Have you ever thought about what are KPIs and what functions they generate? Why they are so important and what advantages you can acquire from them?
So if you are looking for the answers to all these queries you are in the proper place.
If you are ready let’s dive in!
What are KPIs?
Key performance indicators or KPIs are means that enable you to measure your success and progress in your business, product, store, app, etc. Internal corporate indicators help you to track the quality and efficacy of the work done and enhance your work.
KPIs are a set of metrics that display how healthy a business is. There are many unique metrics to SaaS and other subscription-based businesses.
KPIs must be:
- Well-defined and measurable
- Aligned with your business strategy
- Applicable to your business area
If you focus on the KPIs of your business, you can utilize your data efficiently.
Benefits of using KPI in SaaS
As we already understood KPIs for SaaS quantify your business performance in every platform. For instance, Saas KPIs can help you track your monthly or annual revenue or see how many people signed up for your service helping you adjust strategies for increasing SaaS sales.
Let’s now find out how beneficial can be the usage of key performance indicators for SaaS:
- KPIs fix software issues: These indicators monitor certain metrics and find out the problems of your app or website. So due to KPIs you can fix the flaws and make your product profitable.
- KPIs provide a health check: KPIs help you to track how your business is growing and how healthy it is becoming over time. They enable you to consider your business from risk factors to financial or marketing indicators.
- KPIs enable you to align your employees: KPIs are the most useful way to measure performance and they form a direct bond with team members and put them in one direction for specific goals.
- KPIs make everyone accountable for performance: KPIs help your employees make a progress and become contributors to your business.
SMART framework to define KPIs for SaaS
We already discussed what are KPIs and how useful they are for companies, businesses, or startups. But here can rise one question like “How can I measure my business KPIs?”. And the best way is to use the SMART framework.
What is the SMART framework? This acronym opens with these 5 words specific, measurable, achievable, relevant, and timeframe.
KPIs for SaaS should:
- Have a specific goal
- Measure goal progress
- Be achievable and realistic
- Relevant to your goals
- Have a sensible timeframe for your business
You have to work constantly in order to improve and evaluate your measurement steps.
Types of KPIs
KPIs have their common types which differ from each other by various means. One thing that is common for all KPI categories is that they are tied to strategic aims.
Let’s now find out together what are the main types of KPIs:
- Quantitative Indicators – they display data with numeric weights, like ratios, percentages, finances, etc.
- Qualitative Indicators – unlike quantitative indicators this one is mainly focused on textural data, like surveys, questionnaires, ideas, etc.
- Lagging indicators – they compare the business’s current rates with metrics from a previous time.
- Leading Indicators – they enable you to foresee the future outcomes of the business strategy.
- Input Indicators – this category helps to analyze aids needed for the wanted results.
- Output Indicators – these indicators display the ultimate consequence, which in turn points grow or downgrading of the business.
- Process Indicator – as we can guess from the title, this indicator shows how well the business is doing and developing.
- Directional Indicators – this type is a comparative indicator of business affecting its contestants.
- Actionable Indicators – this indicator enables businesses to make changes in every matter.
- Financial Indicators – they show the financial development of businesses as well as offer thorough financial sustainability.
Main Areas for your SaaS KPIs
KPIs for SaaS is very important to be tracked, as they help you to promote your business, find its flaws and improve them. KPIs for SaaS are displayed in 4 main platforms, which are as follows:
1. SaaS Marketing KPIs – for the development of any business you need qualified marketing. These metrics enable you to determine your marketing strategy’s effectiveness and meet the requirements of your business goals.
2. SaaS Sales KPIs – these metrics are aimed to evaluate your sales performance. They help you to comprehend your data, optimize your sales process and set your business up for success.
3. SaaS Finance KPIs – these indicators are tracking your business’s financial performance and find out its profits, sales, expenses, revenues, and other financial developments.
4. SaaS Revenue KPIs – these are significant metrics that show you how efficiently your business is working and developing by following changes in revenue over a period.
5. SaaS Customer Success KPIs – this must be the focus of any SaaS company. If the consumers efficiently use your software, this speaks only about one thing “they are satisfied”. Shortly, this helps you to determine how efficiently your team works.
Top 5 essential KPI For SaaS
If you already have a SaaS product hardest part is to investigate what are the most essential metrics you have to track your product.
So you must carefully choose the key performance indicators to measure the success and growth of your business, app, or service.
Your main purpose is to find metrics that will provide a deep and thorough view of your business performance.
Let’s now take a look at 5 most essential KPIs for SaaS:
1. Customer Churn and Conversion Rate (CVR)
CVR or Conversion Rate is the percentage of users who converted to paying customers after a free trial. To estimate the conversion rate you have to separate the number of new paying users and leads over a period of time.
Customer Churn is the opposite side of CVR, as it shows the number of customers who stopped utilizing your software over time. Split the number of lost customers and the number of total users up to date to find out customer churn.
2. CPA and CAC
CPA (Cost Per Acquisition) and CAC (Customer Acquisition Costs) these two terms are a little bit confusing but in essence, they are the same.
Basically, they just mean how much it cost of acquiring new customers. These two metrics will help you to measure the profitability of your service and not just revenue.
If you have a high CPA it means that each customer costs you a lot of money.
And to avoid from this you need to optimize your advertising platforms and look into other paid ads sources.
Also, you can implement organic advertising, like SEO, content on youtube, email list, etc.
So, if CAC is low, that’s awesome.
3. Lifetime Value (LTV)
With this indicator, you’ll measure an average lifetime value of an average customer. This is the total prediction of the revenue that you’ll gain from the customer.
When you measure the lifetime value of various customers you can find out what to focus on in order to develop your business in the fastest way.
How you can measure lifetime value? For example, if the customer paid 5$ each month and worked with you for 3 months lifetime value will be 15$.
And when you see this number you can understand whether your advertisement is beneficial for you or not.
4. MRR and ARR
SaaS business is working to make many and along with it solve many market issues. The abovementioned two metrics are aimed to monitor revenue.
MRR or Monthly Reoccurring Revenue metric displays how much money you make a month. To count this multiply your monthly customer average revenue by the number of active customers over a month.
ARR or Annually Reoccurring Revenue metric implements the same function just within the framework of a year. To sum this you need to take the yearly number and separate them by the number of yearly active customers.
5. Net Promoter Score (NPS)
This indicator displays the probability of your product or service promotion by your customers. This means how possible is it that they will guide your service to others.
Referrals help you to find out customers that recommend your products to others. And if this number is low you must think about creating a new program.
So these are the main KPIs for SaaS that will help you to promote your SaaS product, service, or app. Besides the abovementioned indicators, other types of KPIs for SaaS exist and you are free to choose which one to utilize.
Summing up, let’s emphasize one thing, KPIs are the most important attributes for every business’s success and promotion.
Key performance indicators help you to increase your sales, decrease costs, improve customer satisfaction, and decline the rate of flaws.
If you already created a SaaS product software that’s great, but to know if is it profitable, useful, and doing well, you absolutely need to use metrics of key performance indicators.
So, use KPIs and make your service invincible.
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