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The SaaS, or software as a service, model has become the go to standards for enterprise and consumer software recently. Subscriptions for SaaS have taken over as the number one-way people are measuring their success. These products are continuously growing in demand, and will probably continue to do so for quite a while. Typically, it is a bit cheaper for a company to utilize a SaaS startup for their business and is easier to get started than other types of companies, but SaaS does have challenges associated with it. It can be troublesome for a SaaS founder to know how their company is progressing. Utilizing the right metrics is essential to understand whether or not you are on the right trick.
Here are the three of the most important SaaS Metrics you should include in order to measure success:
1. Gross Margin
This metric is one that every business leader needs to understand, including SaaS founders. Gross margin is simply the amount of money retained by the company once the cost of goods that were sold have been subtracted. This is usually measured in percentage. An easy formula for this is: revenue – cost of goods sold / revenue (revenue minus cost of goods sold divided by revenue). Remember recurring software revenues is measured in different manner than services revenue.
2. Sales and Marketing Efficiency
A lot of the success of your business depends on the growth of revenue. This normally requires your customer base to grow. Because of this, examining the efficiency of your sales and marketing is essential to measuring the success of your business. Different people look at this concept in different ways. Most, measure this aspect in terms of revenue, or revenue growth. There are even some that measure sales and marketing efficiency by how the revenue changes from one period to the next period annually divided by the amount spent on sales and marketing. It doesn’t matter how you look at it, you want the money you invested to increase and come back as a higher number than you put into it.
3. Churn Value
This is simply the percentage of client’s or consumer’s lost in a year’s time. This is simply the number of clients that did not renew their subscription to the product you are selling at the end of the year. The churn value is simply the turnover that occurred. It goes hand in hand with the retention rate, or the number of individuals that did renew their subscription. SaaS startups typically expect a retention rate of at least ninety percent. If the churn rate comes up to more than zero percent, you may be losing revenue every year.
There are many more SaaS metrics that could be used to measure the success of your business. The problem most business owners have is which to use and how to set up the spread sheet in order to organize this data. You can utilize a SaaS Metrics Spreadsheet Template to help ensure you are efficiently measuring the success rate of your business.