Adopting cloud computing doesn't spark the debate inside enterprises that it once did, and companies have many service providers to choose from, all vying for market share. But it's still necessary to get the maximum return on investment and to verify that the company is indeed reaping the benefits of the cloud, whatever the "-as-a-service" offering consumed—software-, platform-, infrastructure-, or any other.
As with anything else in IT operations, what gets measured gets done. You have to know the KPIs that relate to your needs and ensure that your -aaS adoption is successful. Tracking the sales and marketing, delivery, and operational aspects, for example, can help you know how your success measures up. Here are nine must-measure KPIs to monitor SaaS success.
1. ARPU
Your company's leadership is always going to want to know first and foremost about business revenue. Average revenue per user helps you understand and improve your offering's price points.
2. CAC
The customer acquisition cost is calculated by dividing total marketing and sales costs by the number of new customers acquired. The bill of materials for cost should include tools, commissions, advertising, sales cycles spent on signing up a new customer, etc. This will differ by products and approaches.
3. DAU/MAU Ratio
The daily and monthly active users ratio, which reflects the stickiness of a product or service by telling you the proportion of monthly active users that engage with your app in a single day, is probably the least appreciated metric. Improvement in this ratio is a good indicator that growth is on the right track. For example, a 25% ratio means that your users engage with your app an average of once every four days, but a ratio of 50% means they engage an average of every other day. Watching the ratio move can tell you which initiatives taken in marketing or sales channels and which product enhancements are spurring growth.
4. MRR/ARR/burn rate
Monthly and annual recurring revenue helps you understand the basic cash flow numbers. The monthly burn rate calculation will help you keep expenses in line.
5. MQL/SAL/SQL
To increase your return on investment in sales and marketing, you need an effective lead qualification system so that your team can focus in a systematic way on the prospects most interested in buying. The system should classify leads in three categories: marketing qualified leads, sales accepted leads, and sales qualified leads. Giving the sales and marketing teams guidance on which leads are hot and which are cold will help you reduce the CAC.
6. FTC/FCR
Free trials and freemium offerings are common strategies for acquiring paying customers, but they work best when you know the free trial conversion and freemium conversion rates. FTC is the number of upgrades to a paid plan divided by the total number of free trials. The FCR is the number of upgrades to a paid plan divided by the number of total freemium customers.
7. CLV
Customer lifetime value and customer lifespan value are alternate names for the metric that measures how much a customer pays for a particular product or service. CLV is calculated by multiplying ARPU by average duration. Hence, if customers pay $100 a month for your service and customer churn translates to a duration of 12 months, then the LTV is $1,200.
8. NPS
The net promoter score is a market research metric usually derived from a single survey question asking customers to rate the likelihood that they would recommend a company, product, or service to another person.
9. Retention
While the business leadership wants high adoption rates and a low CAC, it also prizes low churn and high retention, because CAC is never low enough to make high churn profitable. It's a truism that it's cheaper to retain a customer than it is to win a new one, so churn trends should be closely monitored. They indicate, in real time, how well the products and services are performing in the market. If the retention score is 85% for a base of 150 customers at the beginning of the month, it means that 127 or 28 customer will revisit the site by the end of that month.
Don't stop at nine KPIs
Other metrics less essential to keeping an eye on the bottom line are also useful as indicators on reach and market attention. Average number of users visiting the site, average dwell time, repeat visits, and comments, for example, can help you tune your SaaS-based service offerings and draw more customers. Quality and quantity of traffic are also vital to understand current and potential clientele.
Bottom line (to emulate your business's leadership): Choose the set of KPIs that will give you a directional compass for outcome-driven business goals.
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