Similar to a Formula 1 car, your SaaS business is a high performance machine. If you’re going to be growing it faster then you need to start thinking about pro SaaS growth metrics to track beyond the simple ones you’re already tracking.
In this post, I’m sharing the three Saas growth metrics you need to track and review on a quarterly basis in your business so you can get to that next stage of growth.
- Revenue Per Lead
- LTV to CAC Ratio
- NPS Score
I remember when we hired our first Director of Business Operations at ToutApp. It was really exciting when he came on because he put together an entire strategy on how we’d instrument and track the key metrics around our SaaS business — especially to help us grow faster.
Now, while we were tracking the basic metrics… his was on a whole different level. I had never thought to track the metrics he showed me. It completely opened my eyes on exactly what a high performance SaaS business should instrument.
The crazy thing was . . .
Those metrics weren’t specific to our stage.
The thing you need to understand is that every SaaS business is a sophisticated machine. When instrumented the right way you can then start to really grow.
So let’s dig in to what these three SaaS growth metrics are.
SaaS Growth Metric #1: Revenue Per Lead
With this metric, what we’re looking to see is the quality of the leads being generated, and more specifically, the quality of the pipeline being generated. The true growth potential of your SaaS business depends on the quality of your pipeline.
If you don’t have sufficient pipeline coverage (whether it be leads or trial users) you will never hit your number no matter if you’re product led or sales led. Ultimately, leads, trial users, pipeline; that is the lifeline of the business.
Now here’s the thing. Often times, when you start to spend money on generating more leads, it may not convert into actual revenue. In these cases, this is a pipeline problem.
I like to look at this Revenue per Lead metric on a trending basis quarter-after-quarter, month-after-month.
Meaning for every lead that was generated compared to the revenue that was generated and comparing that ratio. Is it going up or down?
For example, if you were spinning up new marketing programs you can start to measure if your revenue per lead is going up or down.
If down, that means the quality of your leads are lower and you may want to think about spending less and improving quality.
If up, you can juice those leads by throwing more money towards your efforts.
Once you understand the pipeline and it is healthy, you next want to understand if you have an efficient process. The big question is: Are you actually going to be profitable with your customers at some point?
This is where this next metric comes in handy.
SaaS Growth Metric #2: LTV to CAC ratio
Your LTV to CAC ratio essentially looks at how much you spent to acquire your customers compared to the the lifetime value of that customer.
It compares in a very raw way how much you spent to get a customer and how much did that customer make you.
As long as that customer is spending more money than it took you to acquire then you’ve got a good business.
By the way, this is important regardless of whether you are bootstrapped or venture-backed because every Founder, Investor, and even potential acquirer will care about these unit economics.
This metric helps you understand how efficient your go-to-market strategy is.
Are you getting in people at the right price and are they staying?
A good benchmark is 3x. Now what happens if you’re lower than 3x or higher than 3x? There’s a risk that you may be underinvesting in your funnel or over-investing in an in-efficient funnel. Watch this Unstoppable episode to understand your LTV to CAC ratio at a deeper level.
SaaS Growth Metric #3: Net Promoter Score (NPS)
Growth only happens if you are able to retain your customers. Now, you’re probably already obsessing over churn. It’s a common metric to look at.
But here’s the thing…
Churn is something that happens once it’s often too late to get the customer back.
So measuring your NPS (Net Promoter Score) score on a quarterly basis is super important. It’s simple to calculate.
You need to do a little pop-up survey and ask them on a scale of 1-10 how likely they are to recommend this product or service to a friend.
What it ends up being is an early warning detection signal on your churn. You can start to look at which customers are unhappy and figure out how to enable them in a better way so you can prevent that churn.
This affects your MRR because you will keep adding people but they leave so you will be stagnant. You don’t want that. So NPS is super powerful.
Here are some pointers when it comes to NPS.
If you have an NPS score greater than zero then you are good. Greater than 50 you are great, and greater than 60 you are world class.
In my coaching program we consistently collect NPS from our founders. Right now we have a score of 63! What this tells us is we are serving our Founders, but we consistently measure so we can detect issues early and also work to continue to improve our program.
So to recap we started with assessing the quality of our pipeline, then we move down to understand how efficient we are at converting that pipeline, and lastly, we looked at how we can reduce churn.
When you start to look at these SaaS metrics you start to look at your business like a Formula 1 car. You start to drive the growth of it as a high performing machine.
If you’d like to dig more into these 3 metrics, be sure to check out this video where I go into detail on these metrics and why they’re important.
If you’re a SaaS Founder and working to accelerate the growth of your SaaS business, be sure to also grab a copy of my 5-Point SaaS Growth Guide, it’s completely free and it goes into more actionable strategies based on my experience in starting, scaling, and exiting SaaS businesses.