Happy Friday, Founders and friends!
Hope everyone is having a great start to November! We wanted to bring back our software insights section this week……
5 metrics that matter in SaaS
Given the competitive nature of the SaaS market, measuring the health of your SaaS businesses is especially critical to ensure you’re maintaining that competitive edge. Here is an example of just how competitive the market is (this is just the marketing technology landscape)…
Here are 5 critical metrics that we suggest software companies closely monitor and look to constantly improve on;
As the saying goes “It’s much cheaper to retain an existing customer than getting a new one”. It’s true.
If your SaaS business has a high churn rate (high single digits +); stop focusing on selling and start to focus on retention.
Invest $$ into strong customer success teams, ask for feedback, offer incentives, and properly analyze your churn metrics to ensure accuracy.
It is important to understand the personas and industries of these churned customers to better understand why they churned.
Check out our recent newsletter on measuring churn:
Average Revenue Per User (ARPU)
ARPU is one of the most important metrics that you should be looking at during each stage of your company’s lifecycle.
Depending on your target customer and product offering you will have a higher or lower ARPU (SMB v.s. Enterprise).
ARPU is a great indicator for the quality of revenue that a SaaS business is generating. Most investors look to see a positive trend in ARPU especially for faster growing companies.
Customer Acquisition Cost (CAC)
For most of our readers, this is a no-brainer but it is often forgotten amongst rapidly growing SaaS startups.
Properly quantified CAC rates help companies understand the success of sales and marketing campaigns.
Segmenting CAC rates by acquisition channel is just as important for understanding what acquisition channels are most effective for the specific offering.
Lead-to-customer rate is a great metric for SaaS sales teams to keep track of as it outlines how many sales-ready leads they are generating.
Calculation: (customers in any given month / total leads) X 100
This metric would be lower for outbound sales teams v.s. inbound teams
Sales teams should constantly strive to lower this figure, as a high # is probably an indicator of a high CAC.
ARR Compound Annual Growth Rate
ARR CAGR is a measure of the mean annual growth rate in ARR
CAGR is a vital metric for determining product market fit along with go-to-market fit.
A few drivers for CAGR include improving on pricing strategies (cross-selling, upselling, add-ons etc.) to boost ARR as well as reducing churn rates.
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About Bloom Equity Partners
Bloom Equity Partners is a lower mid-market software-focused private equity firm, leveraging deep operational and commercial experience to create enduring market value for the benefit of our investors, founders, and their companies.
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