Before rolling out any sort of marketing strategy, it’s critically important to establish key performance indicators (KPIs).
And while most SaaS organizations are familiar with metrics, or KPIs for their business, marketing KPIs are often overlooked. Marketing KPIs dig deeper to track the success of your marketing efforts.
It’s important to note that it’s easy to become numbers-obsessed, especially with access to all kinds of data. Before you know it, you could be reporting on 20 to 30 KPIs and losing sight of what’s truly important.
Below are seven essential marketing KPIs every SaaS should be tracking:
1. Unique Visitors
What is it? It’s important to track unique visitors versus just reporting on traffic. The KPI of unique visits shows the number of individuals visiting your website during a certain time period. You’ll likely be looking at this number on a weekly basis and reporting on it on a monthly basis. Seeing growth in unique visitors will indicate that your site is accessible, the content is resonating with your target audience. You’ll also be able to see how these visitors are getting to your site—whether it’s via organic search, social media, referrals, email, direct traffic, or your paid media efforts.
How to 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.
What is it? “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 of all three, as what makes 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 just yet. They’ve probably only filled out one form on your website.
- An MQL is a lead that has taken additional 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 like downloading two or more ebooks 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 falls into 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 likely 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 a direct sales follow-up.
How to 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.
3. Lead-to-Customer Rate
What is it? The ultimate goal of your marketing efforts should be to drive customers. The lead-to-customer rate will show how well you’re generating sales-ready leads, as well as improvements (or declines) over time.
How to 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% lead-to-customer rate.
What is it? Churn shows how much business you’re losing within a certain time period. While churn is a natural part of any business, a high churn rate could indicate that your business is in trouble. That being said, it’s one of the most essential metrics for any SaaS company to track. Most companies report churn in terms of revenue or customers.
How to 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, 100 customers at the beginning of the month and one customer lost that month would equal a churn rate of 1%.
5. Customer Lifetime Value (CLV)
What is it? Customer lifetime value (CLV) is the average amount of money your customers pay during their engagement with your company. This metric 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.
Simply put: “With a CLV calculation, you’re learning, in essence, what your average customer is ‘worth’ to your company.”
How to 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, which in our example is 100 months, by your ARPA ($1,000). That brings us to 100 x $1,000, or $100,000 CLV.
6. Customer Acquisition Cost (CAC)
What is it? Customer acquisition cost (CAC) shows how much it costs to acquire a customer. This metric, combined with CLV, helps a SaaS company ensure its business model is viable.
How to measure CAC: To calculate CAC, you’ll need to divide your total sales and marketing spend (including personnel costs) by the number of new customers you add during a given time. For example, let’s say you spent $100,000 in sales and marketing last month and added 100 customers. Your CAC would be $1,000.
7. CLV:CAC Ratio
What is it? The CLV:CAC ratio shows the lifetime value of your customers and the amount you spend to acquire them in one, single metric. SaaS companies can use this number to measure the health of marketing programs, so they can invest in programs that work well or pivot when campaigns aren’t working well.
How to measure CLV:CAC: Best practice states that a healthy business should have a CLV three times greater than its CAC. Simply compare your already calculated CLV to CAC to get your ratio.
It’s important to note that you should never “set them and forget them” when it comes to marketing KPIs. Make sure you’re not only reporting back on these numbers, on an ongoing and consistent basis, but everything you do in marketing should answer the question “How does this tie back to our goals?”
That simple practice will help drive goal-focused marketing efforts and enable you to contribute to the overall success of your company.