You want to launch a Saas but don't know which KPIs to put in place? Here is a complete article that summarizes the 10 North Star KPIs that every SaaS entrepreneur should monitor and analyze to be more successful, along with some tips on how to choose the most appropriate KPIs for your growth phase.
Why set up KPIs?
Knowing if you are moving in the right direction
KPIs (Key Performance Indicators) are the most important numerical indicators to follow in order to evaluate the performance of a company in relation to its objectives. These metrics allow you to know in a concrete way whether you are moving in the right direction.
Especially since as a SaaS company, your valuation does not only depend on classic indicators such as your turnover, but it is still necessary to measure the performance of your marketing strategy and sales. In this article, we will explore the appropriate metrics.
Determine the relevance of the actions implemented
Once you have defined KPIs, their evolution over time allows you to judge your strategic decisions and the achievements of your company. Monitoring your KPIs is the best way to see what is working and what is not working in your strategy.
Optimise resources once we have data on the evolution of these KPIs
In the long term, collecting all possible data on these KPIs allows you to identify trends and strategic measures for your company in order to better allocate your resources. These KPIs therefore allow you to adopt a strategy based on quantified results in order to adapt the allocation of your resources.
The problem of indicator overload
The problem with key performance indicators is that there are dozens of metrics that can be measured. If you are new to KPIs and metrics, you might think that you should track all of the available indicators.
This is not a good idea, as monitoring them all is neither productive nor efficient. Also, without a great program to combine and visualize your KPIs, it will be impossible to track all your data. But fear not, this article will help you focus on the essential metrics to track for your SaaS.
Don't hesitate to discover our article on the 6 essential techniques to boost the growth of your SaaS.
Whether you are a SaaS start-up just launching or looking to scale, you need to define and track KPIs to assess and measure your marketing and sales performance.
Here are the 10 North Star KPIs that every SaaS entrepreneur needs to monitor and analyse to be more successful, along with some tips on how to choose the ones that are best suited to your growth phase. The KPIs are as follows:
- ARPA / ARPC / ARPU
- Conversion rate visitor -> Lead and Lead -> customer
- Average Purchase Cycle Time
LTV (Lifetime Value) is the measure of the overall value added by a customer to your business over the duration of their relationship with you.
To calculate LTV, you need to multiply the 'lifetime' of your customers (i.e. the average number of months they remain a subscriber) by the average monthly subscription fee of a customer:
LTV = (Lifetime)*(Average subscription price)
CAC (Cost of Customer Acquisition) measures the total combined cost of your marketing, sales and business expenses to acquire a customer.
To calculate the CAC, you need to divide your total marketing and sales expenditure (salaries, software, advertising expenditure) by the number of new customers acquired in the same period.
CAC = (Sum of marketing and sales expenditure) / (Number of new customers)
The Churn rate is actually the churn rate of your SaaS. A churned customer is a person or company that was one of your customers and has decided to leave you.
To calculate Churn, you need to divide the number of customers who have left by the total number of customers. The number of customers churned in a given period is calculated as the difference between the number of customers at the beginning of the period and the number at the end of the period.
Churn = Unsubscribed customers / Total customers
Churn for the month = (Customers at the beginning of the month - Customers at the end of the month) / Customers at the beginning of the month
The MRR (Monthly Recurring Revenue) represents the amount of revenue you expect to capitalise on each month. It is the key indicator that will allow you to monitor the progress of your business.
To estimate the upstream MRO, you can multiply the number of paying customers in a month by the monthly subscription amount.
MRR = (Number of customers)*(Average monthly subscription amount)
Please note that your MRR may vary over the months due to several factors:
- New customers during the month
- The upsell: existing customers who are willing to pay more for a service they are happy with
- Customer churn during the month
The ARR (Annual Recurring Revenue) is calculated by multiplying the MRR by 12. the annual recurring revenue.
ARR = MRR*$12
Revenue is what makes the SaaS business model so attractive to founders and investors. Customers will continue to pay you as long as you make them happy by providing value through your service.
ARPA / ARPC / ARPU
ARPA (average revenue per account), ARPC (average revenue per customer) and ARPU (average revenue per user) measure the value that a customer generates for your SaaS business.
These KPIs are calculated by dividing the ARPU by the number of accounts/customers/users.
ARPA = MRR / Number of accounts
ARPC = MRR / Number of clients
ARPU = MRR / Number of users
Reactivation is an indicator that measures the number of customers who cancelled their subscription and took out a new paid subscription.
This indicator allows you to distinguish within your MRO a new MRO part and a reactivation MRO part. By looking at the MRS sub-indicators you can get more precise information about your revenue stream.
Conversion rate visitor -> Lead and Lead -> customer
Internet users who visit your website become leads from the moment they leave their contact details and start interacting with you (participation in a webinar, downloading a resource accessible only by leaving their contact details, subscribing to a newsletter, etc.).
The lead becomes a customer when he/she signs up for a subscription on the platform. The percentage of leads that you convert into customers shows that your product is well adapted to the expectations of your visitors and leads.
Over the given period :
Conversion rate Visitors/Leads = Number of visitors / Number of leads
Leads/Customers conversion rate = Number of leads / Number of customers
NPS (Net Promoter Score) is a key indicator of customer satisfaction: it is the probability that one of your customers will recommend your SaaS solution to others. Under this prism, each customer is categorized as a promoter, detractor, or neutral.
To calculate the NPS, you need to take the percentage of 'promoter' customers (obtained by dividing the number of promoters by the total number of customers and multiplying by 100) and subtract the percentage of 'detractor' customers (obtained by dividing the number of detractors by the total number of customers and multiplying by 100).
NPS = % Promoters - % Detractors
Average Sales Cycle Time
The sales cycle is the period from lead creation to the actual purchase by the customer. Its duration determines the effectiveness of your lead acquisition campaign.
To improve it, you need to be able to reduce the time your prospect has to think about it. You can also choose to focus on the most interested leads (scoring techniques) so that your salespeople contact them at the right time.
The impact of Karmen funding on your KPIs
The major comparative advantage of the FBR is its speed and the non-dilution of the capital. Indeed, unlike a fund raising, the RBF is a non-dilutive solution.
But what is capital dilution? Dilution is when a company has to give a part of its share capital against investment. The increase of the capital by issuing new shares will generate this dilution.
The major disadvantage of dilution is that the entrepreneur at the helm loses decision-making power. The issuance of new shares will create new voting and decision-making rights for the new investors.
This dilution, therefore, leads to a lower return per share.
Karmen avoids this dilution while being a fast and digitalized solution.
What positive impacts can this new financing method proposed by Karmen have on your KPIs?
Drastically increase your MRR
Revenue Based Financing allows for shorter funding times: at Karmen, the funding process is 48 hours from the time of application to the receipt of funds in the beneficiaries' bank account.
The speed of the process ensures that you have all the funds you need at the beginning of each month to :
- Implement the marketing actions necessary to acquire new customers and convert your leads into customers
- Develop and improve your SaaS offering in order to retain customers who have already subscribed, and thus reduce the number of churns during the month
- Convincing customers to pay more by developing a service that fully satisfies them (upsell)
These 3 factors inherent in Karmen's Revenue Based Financing have a significant positive impact on the status of your MRO. Other fundraising processes are not well suited to measuring performance through KPIs as they do not allow for such rapid funding.
Optimising your CAC
In addition, Revenue Based Financing allows you to keep control of your business. Coupled with the speed of financing, the possibility of self-financing with Karmen is a great plus to better manage your CAC.
In fact, in addition to increasing the number of new customers through rapid investment, you can better manage your marketing and sales expenses because you retain strategic control of your business. By skilfully playing with these two factors, your CAC will necessarily increase.
You choose where to invest, raise the weak KPIs.
Karmen offers a financing method adapted to unprofitable companies and in less than 48 hours. As you develop your SaaS business, you have the luxury of focusing on other KPIs than just your company's profitability.
Here are the 10 North Star Metrics for SaaS, and you are free to choose the KPIs that interest you most and that you consider to be the most important.