By Mike Wolfe
Marketers tend to have strong feelings about metrics, one way or another, but whether you’re a lover or a hater, most would agree that the success of your SaaS marketing strategy comes down to the KPIs that you’re tracking. Before you fall so in love with metrics that you start tracking 20-30 KPIs and lose sight of what’s truly important—or despise metrics so much that you fail—ask yourself one simple question: “How does this metric tie to our goals?” If there isn’t a direct connection, there are probably more important things to focus on.
Here are seven essential marketing KPIs every SaaS should track:
1. Unique Visitors
What are unique visitors? Unique visitors are the individuals that come to your website in a given timeframe—not to be confused with sessions, which are the total number of visits in a given timeframe and may count the same individuals multiple times. For example: You may have 10,000 sessions per month, but if you mistake that for your audience size and you’re only getting 1,000 unique visitors, your audience is much smaller than you realize.
How do you measure unique visitors? Google Analytics, a free tool, is one of the best ways to track unique visitors. Within the tool, you have the ability to refine by date and compare time periods. Look at this number on a weekly basis and report on it on a monthly basis.
Why are unique visitors important? It’s important to track unique visitors rather than just reporting on traffic. Seeing growth in unique visitors indicates that your audience is growing and that your content is resonating with them. It’s also important to see how these visitors are getting to your site—whether it’s through organic search, social media, referrals, email, direct traffic, or your paid media efforts. Knowing which channels drive the most traffic will help you identify the marketing activities that are working the best and the ones that could use some optimization for better performance.
What are leads? “Leads” is a pretty broad term, so you’ll want to break this down into several subcategories: leads, marketing qualified leads (MQLs), and sales qualified leads (SQLs). Work with your sales team to establish definitions for all three, because what makes someone an MQL versus an SQL is different for every business. As a starting point, you can use these definitions:
- A lead is typically very top of the funnel. They’re someone who is just starting to do their research. They realize they have a problem, but they probably don’t know how to solve it yet. They’ve likely only filled out one form on your website.
- An MQL is a lead that has taken steps to further qualify themselves as a potential customer and on paper looks like an ideal prospect. For example, they may have taken a number of actions such as downloading two or more e-books and visiting your website a certain number of times.
- An SQL has qualified themselves even more than an MQL. It’s highly likely that this lead is what you have deemed an ideal sales candidate based on more detailed profile information and/or user behavior on your website. They’re past the initial research stage, and they’re probably evaluating vendors. An important distinction between an SQL and an MQL is that an SQL is someone whom the sales team has accepted as worthy of direct sales follow-up.
How do you measure leads? A closed-loop marketing automation tool like HubSpot, Marketo, or Pardot is the best way to measure leads—especially when you’ll be breaking them down into subcategories like leads, MQLs, and SQLs. Within your marketing automation tool, you can set criteria that automatically set an individual as a lead, MQL, or SQL based on actions they’ve taken on your website.
Why are leads important? Leads drive sales. Traffic is a pointless vanity metric if you’re not tracking the number of unique visitors that convert into leads.
3. Lead-to-Customer Rate
What is the lead-to-customer rate? Also known as the lead conversion rate, the lead-to-customer rate is the number of leads that are converted into customers.
How do you measure the lead-to-customer rate? Take your total number of customers for the month and divide it by the total number of leads. Then, multiply that number by 100 to get the percentage. For example, five customers in a month with 500 leads would equal a 1 percent lead-to-customer rate.
Why is lead-to-customer rate important? Generating new customers isn’t just a task for the sales team; marketing departments have some responsibility too. The lead-to-customer rate will show how well you’re generating sales-ready leads, as well as improvements (or declines) over time.
What is churn? Churn is the number of SaaS customers that cancel their recurring revenue services—showing how much business you’re losing within a certain time period.
How do you measure churn? As with most of your KPIs, you’ll likely be reporting churn on a monthly basis. To do this, you’ll want to take the total number of customers you lost in the month you’re reporting on. Divide that by the number of customers you had at the beginning of the reporting month. Then, multiply that number by 100 to get the percentage. For example, if you lose one customer in a month that you started with 100 customers, that would equal a churn rate of 1 percent.
Why is churn important? Although churn is a natural part of any business, a high churn rate could indicate that your business is in trouble. It’s one of the most essential metrics for any SaaS company to track. Most companies report churn in terms of revenue or customers.
5. Customer Lifetime Value (CLV)
What is CLV? Customer lifetime value (CLV) is the average amount of money your customers pay during their engagement with your company. As Dale Berkebile explains, “With a CLV calculation, you’re learning, in essence, what your average customer is ‘worth’ to your company."
How do you measure CLV? This one’s a bit more complicated, so bear with us. First, you’ll need to calculate your average customer lifetime. To do this, take the number one divided by the customer churn rate. For example, let’s say your monthly churn rate is 1%. Your average customer lifetime would be 1/0.01 = 100 months.
Now that you know your average customer lifetime, you need to multiply it by your average revenue per account (ARPA) over a given time period. To do this, take your total revenue divided by your total number of customers. For example, if your company brought in $100,000 in revenue last month off of 100 customers, that would be $1,000 in revenue per account.
Finally, this brings us to CLV. You’ll now need to multiply customer lifetime (100 months) by your ARPA ($1,000). That brings us to 100 x $1,000, or $100,000 CLV.
Why is CLV important? CLV can give a clear indication as to whether or not you have a sound strategy for business growth. It also shows investors the value of your company.
6. Customer Acquisition Cost (CAC)
What is CAC? Customer acquisition cost (CAC) shows how much it costs to acquire a customer.
How do you measure CAC? To calculate CAC, you’ll need to divide your total sales and marketing spend (including research, advertising, and personnel costs) by the number of new customers you add during a given time. For example, let’s say that last month you spent $100,000 in sales and marketing and added 100 customers. Your CAC would be $1,000.
Why is CAC important? This metric, combined with CLV, helps a SaaS company ensure its business model is viable.
7. CLV:CAC Ratio
What is CLV:CAC ratio? The CLV:CAC ratio shows the lifetime value of your customers and the amount you spend to acquire them in one, single metric.
How do you measure CLV:CAC ratio? Best practice states that a healthy business should have a CLV three times greater than its CAC. Simply divide your already calculated CLV by your CAC to get your ratio.
Why is CLV:CAC ratio important? SaaS companies can use this number to measure the health of marketing programs, so they can decide to invest in programs that work well or pivot when campaigns aren’t working well.
It’s important to note that you should never set and forget marketing KPIs. Make sure that you’re not only reporting these numbers on an ongoing and consistent basis, but that everything you do in marketing clearly ties to your goals. Ensuring that will help drive goal-focused marketing efforts and enable you to contribute to the overall success of your company.
This post was originally published on September 20, 2016, and was updated in March 2020.