When you’re in the early stages of building a SaaS company, it can be hard to know which metrics you should focus on. Some metrics are better indicators of long-term success than others, and it can be hard to know which ones are the most important to track.
To help you get started, we’ve put together a list of the 10 key metrics that every early-stage SaaS company should track.
1. Monthly Recurring Revenue (MRR)
MRR is the king of all metrics for SaaS companies. It’s a simple concept, but it’s also the most important. MRR is the sum of the revenue you are expecting to generate from your subscription customers in the next 30 days.
This is the first number that any potential investor is going to ask you. If you don’t know your MRR, you’re not ready to have a serious conversation about your business.
2. Annual Recurring Revenue (ARR)
ARR is a measure of how much revenue you can expect to receive from your subscription customers over the next year.
To calculate ARR, simply take your MRR and multiply it by 12.
ARR is a great way to get a sense of how much money your business is actually making.
It’s also a good way to compare your business to other businesses in your industry.
For example, if you have a SaaS business and you want to see how you stack up against other SaaS businesses, you could look at your ARR and compare it to the ARR of other businesses in your industry.
3. Churn Rate
Churn rate measures the amount of customers or revenue you lose in a given period. There are a few different ways you can calculate churn rate, but the most common is to divide the number of customers or revenue you lost during a period by the total number of customers or revenue you had at the beginning of the period.
Churn rate is one of the most important metrics for any subscription business. High churn can kill a SaaS company, and even small increases in churn rate can have a big impact on your growth. For example, a company with a 5% monthly churn rate will lose half of its customers in just 14 months.
4. Customer Acquisition Cost (CAC)
If you know your LTV, you can start to think about how much you want to spend to acquire a customer. The goal is to keep your CAC as low as possible. But in the early days, you may need to spend more on sales and marketing to get the flywheel going.
The best way to keep CAC in check is to focus on improving your conversion rates. The more efficient your sales and marketing funnel is, the less you’ll need to spend on customer acquisition.
When you’re ready to scale your sales and marketing, you can start to look at channel-specific CAC. This will help you understand which channels are the most efficient for acquiring customers.
Referral and affiliate channels often show materially different CAC and LTV profiles, which is why platforms like ReferralCandy are used to attribute revenue and conversions from referral, affiliate, and influencer campaigns accurately.
5. Customer Lifetime Value (LTV)
LTV is a measure of the average revenue a customer will generate for your business over the course of their relationship with you. To calculate LTV, multiply your average customer revenue by the average length of time a customer stays with you.
LTV is a key metric because it helps you understand how much you can afford to spend to acquire a new customer. If your LTV is higher than your customer acquisition cost (CAC), you can afford to spend more on marketing and sales to grow your business.
On the other hand, if your LTV is lower than your CAC, you need to find ways to increase your LTV or decrease your CAC in order to grow your business.
6. Quick Ratio
The Quick Ratio is the same as the Current Ratio, but it excludes inventory from current assets. Inventory is typically excluded because it can be difficult for a business to convert inventory to cash quickly.
The Quick Ratio is a measure of a company’s ability to pay off its short-term liabilities with its most liquid assets. A ratio of 1 or higher is typically considered to be good.
7. Lead Velocity Rate (LVR)
LVR is the percentage growth of your monthly sales-qualified leads.
To calculate LVR, use this formula:
LVR = (Current Month’s Qualified Leads – Previous Month’s Qualified Leads) / Previous Month’s Qualified Leads
This metric is important because it shows how quickly your lead generation efforts are growing.
If you’re consistently generating more and more sales-qualified leads, it’s a good indication that your marketing and sales strategies are working.
If your LVR is negative or flat, it’s a sign that you may need to make some changes to your lead generation efforts. Many early-stage SaaS companies partner with a digital marketing agency to accelerate their lead flow and improve the quality of inbound prospects. Working with experts can help you refine your acquisition channels and increase the number of sales-qualified leads each month.
8. Conversion Rates
Conversion rates are the lifeblood of any SaaS company. It’s what tells you how many people are taking the next step in your funnel.
For example, if you have a free trial or freemium product, you want to know how many people are converting from a free account to a paid account.
Or, if you have a lead generation funnel, you want to know how many people are converting from a lead to a customer.
Conversion rates can be broken down into different stages of the funnel (e.g. top of funnel, middle of funnel, bottom of funnel).
9. Average Revenue Per Account (ARPA)
ARPA is the measure of the average revenue that you generate from each customer.
For a SaaS business, this is typically calculated on a monthly basis.
To calculate ARPA simply divide your MRR by the number of customers you have.
ARPA is a great metric to use to understand the value of your customers. It can also be used to understand the potential of your market.
For SaaS products like a no-code marketplace builder, ARPA often reflects how successfully users move from basic plans to advanced features or higher usage tiers.
10. Monthly Burn Rate
Your monthly burn rate is the rate at which your business is spending money.
This is important for a few reasons. First, you need to know if you’re spending more money than you’re making. If that’s the case, you need to figure out how to reduce your burn rate.
Second, your burn rate can help you determine how much money you need to raise in order to reach your next milestone.
Finally, your burn rate can help you determine how much money you need to raise in order to reach your next milestone.
Final thoughts
As you can see, there are a lot of metrics to monitor when you’re running an early-stage SaaS business. But that doesn’t mean you need to spend hours every day poring over your data.
In fact, it’s better to focus on a few key metrics and make sure you have a deep understanding of what they mean for your business. As you grow, you can add more metrics to your dashboard and start to get more granular with your analysis.
The most important thing is to be disciplined about monitoring your metrics and to use the insights you gain to make better decisions. creating a continuous employee feedback loop between data, teams, and execution. After all, that’s what SaaS is all about: using data to build a better business.
Conclusion
There are many more metrics that can be important to your business, but these are the ones that will help you understand your business’ health and trajectory in the early stages. So, focus on these 10 metrics, and you’ll be well on your way to building a successful SaaS company.
