11 Key Metrics for SaaS You Need To Be Tracking

“What gets measured gets managed” as the saying goes. This is especially true for SaaS.

The truth is that there isn’t just one metric that you can measure for every stage of your SaaS business though. Different metrics are important at different times. 

So which ones should you focus on? 

It depends on what you’re measuring (that’s what they all say).

But here are 11 different metrics we recommend paying attention to:

1. Monthly Recurring Revenue (MRR)
2. Annual Recurring Revenue (ARR)
3. Customer Churn Rate
4. Revenue Churn
5. Customer Lifetime Value (CLV)
6. Conversion Rate
7. Payback Period
8. Natural Rate of Growth (NRG)
9. Burn Multiple
10. Activation Velocity
11. Expansion Revenue

1. Monthly Recurring Revenue (MRR)

MRR is the revenue you have coming in every month from your SaaS operations/customers.

This is one of the first metrics you will start to measure and keep on measuring in your SaaS. It gives you clear insights into your company's financial stability and lets you forecast revenue with more accuracy. 

MRR is also the first thing you look at when making decisions about marketing, sales and product development.

2. Annual Recurring Revenue (ARR)

Like MRR, your ARR tells you how much money your SaaS is generating on an annual basis. This helps you with long-term planning and forecasting. 

While total revenue might include one-time sources, ARR specifically captures the recurring revenue stream.

You can calculate ARR using the following formula: 

Total ARR= Monthly Recurring Revenue (MRR) × 12

Why is ARR important?

SaaS valuations are often determined as a multiple of ARR - so if you plan to raise capital or sell your business, this is one of the metrics investors and acquirers will be looking at.

Changes in ARR also give you insights into customer expansion, contraction, and churn patterns.

Lastly, ARR is the metric that allows you to see if you are capable of achieving and maintaining sustainable growth.

3. Customer Churn Rate: 

This metric looks at the percentage of users who cancel their subscriptions within a specific time frame (usually monthly or annually).  

According to Paddle, as a general rule of thumb your SaaS churn rate should be about 5-10% annually. 

These are ballpark figures and it varies across different industries but it’s a good starting point. 

If your churn rate is higher than that, check out this article:

10 Clever Tactics To Reduce Churn in Your SaaS

The best way to determine if you fall within “acceptable” percentages would be to compare your SaaS to others in the same industry. 

If you are an early stage SaaS and you see your churn between 10-20% - don’t panic. Although it is high, many early stage SaaS businesses see numbers like this at first. 

Over time as your product matures and you implement various churn-busting strategies you can expect your churn rate to decrease.

High churn rates can be indicative of various things such as onboarding problems, poor customer support or having a complex product that users struggle to navigate. 

So if you see your users churning, find out why and fix the problem as soon as possible.

4. Revenue Churn (MRR churn)

This is also known as MRR (Monthly Recurring Revenue) churn which is related to customer churn but it also takes into consideration how much each customer is paying, and downgrades as well as outright cancellations. 

There’s a huge difference between losing 3 customers on your lowest-tier plan vs losing 3 large enterprise customers on your highest-tier plan.

It’s 3 customers churned either way - but if you factor in the revenue involved the second scenario is much worse.

That’s why it’s important to track customer churn and revenue churn separately.

A healthy SaaS business should try to keep their MRR churn below 5% annually.

If you see a lot of customers downgrading their subscription you might want to reconsider your pricing tiers and options. 

It will also help you to investigate which customers are downgrading so that you can see if you can find a solution for other customers in the same segment. 

In both cases of churn you need to find out why your customers are leaving. A great way to do this is with surveys or questionnaires sent to churned customers.

5. Customer Lifetime Value (CLV)

CLV is the average revenue you can generate from customers over the entire lifetime of their account.  

In other words, it’s the money you would make from a customer before they churn.

For example, if a customer signs up for your product for nine months, the amount they pay during that period determines their lifetime value.

Why is it important?

Because CLV guides you when making strategic decisions about marketing and sales strategies. And it also help you determine how much to spend on acquiring new customers (CAC)

A high CLV shows that you have product/market fit and brand loyalty. It also ensures that your business model remains viable over the long term.

According to Chargebee.com, you ideally want the lifetime value of your customers to be at least 3 times greater than your CAC (Customer Acquisition Cost - the amount spent to acquire a customer.)

That is: LTV > 3x CAC 

If it costs you more money to acquire a customer than you end up making out of them over their lifetime, your business won’t be around for long!

6. Conversion Rate

Conversion rate measures the percentage of people who complete a desired action across various marketing channels. 

For SaaS companies, this desired action often involves converting visitors into free trials or trial users into paid customers.

Examples of conversion actions include signing up for a free trial, downloading an ebook, or requesting a product demo. Usually they’ll need to click a button or a link to convert - this button or link is called the Call to Action (CTA) in marketing-speak.

Higher conversion rates mean more trial users become paying customers, which directly impacts your bottom line.

Conversion rates also show you which marketing channels are most effective - there’s not much point in driving thousands of visitors to your website from TikTok if nobody is going to sign up for a trial or become a paying customer, is there?

What’s more is that Conversion Rate is also closely tied to your CAC-efficient conversion reduces your CAC by maximizing revenue from existing leads.

Or put another way, if you double your conversion rate you’re getting twice as many paying customers without having to spend any extra money on marketing. Improving your conversion rate is therefore a very powerful force multiplier.

There are 3 important stages in your SaaS pipeline:

1. Website to Free Account Sign Up

This stage introduces people to your product. There are many SaaS businesses that rely on free trials or freemium models. 

 2. Free Account to Activated User

After sign-up, users need to start using your product, explore the features and get into the habit of using your product to run their business or solve their problem.

 3. Activated User to Paid Conversion

This is the critical step where trial users become paying customers.

SaaS conversion rates vary enormously depending on several factors:

• the industry you’re targeting
• the complexity of your product
• whether you’re selling B2B or B2C
• the marketing channel(s) used
• the subscription model you choose (freemium vs free trial, credit card vs no credit card required etc)
• time-in-market and how mature and well-known your product is

The average conversion rate in B2B SaaS from trial to paid is between 25-30%. Interestingly FirstPageSage found conversion rates from trial to paid ranged from 17.4%-51% depending on the traffic source used and whether it was an opt-in or opt-out trial.

Image Source: FirstPageSage.com

There are a lot of things you can do to improve your conversion rate such as having:

• a clear value proposition
• excellent onboarding
• personalized messaging
• A/B testing of different CTAs/landing pages
• investing in a proactive customer success team.

Of course this isn’t the complete list, but it’s a good start. 

7. Payback Period

The payback period is a metric used for the time it takes your business to recoup the initial investment.

It’s closely related to the “SaaS Valley of Death” concept in this video.

In the SaaS context, it tells you how long it will take for the revenue generated from the SaaS subscriptions to cover the initial investment and start generating profit.

Basically:

Payback period =

Initial investment (dev costs, marketing, hosting etc)

÷

Monthly/annual cash flow from subscriptions

Knowing your payback period also helps you to judge the risk associated with your SaaS investment. The shorter the payback period, the lower the risk. It also helps you to get a clear picture of the efficiency of your revenue generation.

In the SaaS industry, payback periods of 15 to 24 months are often considered to be the norm, but this can vary based on factors like industry, market maturity and growth potential.

It’s important to remember that the payback period isn’t a static metric but rather something that you have to monitor continuously. 

If your payback period is longer than expected, you may need to reassess your pricing strategy, marketing efforts, or product features to try and accelerate revenue generation.

One last thing to consider is that a shorter payback period is a lot more appealing to investors if you’re looking to go that route.

While there's no universal percentage to focus on, aiming for a shorter payback period and closely monitoring cash flow are key strategies for maximizing profitability and minimizing risk.

8. Natural Rate of Growth (NRG): 

Natural growth rate tells you how quickly your SaaS would grow without any marketing or sales effort.  

Basically, this shows you organic growth based on the product alone. 

According to Zapier, the formula for NRG is:

NRG = 100 × Annual Growth Rate × Organic Signups × ARR from Products

NRG is a great indicator of long-term sustainability because it shows how well your business is able to:

• Retain customers
• Expand revenue from existing customers
• Get more customers from word-of-mouth referrals 

Tracking NRG helps you to set realistic growth goals and track progress over time. It’s also a great way to measure the effectiveness of your sales and marketing efforts.  

Aim for NRG above 50% annually if you’re doing less than $10m ARR; above 30% if you’re doing $10-50m and above 15% if you’re doing over $50m.

9. Burn Multiple

This metric basically shows you how many months your SaaS can operate before running out of cash.  

It was first introduced by David Sacks as a way to track growth efficiency beyond just speed.

In essence, it helps you understand how well your business converts short-term viability (burn rate) into long-term viability (Annual Recurring Revenue, or ARR).

It is calculated by dividing your Net Burn by your Net New ARR

Burn Multiple =   Net Burn ÷ Net New ARR  

Net burn: Net cash decrease during a period (excluding financing activity).

Net new ARR: New recurring revenue after accounting for churn.

Essentially, it tells you how much you’re spending to bring in new customers who contribute to long-term sustainability.

Lower burn multiples indicate more efficient growth.

Early-stage SaaS companies should aim for a burn multiple around 1.67 (spending $1.67 for every dollar of new revenue)

Well-established SaaS companies should aim for a burn multiple less than 1 (preferably close to zero).

For example, if you’re an early stage SaaS with a net burn of about $50,000 and Net New ARR as $30,000 then your burn multiple is 1.667 (50,000 ÷ 30,000 = 1.667)

Knowing your burn multiple shows you how effectively you are deploying your capital for growth. It is also a good way for you to predict how your SaaS will fare in economic downturns.

Lastly, if you’re a venture-stage SaaS: Burn multiple < 2 is good; > 2 is concerning.

If you have a well-established SaaS then your Burn multiple should be < 1 (or negative).

10. Activation Velocity 

Activation velocity tracks how quickly users become active after signing up and it’s especially important for product-led growth (PLG) companies. 

It’s also an important metric to look at in terms of customer success, retention, satisfaction and revenue.

Keep in mind that activation velocity is not the same as the Aha! Moment (where users realize value without necessarily benefiting) but rather the specific events that provide tangible value.

So why is this important? 

Because without activation, users don’t have a reason to stay with your product and because of that they could just leave.

It’s pretty straight forward. More active users = more growth for your SaaS.

According to Custify, successful product-led growth (PLG) companies generally have activation rates between 20% and 40% for freemium and free trial users.

On average though, for SaaS, the average activation rate is about 36%, with a median of 30%.

11. Expansion Revenue: 

This is the additional revenue your SaaS generates from existing customers through upsells, cross-sells, or additional features. 

This is basically when a customer who is already onboarded and integrated into your solution decides that they want something more from your product. 

When this happens, it’s a great way to see that you are doing something right in terms of the value your software and customer service is adding to your users. 

So why is Expansion Revenue important to SaaS?

A few reasons, it indicates:

• Negative Churn - When existing customers not only stay with you but also spend more on your solution. 
• Long-Term Profitability and CLV (customer lifetime value)
• Cost Efficiency because it costs less to generate revenue growth from current customers than it does to pursue new leads.

On average, SaaS companies should try to aim for an expansion rate between 16%-20% according to Maxio. 

Again, this depends on the SaaS and the industry. 

Remember, expansion revenue isn’t just about making more money; it’s about fostering an ecosystem where customer success drives business success.

12. Conclusion

In the world of SaaS, keeping tabs on the numbers isn't just about crunching data—it's about understanding the number in your business. 

Things like Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR), tell you how much you're pulling in month after month from your subscribers, giving you a real-time snapshot of your financial health. 

Going to Customer Churn Rate and Revenue Churn they are warnings metrics that let you see when users are leaving and how much cash you’re losing as a result. 

But it's not all about watching the money roll in; it's also about making it count. That's where metrics like Conversion Rate and Payback Period come in.

Where Conversion Rate shows you how good you are at turning free users into paying customers, Payback Period tells you how long it'll take to start raking in profits from those new sign-ups. 

The Burn Multiple tells you how far you can go before you run out of gas. Plus, metrics like Activation Velocity help you see how quickly users are getting onboarded and engaged, so you can tweak your approach and keep them coming back for more. 

And last but not least, Expansion Revenue is the icing on the cake, showing you how much extra cash you're pulling in from your existing customer base. 

Of course there are other metrics you can look at as well, but we recommend you start with these and monitor them continuously to get a clear idea of where your SaaS is at.