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New year, new metrics: Unlock measurable growth with subscription management solutions
2023 will bring with it new challenges for SaaS businesses. After all, it's tough to grow your company in an environment with investors slowing their check-writing pace, a red sea of competitors, limited budgets, and a deepening economic crisis.
So, as you step into the new year, if there is only one business resolution you make, let it be to track the right SaaS metrics.
Identifying, tracking, and analyzing the right SaaS metrics is the best way for entrepreneurs to proactively navigate the current climate, and emerge stronger for it. If you're interested to see how Younium can help you with your SaaS metrics, request a demo today.
Top 4 focus areas (and relevant metrics) in 2023.
1. How to spend money wisely (and when to raise more) during an economic decline: Capital efficiency and valuation of SaaS businesses are very important, especially as raising fresh funds continues to be a struggle.
Some of the key capital efficiency metrics that help maximize the runaway and secure more investor interest, during a downturn are:
- Burn multiple: This ratio refers to how cash efficient your business is. Its calculated with the following formula:
Burn multiple = Money spent over a time period/Net New ARR
Rule of thumb: If the burn multiple is under 1, you are using your existing corpus in a well-thought-out manner, which means growth is efficient. But, if your burn is too high, as compared to growth, then you will find it hard to secure investor confidence and raise new funds.
- Customer Lifetime Value (CLTV) to Customer Acquisition Cost (CAC) ratio: Use this metric to find out how much you are spending on sales and marketing to bring in new customers.
CLTV to CAC ratio = Lifetime value of customer/cost of bringing in the customer
Rule of thumb: The higher the value of this metric, the better. So, if it is above 3, your company is considered to be profitable. But, for this metric to be relevant, you need to have customers who have been paying for your solution for at least two years.
- Efficiency score: This SaaS metric is very similar in principle to burn multiple. But, the efficiency score flips it on its head. The formula to make note of is:
Efficiency score = Net New ARR/ Money spent over a time period
Rule of thumb: If the efficiency score is <0.5x, it indicates inefficient spending and poor capital allocation. And it would require your SaaS business to raise more funds. But, the score shows favorable efficiency of spending if it is >1.5x.
- Rule of 40: This metric measures revenue growth rate and EBITDA growth rate as a percentage.
Rule of thumb: The two metrics combined should meet or exceed 40%.
- SaaS magic number: If you are looking for a really powerful way to measure sales and marketing efficiency, then this is the SaaS metric to track. It will enable you to gauge when to stop investing in sales and marketing.
SaaS magic number = (current quarterly revenue - prev quarterly revenue)*4)
/prev quarterly s&M cost
Rule of thumb: If the metric’s value is low then your sales and marketing is running efficiently. But if the value is greater than 5, it's time to put a complete stop to investing in promoting your services.
While measuring valuation is a far more complex task than measuring capital efficiency, good subscription management software can help. The most common valuation technique in SaaS is I-PEV.
2. Choose growth metrics that identify what parts of the business deliver maximum revenue impact:
- Average Revenue Per Account (ARPA): Know which markets/segments, pricing strategies, cohorts of clients, and industries are performing well. It could also be beneficial to identify where too much discount is given so that you can tell if the pricing is too high and adjust it accordingly.
Rule of thumb: Always track ARPA in the context of other SaaS metrics.
ARPA = Total monthly recurring revenue / total number of accounts
- MRR/ARR based on product hierarchy: Instead of a consolidated version of the MRR or ARR for your entire business, measure it for each feature/version of your product. This will help you make better product roadmap decisions.
Read about more growth SaaS metrics here.
3. Have a common, measurable metric for your business: The Northstar metric helps direct energies to your business’ long-term focus which will be the key driver for decisions. It is a great KPI that can be used by all departments, especially during a tough economic climate - when everyone needs to work towards a common goal.
A great example of such a common and measurable outcome is Spotify's Northstar metric which is “time spent listening to songs”. This indicates whether customers are paying for subscriptions and their usage of your product. This, in turn, translates to stickiness.
4. Sell to existing customers: Speak to your existing pool of customers, to pitch an upsell or cross-sell, if bagging new clients is proving to be difficult.
And to know how you are performing with the existing base, track the net revenue retention (NRR) rate - which is the proportion of earned revenue from repeat/existing customers.
Rule of thumb: If the NRR is less than 100%, the sales team needs to go out and look for more customers to close a big part of that gap in addition to new business targets. On the other hand, a high net revenue retention rate (>110%) is indicative of really sustainable and scalable growth.
The big problem with manually tracking all these SaaS metrics.
One of the most frustrating things about tracking these SaaS metrics on clunky spreadsheets is that it takes up a lot of valuable time. Data is spread thin across multiple data sources, and pulling the right metrics in conflicting formats and units of measurement equates to lost data, miscalculations, or duplicating work.
Even if you hire another person to just track and analyze this data, they will soon get overwhelmed as data volumes keep growing. And you will still not get accurate or error-free updates.
Put an end to subscription data chaos.
Use a subscription management solution. Seamlessly connect your legacy ERPs and other productivity tools to Younium so that you have a single source of truth for the metrics, KPIs, reports, and insights.
And the best part is that you can create customized SaaS metrics dashboards that get fed by data updated in real-time.
Watch our on-demand webinar for more real-life examples and in-depth details about the SaaS metrics to track in 2023.👇