Staying ahead in SaaS requires a keen understanding of the metrics that matter the most. The numbers don’t lie. By tracking the right SaaS growth metrics, you can gain a granular understanding of your business’ strengths, weaknesses, product performance, and overall business health.
In this blog, I dive into the three pivotal metrics that serve as compass points for SaaS companies navigating the path to sustainable growth:
- Revenue Per Lead
- Lifetime Value (LTV) to Customer Acquisition Cost (CAC)
- Net Promoter Score (NPS)
SaaS Growth Metrics
I remember when we hired our first Director of Business Operations at ToutApp. It was really exciting when he came on. He had put together an entire strategy on how we’d track key metrics around our SaaS business — specifically to help us grow faster.
While we were already tracking the basic metrics… The metrics he brought on were on a whole different level. They completely opened my eyes to exactly what a high performance SaaS business should instrument. Let’s dig into these top three SaaS growth metrics.
1. Revenue Per Lead
Revenue Per Lead is a critical SaaS growth metric that gauges the effectiveness of your marketing and sales efforts. It’s calculated by dividing the total revenue by the number of leads. The number you get helps assess the value of lead generation strategies and the quality of leads attracted.
A high revenue per lead indicates a strong ROI. A low value may prompt a reevaluation of your strategies to optimize conversions and enhance overall revenue generation.
The true growth potential of your SaaS business depends on the quality of your pipeline. If you don’t have sufficient pipeline coverage (whether it be leads or trial users) you will never hit your number no matter if you’re product led or sales led. Ultimately, leads, trial users, and pipeline are the lifeline of the business.
Oftentimes, when you start to spend money on generating more leads, it may not convert into actual revenue. This is when I look into the revenue per lead metric. For example, if you were spinning up new marketing campaigns, you can start to measure if your revenue per lead is going up or down.
When your revenue per lead rate is down, the quality of your leads are low. You may want to think about spending less and improving the quality of your efforts. If your rate is up, you can juice those leads by investing more money towards your current strategy.
Once you understand the pipeline and it is healthy, you want to understand if you have an efficient process next. The big question is, are you actually going to be profitable with your customers?
2. LTV to CAC Ratio
Your Lifetime Value (LTV) to Customer Acquisition Cost (CAC) ratio looks at how much you spent to acquire your customers, compared to the lifetime value of that customer.
LTV represents the total revenue a customer is expected to generate over their entire life cycle using your SaaS product. CAC quantifies the cost incurred to acquire that customer. LTV to CAC compares how much you spent to get that customer and how much that customer made you.
As long as that customer is spending more money than it took you to acquire, you’ve got a good SaaS business.
This ratio is important regardless of whether you are bootstrapped or venture-backed. Every Founder, Investor, and potential acquirer will care about these unit economics. Keep your money out lower than the money coming in.
A good benchmark is 3X. What happens if you’re lower than 3X or higher? There’s a risk that you may be underinvesting in your funnel or over-investing in an inefficient funnel.
3. Net Promoter Score
Growth only happens if you’re able to retain your customers. You’re probably already obsessing over churn — it’s a common metric to look at. But here’s the thing… Churn is something that happens once it’s too late to get the customer back. So, measuring your Net Promoter Score (NPS) on a quarterly basis is super important.
NPS is a key metrics that gauges customer satisfaction and loyalty. It is derived from a simple and powerful question: “How likely would you recommend our product to a friend or colleague?”
How can you measure this? You’ll have your customers respond to this critical question using a scale from 0 to 10. Your results can end up as an early warning detection signal on your churn.
You can start to see which customers are unhappy and figure out how to enable them in a better way to prevent that churn.
This affects your MRR because you will keep adding people but they leave so you will be stagnant. You don’t want that, so NPS is powerful.
A high NPS signifies a strong and satisfied customer base. This is extremely indicative of potential growth through referrals and customer advocacy. On the other hand, a low NPS may point to areas of improvement… specifically in customer success. NPS helps SaaS companies prioritize user experiences and build meaningful relationships with customers.
In Conclusion
When you track the numbers and assess the quality of your pipeline, how efficient you are in converting that pipeline, and how you can reduce churn, you’ll start to drive growth as a high performing machine.
These three SaaS growth metrics help you get a feel for how effective your Go-To-Market strategy really is. If the numbers aren’t looking good, it may be time to revamp your strategy.
If you’re a SaaS Founder working to accelerate the growth of your business, I invite you to join my Go-To-Market Coaching Program. Inside this program, I work with SaaS Founders like you to form a scalable GTM strategy and build exponential growth for your SaaS business.
