How can you measure SaaS growth?

How to measure SaaS growth

Software-as-a-Service (SaaS) has become one of the most dominant business models in the world. Everything from music and video streaming, to ride-hailing and booking hotels have adopted SaaS models. Even major products like Microsoft Office and Adobe Photoshop and their companion programs have adopted SaaS models.

However, the success of a SaaS model can’t be measured by sales alone. Instead, it requires looking into several different metrics to gauge customer interest and engagement.

Here are six metrics to measure SaaS growth for SaaS business owners and developers. 

Number of Users/Activation Rate

The total number of users for any service or app can give you a good idea of its popularity and success. This is the initial look at how your service is performing. Since the goal of any business is profit, and profit can only be boosted by more customers, it’s a good place to start.

However, you should also look at the number of customers using your service on different devices. That way, you can concentrate resources on which platform is giving you the greatest value.

However, a greater indicator of how popular your service or app is is the activation rate. This is the number of customers who have actually opened or launched your app after installation. The clearest indicators of this can be provided through the Google Play Store and Apple App Store. 

You can thus build a downloads/day or month chart as well as an activation/downloads chart. That way, you can gauge just how interested your customers are in your service. 

This can also give you an idea of what day of the week gets the most downloads or engagement from your customers. That way, you can deliver important updates or changes to the app on that day to get more engagement. 

Number of Active Users 

The number of active users for a service is often quoted as the most relevant statistic for its popularity. Services like Facebook, Spotify, YouTube, and Google always quote how many millions or billions of active users they have. 

This is because having a large number of users if most are inactive, carries no weight. If they aren’t using your service or subscribing to it and simply have your app, they’re of no value. 

Within Active Users, there are categories of daily active users and monthly active users. The former is usually reserved for services that are used daily. However, the most often quoted metric is Monthly Active Users. This is one of the main metrics to keep an eye on for SaaS growth. 

It’s reserved for services like social media or huge entertainment networks like YouTube. For example, Facebook has 2.89 billion monthly active users, as of 2021. 

Monitoring these numbers will allow you to gauge how popular your services are with a core number of customers. By analysing these most loyal omers, you can perhaps concentrate on exactly what they love about your service. Doubling down on those aspects can increase your customer base. 

Churn/Cohort Analysis 

Cohort analysis and churn are two closely-related metrics. The former analyses when people are dropping off in their usage of your app. 

People tend to download several apps and then not use many for a long time. You can improve your service or app’s retention by analysing why people stop using your app. 

You can take a look at your app’s first-time launch page. You can also look at the overall app experience and why competitors are perhaps doing better. 

The best way for cohort analysis is to do a little retention analysis. Look at the engagement and usage after three days, seven days, or even after a month. All these analyses will help you pinpoint why customers are dropping off or not using your app. 

Churn is also a good metric to measure your service’s success. Cohort analysis takes care of customer churn. However, revenue churn is a more important metric to focus on. That actually affects your overall profit margin.

Lifetime Value versus Cost of Acquiring a Customer (LTV to CAC Ratio)

Lifetime Value (LTV) and Cost of Acquiring a Customer (CAC) are both important metrics. The former measures just how much the average customer can contribute monetarily to your service or app. The latter measures how much it costs on average to acquire a new customer. 

LTV also involves how much a customer uses your service and how much they eventually pay. However, that doesn’t tell you how much profit you will earn without the CAC. 

That brings us to the LTV to CAC ratio. Maximizing this ratio will allow you to earn the most per customer while spending very little to acquire them. A good ratio to shoot for is 3:1. 

This means you got three times the value from a customer than you paid to acquire them. 3:1 also means that you’ll make a profit even though you’ll spend money retaining customers. Hence, a ratio of 1:1 may indicate that you’re losing money.

Monthly and Annual Recurring Revenue (MRR and ARR) 

Monthly Recurring Revenue (MRR) or Annual Recurring Revenue (ARR) measures how much revenue your customers generate. This value can give you a projection of how much revenue your company stands to make. If you’re going to measure SaaS growth, this is a great metric to use.

Recurring revenue makes SaaS very appealing since it’s a clear indication that money will be coming in every month. That too, automatically. 

However, many SaaS companies, especially young ones, undervalue their services and undercharge. That’s how they lose out on sustainable gains. That’s another reason why MRR and ARR are so important. They indicate how much you’ll need to charge to make your business sustainable. 

Net Promoter Score (NPS)

Net Promoter Score (NPS) is a more direct measurement of the value your customers gain from your service. Measuring NPS includes customer feedback and ratings. 

If customers give you positive ratings and feedback, it usually means you’re adding value. It at least means that you’re not disturbing them and that they’re satisfied with your services. 

Small businesses or new businesses can particularly benefit from this since a positive NPS means they’re a market fit. 

Using these six metrics, you can measure the success and growth of your SaaS more objectively and accurately.

Get in touch to chat about your SaaS development ideas. We’d love to hear from you.