At a Glance
SaaS Sales Metrics are essential for gaining in-depth insights into your customers. It is an essential tool for understanding the profitability and the value of your products, which thereby enhances the features of the product. Understanding SaaS sales metrics is essential to decoding the various variables imperative to the enterprise’s long-term success.
Approach Each Customer With The Idea Of Helping Him Or Her To Solve A Problem Or Achieve A Goal, Not Of Selling A Product Or Service.Brian Tracy
No matter how great one’s idea is, no matter how hard one has tried to build up the business, it does not make sense until an effective sales process is considered. A SaaS business is just not about acquiring customers, rather about acquiring the right customers. To acquire the right customers, SaaS sales metrics play an extremely important role. Proper understanding of these metrics will help you ascertain the issues that require your attention and thereby push you towards the path of growth. As per a report, if a software company grows only by 20%, there is more than 92% chance that it will shut shop in a few years.
Important Sales Metrics
Mentioned below are some of the most important B2B SaaS Metrics which you should track to ascertain the profitability of your business: –
Annual Contract Value
This pertains to the value of the customer’s contract for 12 months, i.e., annually. Suppose if a customer signs a 24 month contract of $60,000, then the Annual Contract Value will be 60,000/2 = $30,000.
Total Contract Value
It shows the value of the contract of the consumer for the entire period. For instance, in the above example, the Total Contract Value is $60,000.
Average Revenue Per Account
It shows the revenue contributed by an average customer monthly. It tracks growth and revenue generation on a per-unit basis.
ARPA= MRR / Number of Active Accounts
One can compare the features and revenue generation of one’s consumers and existing consumers over a while.
Average Selling Price
It measures the average initial price which customers are supposed to pay at the time of sales conversion. It is essential to understand that you need to know your right sales model for your SaaS start-up. High touch sales strategies are made viable by a high Average Selling Price, and a self-service model is made viable by a low Average Selling Price.
Customer Acquisition Cost
It shows how much one needs to spend to take over one consumer. Its cost in a B2B SaaS business is determined by the marketing expenses, which determine the costs of generating a lead and the sales costs, which results in the costs of converting that prospective lead into a consumer. The easiest way to calculate this is by combining the total sales and marketing expenses in a time period, and then this is divided by the number of new consumers. So, if you spend $5000 per month on marketing and sales and close 10 customers, the customer acquisition cost will be $500.
Customer acquisition cost and customer success
Such analysis does not include costs and revenues concerned with SaaS sales productivity and customer success strategies. It is concerned with analyzing the firm’s capability to generate additional revenue from sales and marketing expenses.
Free and paid customers
When the leads are generated from both free and paid customers, it becomes necessary to calculate acquisition costs separately. For instance, if there are 100 free customers and 20 customers acquired at 500 CAC, the average comes up to $83. This average is true, but this average is useless when it comes to making rational decisions because it offers no clarity whatsoever.
Dave Kellogg’s Alternative CAC
This approach recommends an alternative calculation for CAC, which compares sales and marketing expenses of the previous year and the current year. So, if you have a combined total of $10,000, and the company generates $12,000 in revenue this month, this will mean that for every $1 of new revenue generated, you will have to spend $0.83. Mentioned below are some of the important metrics in this alternative SaaS Metrics Guide: –
CAC Payback Period
This is also called Months to Recover CAC. It is calculated in this way: divide the acquisition cost of a customer by the monthly revenue they generate so that you know the number of months required to attain the break-even. So, if a consumer’s acquisition cost is $2000, and the average revenue per consumer is $150, it takes just 2000/150, i.e., 13 months, somewhere over one year, for every consumer to become profitable.
Gross Margin Adjusted Payback Period
This equals CAC/ (MRR per customer * Gross Margin). So, continuing the previous example, if the gross margin is 70%, a CAC payback period of 19 months will be generated, which is 6 months longer than the previously forecasted period.
Aim to recover your CAC in <12 months; otherwise your business will require too much capital to grow.David Skok, Matrix Partners
Customer Lifetime Value
This is the total amount of revenue generated by a consumer until they are subscribed to the company’s SaaS product. This shows how much each consumer is contributing to your company’s revenue, and for what period, and how much should be spent by the company in acquiring such customers. This equals ARPA/ Customer Churn Rate. Therefore, if the ARPA is $200, and the customer churn rate is 10%, the lifetime value generated is $2000.
One’s LTV should always be greater than the CAC. Suppose your customer has a lifetime value of $2000, and it cost $1000 to acquire that customer, the LTV: CAC ratio then will be 2:1.
It showcases a business’ sales efficiency and the ability of its sales representatives to close deals.
% win rate = Opportunities won/ (Opportunities won + lost)
Sales Commission: ACV
= Sales Commission / Annual Contract Value
With a sales commission of $500 and an ACV of $5000, sales commission here will be 10% of ACV.
It is known as the Magic Number of SaaS since it showcases the return generated by a company’s growth investments.
= (Revenue * Gross Margin %) / Sales & Marketing Costs
Revenue Per Lead
It allows a company to know the average amount of revenue that the leads are going to contribute.
= ACV/ Number of Leads
Lead Velocity Rate
It measures the month-on-month growth of a company’s lead generation.
You Don’t Need A Big Close as Many Sales Reps Believe. You Risk Losing Your Customer When You Save All The Good Stuff For The End. Keep The Customer Actively Involved Throughout Your Presentation, And Watch Your Results Improve.Harvey Mackay
Now that you are aware of the key SaaS sales metrics that industry leaders follow, incorporate the necessary ones in your sales strategy and take firm steps towards implementing your business strategy.