Tracking the impact of your marketing campaigns is essential for gauging success and fine-tuning your approach.
Keeping your eye on the numbers is also a good way to cut your losses and monitor the actual value you’re gaining from what you’re spending your marketing budget on.
While the following metrics also applies to other industries, SaaS companies hold these four as the key metrics for success. Let’s take a look:
1. Churn Rate
Ah, yes. The dreaded “churn.” Churn rate refers to the amount of customers or subscribers who drop your service or SaaS company during a given time period. It’s important because it tells you a lot about the ability of a SaaS company to grow.
Sufficed to say, churn is a growth decelerator. The higher your churn rate is, the more you’re newly acquired subscribers are just filling in the gap as opposed to actually contributing to your revenue.
Calculating churn is a pretty straightforward equation. Take the number of subscribers (or customers) you lost within a quarter and divide that by the number of subscribers you have started with in the same quarter. The resulting percentage is your churn rate.
For example, Company X started with 100 subscribers last quarter and lost 3 over the course of that quarter. If you divide 3 by 100 you get 0.03. Convert this into percent and you get a churn rate of 3%.
2. Lead Velocity Rate
Also known as “lead momentum,” lead velocity is the time it takes for a lead or contact to get through the various stages of the buying cycle and convert into a client. This metric is important because it gauges several fundamental marketing objectives such as sales and marketing alignment, client experience and, and even marketing-attributed revenue.
If the speed of which your prospects are making their way through the buyer’s journey is slowing or the number of those contacts in various stages is decreasing, it likely due to a failure or disconnect of sorts in your marketing and sales strategies.
Your content, approach, lead scoring or lead hand-off point maybe off. Knowing your lead velocity rate helps uncover a flaw in your strategies and will help you make significant improvements to your prospects’ experience throughout the buyer’s journey.
To calculate lead velocity, simply subtract the amount of your previous month’s qualified leads from the current month’s qualified leads, divide it by the previous month’s qualified leads and multiply it by 100. The answer is your lead velocity rate.
3. Customer Acquisition Cost
Your Customer Acquisition Cost (CAC) is the cost of convincing a prospect to buy your product or subscribe to your service. It’s an important metric for both investors and marketers because it helps both parties analyze scalability, profitability, and ROI.
To calculate your Customer Acquisition Cost, start by adding the all of the costs you are spending on marketing campaigns and other activities that lead to acquiring more customers. Divide this sum by the number of customers acquired in the period the money was spent.
For example, if your company spent $84,000 on SaaS marketing campaigns in a year and acquired 28,000 customers in the same year, your Customer Acquisition Cost is $3.00.
4. Customer Lifetime Value
Your Customer Lifetime Value (also referred to as LTV or Lifetime Value) is the projected revenue attributed to your entire future relationship with a client or subscriber. This number helps you make important business decisions such as:
- How much to spend to acquire a client or subscriber.
- What products and services to offer your ideal clients.
- How much to spend on delighting and retaining your current clients.
- What buyer personas your sales teams should focus on acquiring.
To calculate CLV, take the revenue you earn from clients or subscribers and subtract the amount you’ve spent on acquiring and serving them.
Knowing and tracking your numbers on a regular basis is important so you can analyze the performance of your strategies and tweak them accordingly. However, that doesn’t mean that you must make drastic adjustments off the bat because one of these key figures are not palatable to you.
Keep in mind that when it comes to marketing metrics and data, trends and other disruptors occur every now and then and you have to take them into account.
At the end of the day, we’re not tracking to spaz, we’re tracking to arm ourselves with the information we need to get to the best SaaS marketing strategies.