marketing strategy. If you go into your initiatives blind without any KPIs, you won't be able to expand upon your customer base effectively. You also won't generate as many qualified leads and you'll lose relevant visibility of your business. When you take this useful data into account, you'll notice a decrease in customer churn rate and an increase in new customers.