Confused about which sales metrics are best to track, for your SaaS startup growth?
It’s totally normal to get lost in the sea of vanity sales metrics and wither away from your goal.
But to evolve your product and make it relevant to your customers, it’s crucial to track at least 5 key sales metrics.
But we shared 11.
And you can choose the one that is the most beneficial for you.
Excited, like Zendaya??
Let’s discover them.
- The Significance of Sales Metrics in B2B SaaS
- Building the Base: Comprehending Sales Metrics
- Identifying Sales Metrics Alignment with Business Objectives
- Differentiating Between Vanity Metrics and Actionable Sales Metrics
- Key Sales Metrics for B2B SaaS Companies to Prioritize
- (A) Customer Churn Rate
- (B) Sales Conversion Rate
- (C) Average Contract Value (ACV)
- (D) Monthly Recurring Revenue (MRR)
- (E) Annual Recurring Revenue (ARR)
- (F) Customer Lifetime Value (CLV)
- (G) Customer Acquisition Cost (CAC)
- (H) Average Sales Cycle
- (I) MQL to SQL Conversion Rate
- (J) Closed Lost Analysis
- (K) Win Rate
- Evolution of Sales Metrics for B2B SaaS: A Glimpse into the Future
The Significance of Sales Metrics in B2B SaaS
As we know the landscape of technology and business is ever-evolving, and the Software-as-a-Service (SaaS) industry has become a huge force, transforming the way companies operate. As of 2023, this dynamic and rapidly expanding sector has surpassed all expectations, commanding a staggering worth of over $195 billion.
In the hunt for success, sales metrics act as guiding lights, showing you the way forward.
These metrics unravel the secrets behind every transaction, every interaction, and every decision, empowering you to remove friction points and elevate your user experience to unparalleled heights.
So, I am here to help you explain these in the most straightforward way.
Building the Base: Comprehending Sales Metrics
A sales metric is like a measuring tool that tells you how well individual salespeople, sales teams, or the whole company is doing. It helps you see if you are getting closer to your goals or not.
These metrics, also known as key performance indicators (KPIs), show where you need to improve.
And that’s one thing that every business owner wants to know.
The next important thing to understand is the alignment of goals with metrics.
Identifying Sales Metrics Alignment with Business Objectives
Okay, I have told you the importance of aligning sales metrics with the goals above, and now I am gonna tell you how to do that.
It starts by defining clear and specific goals for the sales team that align with the overall business strategy. Once the objectives are set, businesses can identify the most relevant and actionable sales metrics to measure progress toward those goals.
For example, if the business objective is to increase customer retention, metrics like customer churn rate and customer lifetime value would be key indicators to track. Regularly monitoring these metrics allows businesses to understand whether they are on the right track and make informed decisions to improve sales performance.
Differentiating Between Vanity Metrics and Actionable Sales Metrics
The B2B SaaS sales world is made up of 2 types of metrics:
I. Enchanting Vanity Metrics
They are data points that may appear impressive or positive on the surface but don’t provide substantial insights into the sales effort’s actual performance. These metrics may not directly contribute to business growth or align with key objectives.
For example social media followers, email open rates, and website page views.
We have talked with various startup founders on vanity metrics, read what they say here.
II. Reliable Actionable Metrics
These are closely connected to specific actions and strategies that drive improvements in sales performance. Employing these metrics will enable you to gain valuable insights into customer satisfaction and identify areas for improvement.
A compelling Forrester Research study further disclosed that aligning your strategies appropriately can lead to an impressive 32% surge in revenue growth.
That’s what this blog is about,
So, just scroll down.
Key Sales Metrics for B2B SaaS Companies to Prioritize
So here comes the examples of actionable sales metrics that you should focus on in order to multiply your results:
(A) Customer Churn Rate
It’s like keeping track of how many of your subscribers decided to stop using your software and canceled their subscriptions.
The churn rate is natural, and hence it can never be 0.
But a low churn rate is better, small businesses target a 5-7% churn rate, whereas bigger organizations try to keep it under 5%.
Use these strategies to reduce the churn rate.
Here’s how you can calculate it
Customer Churn Rate = (Customers unsubscribed over the period / No. of customers at the start of the period.)
You can measure it either monthly or quarterly.
(B) Sales Conversion Rate
In B2B SaaS, it’s about how many potential customers who visit your website actually become paying customers. This is an important KPI that helps to align sales and marketing teams and to determine the quality of leads.
It’s important to assess the sales conversion rate by looking at past data and comparing it over various time spans like weeks, months, quarters, and years.
According to Capterra, the website visitor-to-lead conversion rate benchmark is 7%.
The average freemium conversion rate ranges from 1% – 10%.
You can calculate the sales conversion rate using the following formula:
(Total no. of sales / Total qualified leads) x 100 = Sales conversion rate
(C) Average Contract Value (ACV)
ACV is a key number that shows the average worth of a customer’s yearly contract. It helps compare different contracts easily, no matter the payment frequency, plan prices, or contract lengths.
ACV is a sales KPI that helps you look at your customers and see which ones might need extra care. If you find customers who spend a lot or a little or those whose contract is ending soon, you can:
1. Offer them more things they might like.
2. Try to keep them from leaving.
3. Talk about renewing their contract.
The standard formula for ACV:
ACV = (Total contract value / Number of years)
(D) Monthly Recurring Revenue (MRR)
MRR means how much money a company can expect to make every month. It’s like the money that keeps coming in regularly.
This is a useful method for quickly seeing small ups and downs in how happy customers are at different times of the year.
The formula for MRR:
MRR = (Average revenue per account) * (Number of customers)
According to industry experts, it’s considered good to have your Net MRR (Monthly Recurring Revenue) grow by 10-20%. Businesses can achieve this by keeping more customers, selling more to existing customers, and offering additional products or services.
(E) Annual Recurring Revenue (ARR)
Annual Recurring Revenue (ARR) is the money you make each year from customers who pay regularly. ARR helps you see how your income is growing over time. This helps you make better choices for the future based on the overall money you’re earning.
The ARR formula is simple:
ARR = (Sum of subscription revenue for the year + recurring revenue from add-ons and upgrades) – revenue lost from cancellations that year.
Another way to calculate ARR is to multiply your monthly recurring revenue by 12.
If your yearly earnings are over $10 million, consider using ARR as your measurement.
(F) Customer Lifetime Value (CLV)
Customer Lifetime Value (LTV) is how much money a customer brings to a business during their entire time as a customer. It looks at their total spending and how long they stay loyal.
Longer loyalty means higher LTV. We got a blog for you to boost CLTV.
It helps businesses improve sales, marketing, and products for more profit and happier customers.
Formula: Customer Lifetime Value = (Average purchase value) x (Average purchase rate) x (Average Customer Lifetime).
(G) Customer Acquisition Cost (CAC)
It’s like the total money a company spends to get a new customer. This includes everything from ads to paying employees.
Knowing CAC helps businesses see if they’re getting their money’s worth when they get new customers, it also helps in optimizing your LTV/CAC ratio, SaaS businesses should aim for at least a 3:1 ratio.
Calculate it using the formula:
CAC = (Total cost of sales and marketing) / (No. of customers acquired)
(H) Average Sales Cycle
The sales cycle is like a journey a business takes to sell something to a new customer. It starts when they meet a potential customer and ends when that person becomes a paying customer.
Tracking your sales cycle helps your team know where customers are in their buying journey, helps you improve speed, and predicts income.
And you can implement these tips to improve your B2B sales.
Formula: Average Sales Cycle = (Total no. of days to close deals / No. of closed deals)
According to HubSpot, a typical SaaS sales cycle is 84 days.
(I) MQL to SQL Conversion Rate
A marketing-qualified lead (MQL) is someone who could become your customer based on their match with your ideal buyer. A sales-qualified lead (SQL) is a potential customer who really wants to buy your product.
By keeping an eye on how many MQLs become SQLs, you can see how well your marketing is creating leads that are ready to buy. This helps you make your marketing better at getting potential customers ready for the sales team.
Formula: MQL to SQL conversion rate – (No. of MQL / No. of SQL)*100
The average MQL to SQL conversion rate across all industries is approximately 13%.
(J) Closed Lost Analysis
In crowded markets, it’s tough to make loyal customers. But it’s possible by figuring out why people say no to your product.
A closed lost analysis looks at why deals were lost. Sales teams talk about what went wrong and work on improving it. Common reasons are price, budget, timing, and competitors. Customers might need to see the value or find a better option.
(K) Win Rate
The win rate is how many sales come from opportunities. This shows if outbound sales efforts work well. The average opportunity to conversion rate is 22% for SaaS.
Companies use win rate to figure out when, who, and why prospects are likely to become customers.
Formula: Sales Win Rate – (Closed-won deals) / (Closed-won deals + Non closed-won deals) * 100.
Evolution of Sales Metrics for B2B SaaS: A Glimpse into the Future
As B2B SaaS continues to evolve, it surely has a bright future with positive growth. And here I am gonna talk about how it’s doing that along with utilising the latest technologies.
Embracing Predictive Analytics and AI in Sales Decision-Making
In the SaaS world, using predictive analytics and AI in decision-making has become really important. These tools help SaaS companies learn from data, improve marketing, sales, and understand what customers want. This helps companies make smart choices to compete, get more customers, and make them stay longer.
One way they use these tools is by dividing customers into groups based on data. This helps them personalize experiences and focus on users who might spend more. For example, a SaaS company can use data to find out which customers might buy certain things. Then they can make special offers for those groups.
It’s difficult to remember all these formulas, but it’s important, so you can bookmark the blog.
Also, did you notice even in sales, all metrics main focus were customers?