In a world where data reigns supreme, getting lost in a labyrinth of numbers, graphs, and dashboards is easy. However, the key to success lies not in tracking every possible metric but in identifying and focusing on the ones that truly matter to your business.
Throughout my journey, I’ve collaborated with some of the brightest minds in the SaaS industry – from Directors of Retention Marketing to Heads of Growth and Chief Growth Engineers. We’ve engaged in countless discussions, debates, and deep data dives to uncover the holy grail of SaaS marketing metrics.
What emerged from these conversations was a clear consensus on the 11 essential metrics that every SaaS business should be tracking. These metrics are not mere vanity numbers but the key performance indicators (KPIs) that directly impact your bottom line, driving acquisition, retention, and, ultimately, your return on investment (ROI).
In this article, I’ll share the wisdom gleaned from these experts, diving deep into each of the 11 must-track SaaS marketing metrics. But we won’t stop at just defining and explaining these metrics. We’ll also explore proven strategies and tactics to help you optimize each one, empowering you to take your SaaS business to new heights.
So, whether you’re a startup founder, a marketing leader, or a growth enthusiast, join me on this journey as we navigate the complex world of SaaS marketing metrics together.
1. Customer Acquisition Cost (CAC) and LTV: CAC Ratio
Customer Acquisition Cost (CAC) represents the total expense of acquiring a new customer. At the same time, the Lifetime Value to CAC (LTV: CAC) ratio compares the revenue generated by a customer over their lifetime to the cost of acquiring them. These metrics are critical for assessing the efficiency and sustainability of a SaaS company’s growth strategy.
LTV:CAC ratio = LTV/CAC
Tracking CAC and LTV: The CAC ratio enables businesses to identify areas for optimization, such as reducing acquisition costs or increasing customer lifetime value.
A healthy LTV: CAC ratio typically falls between 3:1 and 5:1, meaning that the lifetime value of a customer should be at least three times the cost of acquiring them.
To improve the LTV: CAC ratio, SaaS companies can focus on strategies like:
- Optimizing pricing and packaging to maximize revenue per customer
- Implementing effective onboarding and customer success programs to reduce churn
- Leveraging upselling and cross-selling opportunities to increase customer lifetime value
- Refining targeting and marketing channels to attract high-quality leads at a lower cost
| LTV: CAC Ratio | Interpretation |
| < 1:1 | Unsustainable growth, losing money on each customer |
| 1:1 – 3:1 | Suboptimal, limited room for profitable growth |
| 3:1 – 5:1 | Healthy, sustainable growth potential |
| > 5:1 | Underinvesting in marketing, missing growth opportunities |
2. Activations
Activations refer to the number of users who complete a crucial action or milestone within a SaaS product, signalling their engagement and likelihood of becoming paying customers.
This metric is crucial for products with a freemium or free trial model, as it indicates the effectiveness of the onboarding process and the product’s ability to deliver value quickly.
Tracking the activation rate and the percentage of new users who reach the activation milestone helps SaaS companies identify friction points in the user journey and optimize the onboarding experience.
According to industry benchmarks, top-performing SaaS companies achieve 20% and 40% activation rates for freemium and free trial users, respectively.
To improve activation rates, SaaS companies should:
- Identify the key actions that correlate with long-term retention and focus on guiding users toward those milestones
- Streamline the onboarding process to minimize friction and provide clear guidance
- Personalize the onboarding experience based on user segments and their specific needs
- Provide in-app guidance, tooltips, and checklists to help users discover and engage with core features
- Celebrate user progress and achievements to reinforce the product’s value and encourage further exploration
3. Signup to Paid Conversion (12-month period)
The signup to paid conversion metric measures the percentage of users who upgrade from a free trial or freemium plan to a paid subscription within 12 months. This metric provides insight into the effectiveness of a SaaS company’s conversion funnel and the perceived value of its paid offerings.
Measuring signup to paid conversion over an extended period, such as 12 months, allows businesses to account for users who may take longer to convert and provides a more comprehensive view of the conversion funnel’s performance. Industry data suggests an excellent annual conversion rate for SaaS companies falls between 25% and 60%.
To boost signup to paid conversions, SaaS companies can:
- Communicate the value proposition and benefits of paid plans
- Offer a smooth transition from free to paid, with minimal friction in the upgrade process
- Provide personalized upgrade prompts based on user behavior and engagement
- Leverage social proof, such as customer testimonials and case studies, to demonstrate the value of paid features
- Experiment with different trial lengths and upgrade incentives to find the optimal conversion strategy
4. Churn Rate
The churn rate represents the percentage of customers who cancel or fail to renew their subscription within a given period. High churn rates can significantly hinder a SaaS company’s growth, as the cost of acquiring new customers may outweigh the revenue generated from existing ones.
Customer Churn Rate = [Existing customers at the beginning of period — Existing customers at the end of the period] / Existing customers at the start.
Monitoring churn rate is essential for understanding customer satisfaction and identifying areas for improvement in the product, customer support, and overall user experience. Acceptable monthly churn rates for SaaS businesses typically range from 3% to 8%, depending on the target market, product complexity, and customer segment.
To reduce churn, SaaS companies should focus on:
- Continuously gathering customer feedback and acting on it to improve the product and user experience
- Providing exceptional customer support and proactively addressing user concerns
- Implementing effective onboarding and customer success programs to ensure users derive ongoing value from the product
- Regularly communicating with customers to reinforce the product’s value and share updates on new features and improvements
- Analyzing churn data to identify common reasons for cancellations and addressing those issues systematically.
5. Net Promoter Score (NPS)
Net Promoter Score (NPS) is a widely used metric that gauges customer loyalty and satisfaction by asking users how likely they are to recommend the product or service to others on a scale of 0 to 10. NPS provides valuable insights into the overall customer experience and can serve as a leading indicator of growth and retention.
To calculate NPS, SaaS companies subtract the percentage of detractors (users who score 0-6) from the percentage of promoters (users who score 9-10). A good NPS for SaaS businesses typically falls between 30 and 70, with scores above 70 considered exceptional.
To improve NPS, SaaS companies should:
- Regularly collect NPS feedback and follow up with detractors to understand their concerns and address them promptly
- Analyze NPS data to identify trends and common issues affecting customer satisfaction
- Engage with promoters to gather insights on what they value most about the product and use their feedback to inform product development and marketing strategies
- Incorporate NPS data into company-wide goals and initiatives to foster a customer-centric culture
- Share NPS successes and improvements with customers to demonstrate the company’s commitment to their satisfaction.
6. Retention
Retention refers to the ability of a SaaS company to keep customers subscribed and engaged over time. High retention rates are crucial for sustainable growth, as they indicate that customers continue to derive value from the product and are less likely to churn.
Tracking retention metrics, such as monthly, quarterly, or annual retention rates, helps SaaS businesses understand the long-term health of their customer base and the effectiveness of their customer success efforts. Industry benchmarks suggest that top-performing SaaS companies achieve annual retention rates of 90% or higher.
To increase retention, SaaS companies should:
- Continuously innovate and improve the product based on customer feedback and changing market needs
- Provide ongoing value through regular feature updates, content, and resources
- Invest in customer success programs that proactively help users achieve their goals and overcome challenges
- Foster a sense of community and engagement through user groups, events, and social media
- Implement loyalty programs and incentives to reward long-term customers and encourage them to become brand advocates.
7. Annual Contract Value
Annual Contract Value (ACV) represents the average revenue generated from a customer contract over 12 months. This metric is particularly relevant for SaaS companies that offer annual or multi-year subscription plans, as it provides insight into the value of customer contracts and the business’s overall health.
ACV = [Total contract amount / contracted months] x 12
Tracking ACV helps SaaS companies forecast revenue, set growth targets, and make informed resource allocation and investment decisions. Increasing ACV can significantly impact a company’s bottom line and valuation, making it a key metric for SaaS executives and investors.
To increase ACV, SaaS companies can:
- Develop a tiered pricing strategy that offers higher-value plans with advanced features and services
- Implement upselling and cross-selling strategies to encourage customers to upgrade their plans or purchase additional products
- Offer annual billing options with discounts to incentivize customers to commit to longer contract terms
- Provide value-added services, such as consulting, training, or custom integrations, to increase the perceived value of the offering
- Target enterprise customers with larger contract values and more complex needs.
8. Marketing Sourced Revenue (MSR)
Marketing Sourced Revenue (MSR) measures the portion of a SaaS company’s revenue that can be directly attributed to marketing efforts. This metric helps businesses understand the impact of their marketing investments and the effectiveness of various marketing channels in driving revenue growth.
Tracking MSR enables SaaS companies to make data-driven decisions about budget allocation, campaign optimization, and marketing strategy. By analyzing the revenue contribution of each marketing channel, businesses can prioritize investments in the most effective channels and adjust their strategy accordingly.
To improve MSR, SaaS companies should:
- Implement robust marketing attribution models to track the revenue contribution of each marketing touchpoint accurately
- Regularly review and optimize marketing campaigns based on performance data and ROI
- Align marketing and sales efforts to ensure a seamless handoff of leads and a consistent customer experience
- Invest in high-performing channels like content marketing, SEO, and targeted advertising to drive qualified leads and revenue.
- Continuously test and refine messaging, targeting, and creative assets to improve conversion rates and revenue impact.
9. Top of the Funnel Leads Generated by Source: Organic Traffic
Organic traffic refers to the visitors who arrive at a SaaS company’s website through unpaid search engine results. Generating a steady stream of organic leads is crucial for sustainable growth, as it provides a cost-effective way to attract potential customers and build brand awareness.
Tracking the number of leads generated through organic traffic helps SaaS companies assess the effectiveness of their content marketing and SEO efforts. By analyzing the performance of organic leads across the funnel, businesses can identify opportunities to optimize their content strategy and improve conversion rates.
To increase organic traffic and leads, SaaS companies should:
- Develop a comprehensive content marketing strategy that targets critical customer pain points and search queries
- Optimize website content and structure for search engines, focusing on relevant keywords and user intent
- Build high-quality backlinks from reputable sources to improve search engine rankings and referral traffic
- Leverage content formats that drive engagement and conversions, such as blog posts, whitepapers, and webinars
- Regularly update and refresh content to maintain relevance and authority in search results
10. Number of Active Trials
The number of active trials represents the count of users currently engaged in a free trial of a SaaS product. This metric is crucial for companies that rely on a trial-to-paid conversion model, as it indicates the potential for future revenue growth and the effectiveness of the trial experience in converting users to paying customers.
Monitoring the number of active trials helps SaaS companies assess the health of their acquisition funnel and identify opportunities to optimize the trial experience. By analyzing trial engagement data, businesses can pinpoint areas for improvement, such as onboarding, feature adoption, and upgrade prompts.
To increase trial signups and conversions, SaaS companies should:
- Offer a frictionless trial signup process that minimizes barriers to entry and captures critical user information
- Provide a guided onboarding experience that helps trial users quickly discover and derive value from the product
- Personalize the trial experience based on user segments and their specific needs and goals
- Implement a communication strategy that nurtures trial users with relevant content, tips, and upgrade incentives
- Continuously monitor and optimize the trial experience based on user feedback and behavioural data.
11. Lead Velocity Rate (LVR)
Lead Velocity Rate (LVR) measures the month-over-month growth in the number of qualified leads a SaaS company generates. This metric provides insight into the momentum and trajectory of a company’s lead generation efforts, helping businesses forecast revenue growth and make informed decisions about marketing investments.
LVR% = [Total number of MQLs from Month B — Total number of MQLs from Month A] / Total number of MQLs from Month A × 100
To calculate LVR, SaaS companies compare the number of qualified leads generated in the current month to those generated in the previous month, which is expressed as a percentage. A positive LVR indicates that the company is generating more leads each month, while a negative LVR suggests a slowdown in lead generation.
To improve LVR, SaaS companies should:
- Continuously optimize and expand their lead generation channels, focusing on those that deliver the highest quality leads
- Develop targeted content and campaigns that resonate with key customer segments and drive engagement
- Implement lead scoring and nurturing strategies to identify and cultivate high-potential leads
- Collaborate closely with sales teams to ensure a seamless handoff and follow-up process for qualified leads
- Regularly review and adjust lead generation targets based on business goals and market conditions.
Conclusion
Tracking and optimizing the right SaaS marketing metrics is essential for making informed decisions, allocating resources effectively, and driving sustainable growth. By monitoring key metrics such as CAC, LTV: CAC ratio, activations, churn rate, and NPS, SaaS companies can gain valuable insights into the health of their business and identify areas for improvement.
However, simply tracking these metrics is not enough. To succeed in the competitive SaaS landscape, businesses must act based on the data they collect. This means continuously experimenting, iterating, and optimizing their strategies to improve critical metrics and deliver a superior customer experience.
By embracing a data-driven approach to SaaS marketing and focusing on the metrics that matter most, companies can unlock new growth opportunities, build lasting customer relationships, and thrive in an increasingly crowded market. The key is to remain agile, adaptable and committed to delivering value to customers at every stage of their journey.