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MenuWhat are some tried-and-true metrics for enterprise/ARR-based SaaS companies?
There are lots of articles and blog posts on SaaS metrics for the typical monthly subscription type SaaS companies, but many of the metrics offered don't translate well to the enterprise/annual contract SaaS world. What metrics work well for businesses that deal with longer lead times, lower churn, and annual recurring revenue?
Answers
In my experience, the longer sales cycle requires more attention. The metrics will be unique to your business, but you can't go wrong with these:
Marketing & Sales Metrics
Look at metrics that will help you scale and project growth, and then accelerate opportunity to close velocity
#s and conversion rates of marketing qualified leads (MQLs)
#s, time, and conversion rates of MQLs to sales qualified leads (SQLs)
#s, time, and conversion rates of SQLs to opportunities
#s, time, and conversion rates of opportunities to sales
Customer Success Metrics
An ARR SaaS business may have a guaranteed 12 month customer lifespan, but that doesn't guarantee the customer actually uses the product and won't churn at renewal time. Measuring product usage will help you discover patterns that cause churn, increase the perceived value of the product, and improve the customer experience.
Financial Metrics
Each Reporting Period (I'd recommend monthly) look at Values & Rate of Change
Customer Acquisition Cost
Average Value of a Customer
look at Values, % of total, & Rate of Change
Revenue from New Subscriptions
Revenue from Renewal Subscriptions
At the early stage, businesses will see new Subscriptions significantly outpace renewals. As the business matures, the % of total ARR from New Subscriptions will begin to decline, assuming churn rates are good.
Sales cycles for enterprise software sales are always longer than sales cycles for consumer software sales, whether SaaS or not. This is because large companies are slower to make decisions, you have to figure out who the decision maker is, etc.
So you need to keep in mind that your sales may take six months to a year to close. Cost to acquire customers is therefore higher (at least initially) than it is for consumer-focused software. Take all of that into account when you start to model your business.
I'm happy to jump on a call with you if you have more questions about how to model this.
I think you'll find some of the MRR sales & customer-success related metrics also cross over into the ARR world:
Sales metrics:
- Length of sales cycle (# of days at each sales stage)
- # leads / week
- # of attempted calls / week
- # of completed calls/demos / week
- # of deals closed / week
- # of lost deals / week
- Close rate
- Customer acquisition cost
Customer success metrics:
- Renewal rate
- Upsell rate & value
- Utilization rate
- Lifetime value
- NPS
I agree. I live in a long sales cycle world for software subscriptions so the typical monthly SaaS metrics don't tend to tell me much or work.
I think the same metrics are important but you might calculate them on different time horizons.
I still look at net churn by customer and dollar, ARR, CAC, LTV, ACS, and more.
You can download a lot of these Excel templates for free at my blog. www.TheSaaSCFO.com.
Check out this example for your business metrics. I think you can easily convert MRR to ARR.
https://docs.google.com/spreadsheets/d/1IOq1OIl_lRHQoW-uhQBuLPAYQ7nYCzI_qr-8x8N2ZHA/edit#gid=0
I think the funnel metrics like traffic, leads, MQL, SQL, time to close, etc, is important, but for the business side, I think it's more about spend and revenue.
Good luck and holler with questions.
Michelle Urban
www.marketing261.com
https://twitter.com/michelleurban
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