The B2B SaaS industry has experienced tremendous growth over the last few years as organizations around the world adopt SaaS solutions to improve their processes.
Currently, the SaaS market is worth approximately $197 billion and is anticipated to reach $232 by 2024. And because of its growth, the market has become more competitive, forcing SaaS companies to work harder to drive growth effectively.
But how do you measure the impact of your B2B SaaS in this dynamic landscape?
By tracking your revenue, churn, product usage, and more. In this article, we’ll review the key growth metrics you need to measure and optimize to grow your B2B SaaS.
5 B2B SaaS Metrics to Measure and Optimize
Whether you’re a new or well-established business, here are the metrics you need to track to unlock growth for your B2B SaaS.
1. Customer Acquisition Cost (CAC)
The Customer Acquisition Cost (CAC) is a key metric that all B2B SaaS need to measure. CAC measures how much it costs your business to acquire one new customer.
The metric takes into account all the sales and marketing expenses your business incurs to attract and convert a lead into a customer.
CAC is an important metric for B2B SaaS companies to track because it:
- Helps you understand the effectiveness of your sales and marketing strategies
- Helps you figure out how much you need to spend on a prospect to convert them to a paying customer
- Gauges the overall health of your B2B customer acquisition process
The formula for calculating CAC is as follows:
CAC = Total sales and marketing expenses / Number of new customers acquired
2. Monthly Recurring Revenue (MRR)
The Monthly Recurring Revenue metric measures how much revenue a company expects to make every month from its subscription billing data.
According to Younium, B2B SaaS companies can know the MRR metric by subscription billing data analysis and an plan their future plans.
MRR is an important metric for B2B SaaS companies to track because it helps with future planning. When you know how much you’ll make every month, you can make informed decisions about your company’s future.
The metric is also a reliable representation of the value of your business, thereby making it easy to secure funds to grow the business.
The formula for calculating MRR is as follows:
MRR = Total number of subscribers for the month x Average revenue per account
3. Customer Retention Rate
The Customer Retention Rate is a key impact metric that measures how many customers a B2B SaaS retains at the end of a given period.
To grow your B2B SaaS, you need to retain a huge portion of the customers you acquire. Customer acquisition is very expensive and you don’t want to lose the customers you’ve worked so hard to obtain.
Additionally, tracking the retention rate will help you understand if your product appeals to your target users.
A high customer retention rate shows that your target users appreciate the value they derive from your product.
Conversely, a low retention rate could indicate that there are issues with your product you need to fix right away to improve stickiness.
The formula for calculating the customer retention rate is as follows:
Customer Retention Rate = (Customers at the end of a given period – New customers) / (Customers at the start of the period) x 100)
As mentioned in a SmallBusinessHQ resource article, a right type of CRM software can help in customer retention by helping in effective customer management.
4. Churn Rate
Churn rate or customer churn is the percentage of users a B2B SaaS loses over a given period because of account cancellations.
According to Attrock, you can use these best subscription management software to see how many users have canceled their plans.
B2B SaaS needs to measure the churn rate because it offers critical insights into the health of your business. A high churn rate could indicate problems with product features, customer support, or overall customer satisfaction.
Here is the formula for calculating the churn rate:
Churn rate = (Number of customers canceling their account / Total number of customers) x 100
5. Net Promoter Score (NPS)
The Net Promoter Score is a customer satisfaction score that assesses how likely are customers to recommend your product.
Customers are required to answer the question, “How likely are you to recommend our product to others?” on a scale of 0 – 10. They are then graded as follows:
- Detractors: 0 – 6
- Passives: 7 – 8
- Promoters: 9 – 10
The formula for calculating the Net Promoter Score is as follows:
NPS = % of Promoters – % of Detractors
Tracking the B2B SaaS metrics highlighted above is crucial if you want to grow your business. The metrics will provide you with valuable insights to inform your decision-making.
You will know what’s working and what you need to change to thrive in the competitive B2B SaaS industry.