SaaS startups have been gaining momentum as the world is digitally evolving. Tracking a SaaS startup’s growth is paramount to ensure its sustained success. This blog highlights some key metrics and strategies that aid in growth-tracking for SaaS ventures.
The SaaS industry has evolved to reshape how technology and software is reaching the common masses. SaaS bridges the gap between people and technology, making it affordable and accessible. SaaS has been enabling businesses to digitize, while leveraging the possibilities of cloud computing and other cutting-edge technologies. According to Gartner, the SaaS market holds the largest share of the software market, more than 50%, which is only projected to grow more. Hence, the value generated by SaaS applications and solutions is unparalleled.
Due to this popularity, the number of SaaS ventures has been rising exponentially and will continue to rise. This makes the SaaS market extremely competitive and harder for SaaS businesses to stand out and maintain their steady growth. According to McKinsey & Company, only 20% of companies survive for the first five years.
Hence, it becomes paramount to adapt strategies for fool-proof growth tracking to ensure sustain SaaS success.
Why Do SaaS Startups Fail?
Before getting to planning strategies and growth metrics, it is essential for startup companies to understand reasons of SaaS failure, so that those reasons can be mitigated. By creating awareness regarding major reasons for failure, SaaS startups can plan their strategies around them, to ensure a sustainable growth curve.
The most common reasons for SaaS business failure are:
- Improper market research
- Weak product-market fit
- Lack of proper pricing
- No customer orientation
- Unscalable business model
Why is it Important to Track Startup Business Growth?
Growth tracking is the foundation of ensuring business success. Growth tracking is basically tracking pre-defined metrics which need to function to a certain standard to ascertain startup success. Tracking these metrics also enables stakeholders to make informed action-plans if any of the metrics are functioning as needed. However, it is not as simple as it looks. Key stakeholders like CFOs, CTOs or even CROs need to track and engage with these metrics in real time according to a set methodology that compliments the type of the SaaS startup.
Tracking growth also enables startups to benchmark their performance as per the industry standards, so that the stakeholders are aware of the startup’s position in the industry and plan out strategies according to it.
Tracking business growth also provides fruitful insights into factors like customer engagement, cash flows, customer churn rate and even customer acquisition costs. To summarize, the benefits of these metrics, SaaS metrics help in:
- Measuring and optimizing business performance
- Enhance strategic planning
- Expedite continuous improvement
- Escalate financial profitability
The Growth Metrics to Keep a Track of
SaaS metrics allows stakeholders to foresee business health from avenues beyond customer rates and revenues. The metrics provide insights that shape how startups function, like operational efficiency and viability and allow them to drive strategies that enable the startups to keep up with the changing business trends and evolving customer expectations. A 360-degree view of the business health ensures timely actions for business continuity.
SaaS growth metrics are objective measures that evaluate the startup performance from various angles. Due to SaaS’ subscription-based nature, there is continuous customer engagement which makes the metrics key in retaining these customers and consequent success.
There are five kinds of metrics, which have their own sub types.
- Acquisition Metrics
- Customer Acquisition Cost (CAC)
- Annual Contract Value (ACV)
- Months to Recover CAC
- Lead-to-Customer Rate
- Magic Number
- Engagement Metrics
- Daily Active Users (DAU)
- Monthly Active Users (MAU)
- Customer Engagement Score (CES)
- Retention Metrics
- Customer Churn Rate
- Revenue Churn Rate
- Net Revenue Retention (NRR)
- Logo Retention
- Growth Metrics
- Annual recurring revenue (ARR)
- Monthly recurring revenue (MRR)
- Customer concentration
- Customer monthly growth rate (CMGR)
- Net promoter score (NPS)
- Economic Metrics
- Gross margin
- Customer lifetime value (CLTV)
- CAC-to-LTV ratio
- Burn multiple
- Hype ratio
Tracking these metrics presents a 360-degree view of the startup health, but startups can always choose the metrics that are closer to their business goals and objectives.
However, four of these metrics are the most essential for making SaaS into a growth-oriented and scalable venture, with an enhanced revenue stream.
Customer Acquisition Cost (CAC)
CAC is the total cost spent on acquiring a customer. Geeting each customer to subscribe to the SaaS is a win but it is essential for the startup to track and determine how much cost was spent on acquiring each customer. CAC is a metric that greatly impacts SaaS startup’s financial health. Tracking CAC gives startups invaluable insights into how efficient their sales and marketing plans are and identifying the best acquisition channel so more resources can be allocated to enhanced customer retention.
Ultimately, efficient CAC is a major factor that attracts investors as CAC allows significant insights into the driving factors for the startup like pricing effectiveness, churn rate and customer success.
Customer Lifetime Value (CLTV)
This metric measures the value a customer is expected to generate for the startup over the time span of its relationship with the startup. This helps the startup identify customers that are most profitable to the SaaS startup, by analyzing customer relationships.
CLTV enables businesses in curating marketing strategies, maintaining profit margins and ensuring viability of their business models. It transforms startups from their transaction-based goals to having goals that generate long-term value. It is also understood as the foundation of subscription-based models because the longer a customer maintains a relationship with the SaaS startup, the more the total lifetime value is.
Revenue Churn Rate
This metric represents the loss of customer revenue, or the percentage of revenue lost during a month as customers cancelled their subscription. Tracking this metric allows startups to gain insights into lowered customer retention and revenue stability. Reducing factors that heighten revenue churn rates allows enhance revenue predictability and cash flow.
Tracking this metric allows CFOs to unlock reasons behind customer dissatisfaction, helping them resolve these issues timely. It also yields customer preferences and the trends in which they change. This allows startups to build strategies to reshape their services according to the customer preferences.
Exhibiting a lowered revenue churn rate may attract investors as an indication for enhanced growth prospects and lasting business efficiency.
Customer Churn Rate
As the most significant growth metric for SaaS startups, Customer Churn Rate signifies lost revenue opportunities and enables CFOs in tracking reasons for customer dissatisfaction and launch strategies to achieve customer retention and increased revenue potentials.
Identifying and analyzing churn patterns to highlight problems and the at-risk customers for the startup’s customer success team can enable them to save such customers from cancelling their subscriptions by providing top-notch customer care.
Track Your Growth with Dynamics Solution and Technology
By implementing a digital management system with the capabilities of business analytics and CRM, SaaS startups can set a steady foundation to track their growth. Dynamics Solution and Technology leverages the power of Microsoft Dynamics 365 business analytics applications that enable startups to track their growth and drive data-driven strategies for sustained success.
As Microsoft’s Gold and Solutions partner, Dynamics Solution and Technology has been empowering organizations with AI-powered analytics, across the Gulf and MENA regions. Your SaaS can survive in a competitive market by leveraging the power of AI and cutting-edge analytics tools to properly track your growth metrics. Contact us today to get onboard our Microsoft Dynamics 365 for Startups plan today!
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