What is meant by Metrics?
SAAS companies used different metrics to measure the performance of their products and services. They help companies to identify areas of improvement, understand the timely needs of the customers and enrich the decision-making process with qualitative and quantitative findings. There are various
metrics that can be incorporated into the assessing process. Some of them are customer satisfaction metrics, conversion metrics, engagement metrics etc.
Metrics
Customer Churn Rate
Customer Churn Rate represents the proportion of service users that cancel their memberships or subscriptions within a specified period. A churn rate that surpasses the growth rate is an indication of an increase in the customer base. Companies usually calculate the churn rate monthly or yearly. This decision depends on the nature of your customers.
According to messaged.com, Start-ups have to maintain a churn rate of 3% to 5% monthly and yearly it has to be in the range of 10% – 15%. Further, this measure will generate a clear picture of the level of satisfaction among the customers about the services offered by the company. Even though churn rate plays a vital role in the Telecommunication industry, it cannot be compared between various industries and it cannot provide information about the customer categories. (Investopedia)
Revenue Churn
Revenue Churn & Customer Churn metrics are equally important to SAAS companies because their revenue depends on customer subscriptions. That means losing customers will negatively affect the revenue as well. Revenue Churn can be simply defined as the percentage of revenue loss at a specific period. This calculation is based on the monthly or yearly recurring revenue of the companies. A monthly subscription can be recognized as a recurring revenue as it will continue in the future as well. The primary advantage of the Revenue Churn rate is that it identifies the customer groups (for the companies that have various subscriptions plans) that have contributed to the revenue loss.
Customer Lifetime Value
Customer Lifetime Value indicates the amount of money that a particular customer provides to the company within their subscription period. (Simply the value of the customers) This rate is calculated by incorporating gross profit margin, retention rate, and discount rate.
This rate enables marketing professionals to focus more on high-value customers. Further, it will provide insights about the financial return. According to thegoods.com, companies have to maintain a customer lifetime value that is three times higher than the Customer Acquisition Cost (CAC).
Customer Acquisition Cost
There is a direct relationship between Customer Acquisition Cost & Customer Lifetime Value. Customer Acquisition Cost can be defined as the total cost an organization spent to acquire or win a new customer. Most importantly, most of the elements of the acquisition cost consist of marketing-related items including expenses on promotions, sponsorship activities, advertising, digital marketing etc.
According to geckoboard.com,
- 1:1 ratio between Customer Lifetime Value (CLV) and Customer Acquisition Cost (CAC) means you lose money on your every sale.
- 3:1 ratio between CLV & CAC (CLV > CAC) means a good point for business
- 4:1 ratio between CLV & CAC means a great point for business
- 5:1 ratio between CLV & CAS means you spent less on marketing in comparison to your growth.
Customer Acquisition Payback period (Months to recover CAC)
Customer Acquisition Cost means the time it will take a company to recoup the money, which is spent on acquiring customers. According to geckoboard.com, small businesses will take 12 months or less time, while companies with a high level of performance can recoup the money in a period of five to seven months. Further, this metric shows the efficiency of customer acquisition strategies.
Customer Engagement Score
Customer engagement score represents the engagement of your customers & the free trial members with your services.
According to userpilot.com,
- 1-40 – very low engagement
- 41-70 – average engagement
- 71-100 – High level of engagement
This metric & its’ calculation method may vary from one organization to another. In order to measure customer engagement scores, companies need to identify their engagement events and ways to track those engagements. Engagements events may range from simple day-to-day usage to upgrade considerations made by customers. Companies need to focus more on CES, as it indicates the possible customer losses. In other words, there is a high probability of subscription cancellation if the customer is not well engaged with the services.
Qualified Marketing Traffic
Not every user who is entering into your website can be considered as a potential customer. That is where the term Qualified traffic arises and it may vary from one company to another. Qualified traffic means the users entering into the company’s website with the intention of purchasing the services offered by the company. Qualified traffic can be measured by calculating visitor to lead (VTL) & lead to customer (LTC) metrics. Further, LinkedIn Posts, relevant YouTube videos, webinars, email marketing can increase the Qualified traffic of the companies.
Customer Health Score
Customer Health Score determines whether the customer is expected to grow within your organization, remain stable or leave the service by cancelling the subscription. Simply it measures whether the customer is having a healthy interaction with the company or not. According to gainsight.com, companies can use product usage, feedback, level of engagement, details about renewals, and upsells as the metrics to assess the customer health score. Most importantly, these metrics may vary from one company to another.
Expansion Revenue
Expansion revenue can be simply defined as the additional revenue generated from existing customers apart from the initial deal. This can be identified as an efficient revenue source as the company doesn’t need to incur an additional customer acquiring cost. Upsell (existing customers moving towards upgraded versions of the product or service) & Cross-sell (existing customers buy additional (complementary) products or services) are the main contributors of expansion revenue. It is calculated by adding up the monthly recurring revenue generated by upsells & cross-sells.
Net Prompter Score
Net Prompter Score measures customer satisfaction based on customer responses. According to customermonitor.com, any number greater than “0” is considered as a sign of loyal customers. This metric can be used to identify the areas that need to be improved in order to increase customer satisfaction.
Net Prompter Score = Percentage of promoters – the percentage of detractors