The Only 6 SaaS Metrics That Matter (And How to Improve Them)
As a SaaS founder, it’s easy to get overwhelmed by the sheer number of metrics you could be tracking. But trying to measure everything is a recipe for frustration and inaction.
The truth is, only a handful of key SaaS metrics will give you the high-level insights you need to steer your business in the right direction.
In this comprehensive guide, I’ll share the 6 core metrics every SaaS founder should be tracking. Master these numbers, and you’ll gain invaluable visibility into the health and growth velocity of your business.
I’ll also give proven strategies for how to optimize each metric, so you can use the data to drive sustainable success.
So let’s dive in and explore the key metrics that matter most for taking your SaaS to the next level.
The 2 Critical Growth Metrics: MRR and Month-Over-Month Growth
The first two metrics any SaaS founder should have on their dashboard are Monthly Recurring Revenue (MRR) and Month-Over-Month Growth Rate.
Monthly Recurring Revenue (MRR)
MRR shows you how much predictable revenue your business currently produces each month. This single number gives you an instant snapshot of the size and financial health of your SaaS today.
To calculate your MRR:
- Add up the combined monthly recurring subscription fees from all current customer accounts
- Include monthly service fees, user seat charges, add-on fees, etc.
- Do NOT include one-time payments like setup fees
Monitoring your MRR over time shows whether your business is growing or shrinking. Sudden drops in MRR require immediate attention to stem churn.
For most SaaS companies, MRR is the core top-line metric that indicates the current scale and stability of your business.
Month-Over-Month Growth Rate
While MRR shows you the size of your business today, your Month-Over-Month Growth Rate demonstrates how quickly you are acquiring new customers and expanding existing accounts.
To calculate this:
- Compare your current month’s MRR to the previous month’s MRR
- Subtract the last month’s MRR from the current month’s MRR
- Divide this number by the last month’s MRR
This percentage shows your monthly recurring revenue growth rate. SaaS investors love to see 10%+ sustained monthly growth, but 2-5% M-O-M growth is still respectable.
Growth rate is a leading indicator that shows your business’s velocity. When paired with your absolute MRR, it gives you a comprehensive picture of both the size and trajectory of your SaaS.
I recommend tracking MRR and growth rate on at least a weekly basis. They are the “north stars” that give you the 30,000-foot view of your SaaS business.
Now let’s move on to the other critical metrics you should be tracking every month.
The 3 High/3 Low Framework for Tracking Health and Predicting Plateau
While MRR and growth rate show you the big-picture trends, other vital metrics will give you insight into the health and sustainability of that growth.
I call these the “3 High/3 Low Framework.” Tracking these 6 metrics will show you two key things:
- How healthy your SaaS business is
- When your growth is likely to plateau
Let’s walk through them one by one.
Low Metric #1: Customer Acquisition Cost (CAC)
Your Customer Acquisition Cost is the total amount you spend on sales and marketing to land a new customer.
To calculate it:
- Add up all the sales, advertising and marketing expenses in a given period
- Divide this by the number of new customers won in that same period
This shows you your cost to acquire each additional customer. It’s a crucial metric because it reveals how efficiently you are spending to grow.
For bootstrapped SaaS companies, you generally want your CAC paid back within 2-6 months. Anything much faster often means you’re leaving profits on the table and could potentially charge more.
But recouping CAC too slowly is dangerous. If new customers take 9-12 months to generate a return, you risk depleting your cash reserves before they become profitable.
To optimize CAC:
- Focus on marketing channels and tactics that consistently convert and retain ideal customers
- Track conversion rates and lifetime value by source to identify and double down on what works
- Avoid “vanity metrics” that drive sign-ups but not revenue
- Make sure your messaging and positioning attracts a well-defined audience that needs your solution
Low Metric #2: Sales Cycle Length
Your sales cycle length measures the average time and number of touchpoints required to convert a new lead into a paying customer.
Track two key data points:
- Average days from first contact to close – Lower cycles indicate higher sales efficiency
- Number of calls/meetings to close the deal – More calls often mean more sales effort to convince the prospect
Shortening your sales cycle has compounded benefits:
- Reduces CAC since your sales expenses are condensed into a shorter window
- Increases revenue growth by allowing you to convert and expand customers faster
- Requires fewer sales reps to hit revenue goals, thus lowering costs
Here are some proven ways to shorten sales cycles:
- Educate prospects upfront – Share valuable content that convinces prospects of the need for your solution, so you spend less time explaining the basics.
- Qualify leads carefully – Don’t waste time calling or emailing prospects who clearly aren’t a good fit. Focus on high-potential prospects who have shown interest.
- Streamline your sales process – Remove unnecessary steps and complexity so you can close deals faster.
- Offer a self-serve option – Let smaller prospects purchase online with a credit card to reduce sales effort on these deals.
Low Metric #3: Revenue Churn
Revenue churn is the percentage of recurring subscription revenue you lose each month due to cancellations. This metric quantifies how consistently you satisfy and retain paying customers.
To calculate revenue churn:
- Find the recurring revenue amount lost from canceling customers last month
- Divide this by your total recurring revenue at the start of that month
For most B2B SaaS, here are the benchmarks:
- Under 3% – Excellent churn rate
- 3-5% – Acceptable for many companies
- Over 5% – Danger zone where growth is difficult to sustain
The lower your revenue churn, the healthier your business. Here are tips to reduce churn:
- Ensure accurate market positioning so you attract customers who are an ideal fit
- Make onboarding extremely easy and fast so customers see value immediately
- Listen carefully to why customers cancel and address common complaints
- Delight customers with outstanding support and customer service
Reducing churn has an enormously positive impact, allowing you to grow faster with less new customer acquisition. We’ll also see how it contributes to the coveted state of negative churn.
High Metric #1: Average Contract Value (ACV)
Your Average Contract Value (ACV) is the average annual revenue a customer account generates for your SaaS business.
To calculate it:
- Sum up the annual recurring revenue from all your customers (total MRR * 12)
- Then divide this by the total number of customer accounts
This shows you how much each customer pays on average per year. A higher ACV translates into more revenue without requiring more customers.
For SaaS bootstrappers, focusing on increasing ACV is generally more impactful than solely trying to extend customer lifetime value (LTV). While LTV is important for cash flow projections, it often takes years to fully materialize.
Here are some proven tactics to increase ACV:
- Target larger organizations as customers – For most SaaS, larger customers can afford bigger contracts
- Develop higher-priced premium features only available in top packages or upon request
- Bundle value-adding services into highest highest-tier offerings
- Offer discounts for longer initial contract terms (though this also raises switching costs)
- Increase pricing on premium features incrementally – Small increases are less likely to churn customers
Keep in mind that larger deals often require more sales effort and customer onboarding. Make sure to keep CAC and sales cycle length in check even as you push for bigger deals.
High Metric #2: Expansion Revenue
Expansion revenue refers to the additional recurring revenue generated from your existing customers over time.
As customers get more value from your product, they may:
- Increase usage, causing them to exceed volume tiers that bump them to more expensive plans
- Adopt additional product features that come at a higher price
- Expand their number of user seats or accounts
- Extend contract length in return for discounts
Tracking expansion revenue shows how successful you are at upselling existing accounts. The more you can grow revenue from your current customer base, the faster you can scale while lowering CAC.
To increase expansion revenue:
- Structure pricing to incentivize increased usage and adoption of premium features
- Make it extremely easy for customers to expand their usage of your product
- Identify upsell opportunities by studying customer usage data
- Proactively reach out to share the value of premium offerings
- Offer discounts, free periods, or account credits to incentivize upgrades
- Wow VIP customers with high-touch service that earns their loyalty and spend
With enough expansion revenue, your existing book of business can become a reliable engine for growth even without acquiring new customers.
High Metric #3: Referral Rate
Your referral rate shows what percentage of new customers originated as referrals from existing users. This number quantifies the level of word-of-mouth traction and virality your SaaS enjoys.
Tracking referral rates is easy if you simply ask customers during signup how they heard about your product.
A high referral rate is strong evidence that:
- You’ve successfully built a product people love
- Your customers are eager to tell others about it
- Referred customers will convert at very high rates thanks to social proof
In many cases, referred customers also have higher lifetime value and lower churn. They make great customers.
To boost referrals:
- Identify your most passionate, influential customers and court their referrals
- Add a referral prompt during onboarding while the product is new and exciting
- Make it effortless for customers to refer others, including via their own marketing
- Provide discounts, account credits, or other rewards to customers who refer new users
Referrals create a powerful viral loop that continuously supplies your sales funnel with highly qualified leads. But you have to lay the groundwork by delighting your customers.
Master the 6 Metrics to Take Your SaaS Business to the Next Level
As a SaaS founder, it’s tempting to try tracking every metric under the sun. But the fixation on vanity metrics can distract you from the numbers that drive real results.
The 6 core metrics we’ve covered—MRR, growth rate, CAC, sales cycle length, churn, ACV, expansion revenue, and referrals—will give you tremendous visibility into the trajectory of your business.
By rigorously focusing on this set of metrics, you can confidently determine:
- Whether your SaaS is growing sustainably
- How healthy your business is
- When growth is likely to plateau
Armed with these insights, you can then make smart strategic decisions to:
- Reduce churn and increase customer lifetime value
- Improve sales and marketing efficiency
- Drive organic growth through referrals, upgrades, and expansions
The compounding effects of even small improvements across these metrics will take your SaaS business to new heights.
So be rigorous about picking the right metrics to track. Obsess the numbers that matter, and use the data to actively manage for scalable success.
What key SaaS metrics have proved most valuable for you? I’d love to hear what’s working to grow your business in the comments below!
