SaaS metrics that matter, including monetization

By Alexandra Marcu, Vice President of Marketing at 2Checkout

The business landscape has never been as competitive as it is in the digital era and the SaaS field is one of the fastest-growing today according to Gartner – 27% annual growth rate estimated in 2019 alone. Yet, in spite of the shifting market preferences towards this service model and its many opportunities, SaaS companies are not without their challenges.

A SaaS company’s success depends on many factors and the odds for growth are smaller than in other industries. McKinsey estimates 92% of software service companies have a high chance of not surviving their first years, even if they achieve 20% annual growth.

A prerequisite for success in this field is maintaining a tight grip on business performance and all the financial wheels that keep the revenue set up functional and growing. We are living in fast times which requires speedy actions and reactions and continuous adaptation. Monitoring KPIs throughout the service’s lifecycle ensures knowing exactly what is happening at each stage and which optimization project to implement next.

Tracking is beneficial for growth

That metrics matter is nothing new under the sun, but the dynamics of SaaS markets make this area an even more relevant one – you need to know what t0 is like in order to deploy for t1. What can tracking achieve for SaaS?

Knowing what is going on across the funnel can have a significant impact on the company’s capacity to stay on top of market challenges. Being in the loop with KPIs can help your company overcome common SaaS challenges: how to best monetize each step in the customer journey and how to optimize your recurring revenue stream?

• Acquisition struggles: how to open to global markets and set up revenue streams from across the globe. Some SaaS companies are selling more globally and turn to a localized purchase experience, for better results.
• Onboarding struggles: how to guarantee your new customers positive experience with the service, and to make sure their expectations are met and they quickly achieve satisfaction. This sets the building blocks of ongoing contracts.
• Monetization struggles: how to maximize the amounts collected from subscribers to ensure a steady revenue stream.
• Retention struggles: how to minimize churn and retain more customers in the long run. Sometimes it’s just a matter of employing the right churn tools.

Track what brings you value

With the understanding that data brings the insights needed for growth comes the question: what do you track exactly? With a multitude of metrics addressed by theory, hundreds of guidelines published on the subject, and endless talks with examples available, why is it so hard to know what is right?

That is because there is no universal solution for all SaaS’. The individuality of each offering and software setup means you need to take in the theory and apply what is relevant for your company. You need to track those actionable metrics, a concept developed by industry mavericks Dave Mclure, and Trevor Hatfield, which measure the most important actions your users take to lead them to success with your product.  

Include each step of the funnel in your analysis, so that you have a complete view of the customer lifecycle.  Here is an overview of how to look at your customer’s journey, to zero in on some of the most important metrics you should be tracking. We have highlighted some at each stage of the lifecycle, understanding you will select from the many metrics available to best support your business.

Acquisition

During this stage, your goal is to uncover how your customer acquisition strategy is performing. There are multiple aspects you could be tracking here to see if your marketing and sales efforts are concentrated in the right place. The main records you are monitoring examine how you are drawing in new visitors, how the sign-up rate is evolving, how much does it cost to generate a conversion and what your funnel conversion rate is like.

Your primary metric could revolve around trials, for example. Knowing how many users choose to explore your solution sheds light on how your promotion and presentation efforts stack up. In completing a review of the acquisition stage, consider tracking several complementary KPIs.

Regarding trials, there are other aspects that you can play with: how will you give access to those trials, free or paid? If free, will you do it with payment details, or without? Free trials with payment details mean you will request a credit card upfront and charge it at the end of the trial unless the user cancels the trial before expiration.

You need to think if you want many users to try your product (i.e. give it free), or you want to sieve users a bit and qualify them further with a free trial with payment details or with the paid trial. In any case, you will need those behind the scene mechanisms to push triggers, automate steps, and drive action. Tracking conversion rates from trial to full version, in either case, is a must-have on the KPIs list.

Activation & onboarding

Further down the funnel, your aim is to assess how well you are aiding your users through the product experience and whether you have appropriately guided them to reaching early value. Here is where you want to find out if you have started delivering on the promise of your product.

The onboarding rate is a good place to start. It reveals how fast or slow your users are running across that Aha! product-moment – understanding the value your offering brings to their life. This is the type of data you should get from your own product usage reports. If you’re an email marketing company, this moment could be when users send their first email campaign.

Monetization matters

Of course, you want to know how well you are collecting recurring revenue. That’s SaaS 101. The more your clients use your product, the more they are willing to pay for new features, the better you will be able to monetize. Sounds easy in theory but in practice, you will have to neatly align several pricing, packaging, and payment aspects to streamline monetization.

One obvious metric to track is MRR or the monthly returning revenue. This will guide your overall business strategy and product development direction. Use metrics of the current customer base multiplied by average recurring revenue per user to find MRR.

While you are at it, track ARPA itself (average revenue per account). The evolution of this metric, available in payment data, should evidence if you have a good balance of subscription tiers in your accounts. The ARPA going down, for example, could be an example you have too many free accounts or too many customers on the lowest subscription level.

Retention & renewal

As SaaS models are highly dependent on future revenue streams, their ability to lock in retentions is a vital part of the cycle. Retained customers are those who are engaged with the product and this explains why KPIs in this stage are so relevant.

The metric to rule all in this category is the customer churn rate, a direct indicator of how many customers are leaving your product in a defined period of time. Uncovering customer attrition will yield so much optimization potential, you will welcome the work. Voluntary churn data will outline product optimization potential, whereas involuntary churn is a different beast. The latter is related to when a client wants to renew, and is on automatic renewal, but for one reason or another, the payment fails.

The KPIs you should follow here are based on data from your payment service provider including – authorization rate, retry attempts, and so on. Some amount of churn will always be inevitable. But a considerable chunk of involuntary churn will be quite avoidable through programmatic tools (retry logic, dunning management, etc). Stay on top of numbers here to react to variations.

Follow the metrics for success

The current ecosystem for SaaS is both welcoming and grinding. Most startups enter the market driven by visionary developments but the competitive reality forces them to continuously adapt and update to stay on par with constant monitoring. Current times are getting even more challenging for SaaS, as global economic shifts and the coronavirus global crisis predict a recession may come. Keeping track of relevant business metrics is the best-calculated strategy to predict and prepare for a more profitable future.

Alexandra Marcu is Vice President of Marketing at 2Checkout, a leading monetization platform that allows businesses to quickly expand internationally and optimize recurring revenue streams.