Beyond The Basics: SaaS Metrics
In the realm of Software as a Service (Saas), success, growth, and customer satisfaction are linked intricately to metrics.
“What are these metrics”, you might ask. Well, if you’re in the SaaS industry, the truth is, terms like Monthly Recurring Revenue (MRR), Customer Acquision Cost (CAC), Churn Rate, Burn Rate, Customer Lifetime Value (CLV), etc. get thrown around a lot, and for good reason – for long, they have remained the pillars of SaaS enterprises and continue to remain cornerstones in SaaS analytics. However, the landscape is evolving, and forward-thinking SaaS enterprises are exploring new metrics that promise a more profound understanding of their operations and the industry as a whole.
Journey with us through 3 of the future SaaS metrics that we predict can shape the health and performance of SaaS businesses:
Sustainable Growth Index (SGI)
A SaaS Carbon Footprint, if you will.
Traditional SaaS metrics like MRR and ARR focus on financial growth (which is important), but having an SGI would extend this perspective to include environmental impact. By complimenting traditional metrics in using sustainable business practices, it further aligns with Corporate Social Responsibility (CSR).
The Sustainable Growth Index evaluates the growth of the SaaS enterprise, relating to its environmental impact. So, by focusing on factors like energy consumption, carbon emissions, etc., the SGI will help companies be more aligned with environmental responsibility (that is becoming a significant consideration of late).
Formula: SGI = Revenue Growth / Environmental Impact
The Environmental Impact (EI) measures energy consumption, carbon emissions, and sustainability practices.
- Energy Consumption: Measures the company’s energy consumption, including electricity usage in offices and data centers.
- Carbon Emissions: Assessing the carbon footprint of the company’s operations, such as emissions from transportation, facilities, etc.
- Sustainable Practices: Incorporation of initiatives such as waste reduction, renewable energy sources, and environmentally friendly practices.
Benefit: As this formula expresses how much revenue growth a company achieves, relative to its environmental impact, a high SGI suggests a company achieves substantial growth while keeping its environmental impact in check.
This becomes a competitive advantage in the market, as customers value businesses with environmental responsibility. The high SGI becomes a part of the company’s marketing strategy, differentiating it from competitors that focus solely on financial metrics
Data Trust Index (DTI)
In the era of heightened concerns about data privacy and security, a metric to measure the level of trust users have in a SaaS enterprise’s data handling practices would be useful. By taking into account various factors relating to how a company manages and protects user data (data usage transparency, privacy policy clarity, user consent mechanisms, and data security measures), concerns about data privacy and security can be addressed. This is where DTI comes into play, which would contribute to customer loyalty and satisfaction, that goes hand-in-hand with traditional SaaS metrics, like a steady increase in MRR, a lower churn rate, increased CLV, etc.
Formula: (Transparency score + Privacy policy clarity score + User consent score + Data security score) / 4
- Transparency in Data Usage: Users are informed about how their data is being used, provides clear information on data processing for storage optimization and system improvement).
- Privacy Policy Clarity: Making the privacy policy more user-friendly, avoiding legal jargon, and providing examples to enhance clear understanding.
- User Consent Mechanisms: Users can easily understand and control how their data is being used.
- Data Security Measures: State-of-the-art encryption protocols, and secure storage infrastructure are in place to maintain a robust data security framework.
Note: Each factor here will have to be normalized so that they’re all on a comparable scale.
Benefit: If a company has a high DTI, this contributes to increased user trust and retention. Customers are most likely to continue using the service and potentially recommend it to others – given there are demonstrated commitments to data privacy.
Customer Engagement Index (CEI)
Customer Lifetime Value (CLV) is a crucial traditional metric for understanding the long-term value a potential customer could bring to the business. However, imagine how one could improve the CLV if user engagement was understood a little deeper– by considering various aspects of user interaction and involvement to gauge the overall engagement level.
For instance, taking into consideration session frequency, feature adoption, and the overall product interaction. One could assign each of these metrics a certain weightage, based on its perceived importance to the overall engagement. This formula would be crucial in predicting customer satisfaction, retention, and potential advocacy.
Formula: CEI = (Session Frequency + Feature Adoption + Product Interaction) / 3
- Session Frequency: How often users access and interact with the SaaS product (can be measured in daily/weekly/monthly sessions depending on the nature of the product).
- Feature Adoption: The extent to which users are actively using the different features of the SaaS product – beyond login frequency to understand the depth of engagement.
- Product Interaction: A holistic view of how users engage with the entire product (time spent using the product, number of tasks performed and actions taken, etc.)
Note: Each factor here will have to be normalised so that they’re all on a comparable scale.
Benefit: The CEI may be used for segmenting users based on their engagement levels. This can help enterprises to tailor their marketing strategies in a streamlined fashion. For instance, high CEI scores indicate satisfied and active users, whereas low scores can prompt targeted efforts to improve user satisfaction and overall engagement.
Embracing Innovation in SaaS Metrics
While not an exhaustive list, these metrics offer a starting point for SaaS companies that are looking to redefine their success metrics in an evolving business landscape. The traditional SaaS metrics still remain vital for financial success – but integrated these future metrics reflects a commitment to sustainability, customer-centric advancements, ethics, inclusivity and purpose-driven business practices in the dynamic world of SaaS.
After all, SaaS is one giant formula that is easily optimizable: success comes down to the incorporation of the relevant metrics into this formula. So, optimize your formula – with a delicate blend of traditional and future SaaS metrics, and strive for success!
