Here’s a SaaS secret for you: engaged users tend to be PAYING users. Engaged users are also more likely to stick around and KEEP PAYING you. This presents you with a challenge: increasing engagement and retention as strategically as possible to boost the overall health of your company.
In this post, we’ll 1) Discuss some of the most important SaaS metrics you should track to achieve better customer engagement and revenue retention rates, 2) Dive into the relationship between your metrics and your user engagement and retention, and 3) Discuss strategies for optimizing your KPI monitoring.
By the end of this post, you’ll be ready to supercharge your results through effective KPI usage.
Understanding your SaaS metrics
Your SaaS metrics act as objective data you can rely on amidst the hectic swirl of your daily responsibilities and workflows.
The SaaS industry moves fast, and your metrics offer you the chance to slow down for a moment and make a plan. In fact, they’re the ONLY way you can formulate a workable subscription strategy.
Without your metrics to guide your decision-making, you’ll be left to vaguely guess what you should do. And worse, you’ll be unsure about the specific outcomes you hope to achieve. Your metrics allow you to get granular about your goals and processes.
How many customers do you want to have by next year? How are you going to track the purchasing habits and exact dollars-and-cents revenue generated by each user? Do you have a way to monitor the monthly changes in customer acquisition patterns, and do you know the precise changes you hope to see?
The takeaway is this. Your SaaS metrics give you essential clarity and structure around your business objectives and pave the way to profitable plan formation. Now, let’s take things closer to home for a moment.
You might not even be aware of it, but your responsibilities as a SaaS CFO are shifting rapidly. And your SaaS metrics are a central piece of the equation.
The data-driven SaaS CFO
Data plays a crucial role in SaaS businesses, providing valuable insights into customer behavior and purchasing patterns, user segmentation opportunities, potential feature enhancements, and so much more.
And as a CFO, it’s your responsibility to track, manage, and strategically utilize and distribute that data for the benefit of your company.
Data-driven decision-making helps SaaS companies improve organization-wide results by:
- Optimizing marketing campaigns and sales processes
- Tracking and improving financial process efficiency
- Stopping user attrition in its tracks and boosting your number of leads
- Making improvements to customer service and UX
Sounds nice, right? There’s a big IF in all that, however. You can achieve all that IF you take the time to optimize your relationship with your SaaS metrics.
Now that you know more about the importance of SaaS metrics for boosting engagement and retention, let’s dig into some KPIs.
4 essential SaaS engagement and retention KPIs
Your KPIs help you assess the sustainability and effectiveness of your subscription business model.
And with respect to your customers, ensuring subscription success boils down to engagement and retention. One leads to the other, and they both lead to CASH FLOW.
Let’s look at four important metrics to help get you on your way.
1. Customer acquisition cost
Your customer acquisition cost (CAC) is a vital metric that measures how much money your SaaS company spends on acquiring new customers. It helps you evaluate the effectiveness of your marketing efforts and your customer targeting decisions.
You might be thinking, “What does this have to do with engagement or retention?” A lot, as it turns out.
- A low CAC indicates high user interest, which often translates into ongoing engagement
- Engaged users who onboard easily are more receptive to upselling
- Low-CAC customers are more likely to recommend your products to others
By monitoring your CAC, you can maintain a sense of your general user sentiment in the opening stages of your customer journey.
Those initial impressions are often a huge factor in establishing lasting loyalty.
2. Monthly recurring revenue
Monthly recurring revenue (MRR) is one of your most important growth metrics. It measures the total revenue your company generates from customer subscriptions each month.
It’s a crucial metric for evaluating your net revenue retention and the overall level of traction you’re gaining. It acts as a vital counterpoint to your annual recurring revenue, and can also help you forecast cash flow and business growth.
Your MRR breaks down into three subsets, each of which provides important insights into your customer engagement and retention:
- Expansion MRR: This KPI tells you the monthly expansion revenue your company generates from cross-sells and subscription upgrades. If people are expanding their subscriptions, it usually means they’re highly engaged and very likely to keep renewing.
- Contraction MRR: This metric evaluates the total amount of monthly revenue you lost to account downgrades. These users haven’t churned, but they’re NOT EXACTLY HAPPY with your products or level of service. Don’t lose hope; they can still be swayed in the other direction.
- Churn MRR: Your churn MRR shows you the amount of money you lost to logo churn in a given month. Always look for common denominators when evaluating churn MRR. Are the users related in any way? Maybe your ideal buyer profile needs adjusting. Are some software offerings seeing higher churn than others? Product development might need some work.
Ultimately, the goal is to consistently grow your MRR, which leads to long-term subscription success and cash flow sustainability. On top of that, your MRR subsets allow you to look at the health of your subscriber base in much more detail.
3. Average revenue per account
Analyzing average revenue per account (ARPA) is crucial in helping SaaS companies identify customers with high revenue potential. Note that you might also see this KPI written as ARPU or average revenue per user.
Understanding how much revenue you generate on average from each customer account will help you:
- Identify your most engaged users to optimize your target buyer profile
- Craft customized upsell and cross-sell campaigns for your top buyers
- Identify your low-ROI customers so you can decide whether to keep pursuing them
ARPA helps businesses gauge the effectiveness of their revenue generation efforts and make informed decisions about resource allocation.
By budgeting with your VIP customers in mind, you’ll be well-positioned to maximize engagement and renewals.
Customer retention rate
Customer retention rate (CRR) measures the percentage of customers that are retained over a specific period. SaaS CFOs need to actively prioritize customer retention because it directly impacts their financial sustainability.
CRR matters greatly for SaaS CFOs because it’s inversely related to your customer and revenue churn levels. The higher your CRR, the lower your customer churn rate will be, and the more paying subscribers you’ll have.
This metric allows SaaS companies to evaluate the quality of their products and the effectiveness of their customer success efforts.
By focusing on customer retention, SaaS companies can streamline their cash flow and create a more stable and predictable revenue stream. Now, let’s look at some metrics that relate specifically to customer engagement.
KPIs for tracking and scaling user engagement
Measuring and leveraging your engagement metrics is crucial for effective financial leadership.
Factoring your KPIs into your financial decision-making enables you to optimize user experiences, streamline your growth rate, and minimize customer attrition.
SaaS engagement KPIs can help you gauge customer loyalty and measure the effectiveness of your products. Can you create a SaaS product that people feel they need and that they use daily?
Tracking these metrics can help you get there.
Your number of active users (AU) is a crucial SaaS engagement KPI.
It measures the total number of people actively using your SaaS products and serves as a key indicator of user engagement and product line success.
Your AU breaks down into two sub-metrics: daily and monthly active users. It’s essential to keep an eye on both KPIs to get the full story on your growth and engagement. You’re aiming for a ravenous customer base of daily users, so it’s very important to get specific about your usage stats.
SaaS companies that offer a free trial sometimes choose not to include trial users in their AU count. This can give CFOs a better idea of their company’s total number of customers who are engaged at a deeper level.
The viral coefficient is a metric that measures the rate at which SaaS users refer new customers. Over time, large referral volumes give your products a viral growth effect.
SaaS companies with a high viral coefficient tend to experience rapid customer acquisition and revenue growth. This is typically followed by high user engagement IF THE HYPE IS JUSTIFIED.
That last bit is very important. It’s not uncommon for SaaS companies to experience an initial burst of hype-fueled growth, only to fade into obscurity several months to a year later.
To calculate your viral coefficient, follow these three steps:
- Multiply your total number of current customers by your average referrals per user.
- Multiply the resulting number by your average conversion rate for referrals.
- Divide that number by 100 to find your viral coefficient.
Essentially, this KPI tells you how many new users you can expect each customer to refer to you throughout their subscription lifecycle. High-referral users tend to be highly engaged, and they can also dramatically lower your CAC by offloading much of your work in that respect.
Improving your viral coefficient is a great way to organically boost your number of new customers.
Net promoter score
Your net promoter score (NPS) tells you how likely your users are to promote your company and products to others. It’s a great way to gauge customer satisfaction, loyalty, and engagement with your product or service.
To find your NPS, ask your users a simple question: “How likely are you to recommend us to your friends, family, or colleagues?” Then, have them rank their promotion likelihood from 1 to 10.
Your customers who gave you a 9 or a 10 are your promoters. They love what you do and are likely to tell others about it.
Individuals who scored 7 or 8 are your passive users, and aren’t crazy about you one way or the other.
And those who replied with 1 through 6 are your detractors. They are not enjoying the party and will likely leave soon.
In this day and age, when practically every SaaS market is crowded, you have to feel strongly about a product to bother recommending it to people. So the higher your NPS grows, the more satisfied and engaged your users are likely to be.
Now that we’ve reviewed some important engagement and retention KPIs for SaaS CFOs, let’s see how you can take the next step: using this data to generate subscription results and cash flow.
Using your SaaS metrics to full effect
Even if you understand the value of your metrics and have a KPI management strategy in place, you still might be missing the mark.
That’s because how you use your metrics is just as important as whether you use them in the first place.
Below are some pro tips for getting the most out of your KPIs to optimize your customer retention and engagement.
Organize your KPIs with role-based dashboards
In a manual accounting department, KPI tracking can quickly grow overwhelming for CFOs.
Scrolling through spreadsheets to chase multiple data points (let alone find the relationships between them) is inefficient at best, and at worst, could lead to a serious error.
Role-based dashboards put all the metrics you need on one convenient screen. Dashboards are also fully customizable for other finance leaders at your company.
The CFO’s role has slowly merged with that of the data scientist. You need to stay on top of your data and use it to full effect, often to make important financial decisions impacting engagement and retention.
Would you rather take a quick glance at a simple dashboard or scroll through spreadsheets, unsure of whether you’ll find what you need?
Share your insights freely with other stakeholders
Fostering collaboration and alignment is crucial in any business, and sharing SaaS metric insights plays a significant role in achieving your business objectives.
By transparently sharing metrics, you supply other stakeholders at your company with the data they need to reach and maintain results.
From sales and marketing to customer success and more, every department relies on data managed by the accounting team.
By sharing KPIs and related insights freely with those around you, you’ll create two distinct levels of engagement.
First, you’ll foster internal engagement by creating a feeling of personal investment in your team members. And by doing that, you’re paving the way for customer engagement as a result of your company’s departments working together effectively.
Embrace cloud automation for real-time KPI updates
Cloud accounting software provides a level of visibility into your KPIs and flexibility in working with them that just isn’t attainable with legacy tech.
Accounting AI puts you in the driver’s seat with respect to your KPIs by:
- Automating KPI monitoring and management
- Providing real-time continuous data
- Facilitating seamless KPI forecasts
If you’re still relying on legacy tools and methods to track your important SaaS metrics, you could be doing real harm to your ability to monitor your users’ engagement and optimize retention rates.
Ready to maximize renewals and supercharge user engagement?
Achieving consistent renewals and keeping users engaged is a CONSTANT STRUGGLE for SaaS CFOs. A customer base doesn’t magically fall in love with a product and keep throwing money at it hand over fist, as much as we wish they would.
Generating long-term subscription cash flow requires monitoring the right metrics in the right way. CFOs who rely on legacy approaches are at risk of seeing their companies surpassed by competitors who take a more innovative approach.
To learn more about how AI can help you build an engaged customer base and achieve lasting subscription cash flow, take a product tour of Sage Intacct for SaaS.
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