What Are Analytical Metrics and How Can SaaS Companies Analyze Them?
What are analytical metrics? And, how are they different from product analytics?
These are the first two questions that we answer in this article. We also discuss their significance, and more importantly, look at different metrics you should be tracking at various stages of the customer journey.
We finish with practical advice on how to collect and analyze data to improve user engagement.
Ready to dive in?
- Analytical metrics, aka analytics metrics, are quantifiable measures used by teams to evaluate the performance of their products and to make informed decisions about their future development.
- Product analytics is the process of collecting data and analyzing it to obtain actionable insights into user behavior and product usage.
- Without tracking and analyzing metrics, teams wouldn’t be able to identify technical problems and friction points, understand user problems or add value to the product.
- The two important metrics at the acquisition stage are Customer Acquisition Cost (CAC) and free trial or demo sign-ups. They give you insights into the effectiveness of your marketing and sales strategy.
- Activation metrics to track include the activation rate and number of active users (DAUs and MAUs). The first one tells you how many users have experienced the product value while the latter shows how regularly they engage with the product.
- Trial to paid conversion rate tells you how effective your user onboarding is and helps you predict your revenue. Monthly Recurring Revenue (MRR) is a more reliable way to forecast future income.
- A high churn rate is a reason to worry because it means users don’t see enough value in the product or are not happy with the user experience. It negatively affects the Customer Lifetime Value (CLV) and reduces profits.
- Product usage tracking and microsurveys are the two most common data collection methods.
- Tracking user behavior of different segments helps you identify the most valuable features and best practices.
- Funnel analysis enables teams to find friction points at different stages in the user journey.
- Heatmaps are an intuitive method of tracking and analyzing feature engagement.
- Want to see how Userpilot helps teams collect data and analyze various metrics to drive product growth? Book the demo!
What are analytical metrics?
In product management, analytical metrics are quantifiable measures used to track and assess the performance of digital products.
Product managers leverage analytical metrics to make informed product decisions, evaluate and improve user experience, and drive product adoption.
Analytical metrics vs product analytics
Analytical metrics and product analytics are often confused because they’re used to achieve the same ends. However, the two are distinct concepts.
As mentioned, metrics are the data points product managers can use to guide their decision-making process.
Why is it important for SaaS companies to have an analytics system in place?
Analytics are essential for companies to build valuable products that delight users. They help them to:
- Evaluate the performance and success of their products
- Identify technical problems and bugs
- Remove unnecessary friction from the user experience
- Understand user pain points and preferences
- Identify successful user behaviors
- Reduce user churn
- Drive product activation and adoption
- Take advantage of account expansion opportunities
- Drive product and business objectives
Specific metrics for analyzing your SaaS product
Which metrics you should track depends on the stage of the customer journey that you’re trying to optimize.
Acquisition stage metrics
At the acquisition stage, the metrics we’re interested in are Customer Acquisition Cost (CAC) and free trial or demo sign-ups.
Customer acquisition cost
This metric measures the average cost of acquiring one customer.
You can calculate it by dividing all sales and marketing expenses over a certain period by the number of newly acquired customers during that time.
This metric is essential for product-led companies as it’s an indication of how successful their product is at driving growth organically. We can say that the lower the cost, the higher its perceived value in the eyes of potential customers.
Naturally, SaaS businesses aspire to reduce the CAC as it allows them to increase their profit margins and invest more in product development.
Free trial signups or demos
Both are key performance indicators used to assess the effectiveness of marketing efforts.
On a more granular level, you can use them to determine which acquisition channels or marketing assets are more effective at attracting new customers.
Activation stage metrics
At this stage, new users experience product value and start using the product consistently to achieve their goals. The metrics you may want to track at this stage are the activation rate and the number of active users.
The user activation rate, aka product activation rate, tells you how many users that signed up reached the activation stage.
You calculate the activation rate by dividing the number of activated users by the number of signups and multiplying it by 100. So if 23 users out of 100 reached the activation milestone, the activation rate is 23%.
The activation rate helps teams evaluate the effectiveness of their onboarding process.
Number of active users
This number can give you an idea of how sticky your product is.
What’s product stickiness? In short, it’s the tendency of users to come back to use the product again regularly. This is an indication of its value.
To calculate stickiness, divide the number of Daily Active Users (DAUs) by the number of Monthly Active Users (MAUs).
Retention stage metrics
Customer retention has a massive impact on product profitability. That’s because it’s 5 times cheaper to retain users than acquire new ones.
The retention metrics to track include trial to paid conversion rate, churn rate, Customer Lifetime Value (CLV), and Monthly Recurring Revenue (MRR).
Trial to paid conversion rate
This is important to monitor because it directly affects your SaaS business revenue and tells you how effective your new user onboarding is.
To calculate the trial-to-paid conversion rate, simply divide the number of converted users by those on the free trial, and multiply it by 100. A typical free trial conversion rate is 15-25% for a B2B business.
Churn is the opposite of retention. It’s the existing customers leaving your business, so not a great thing to have.
To calculate the churn rate, divide the number of customers lost over a period of time by the number of users at the beginning of that period, and multiply it by 100. An average churn rate in SaaS is around 5% while 3% is an excellent result.
Customer lifetime value
Customer Lifetime Value (CLV or LTV) is the total revenue an average user brings over the duration of their business relationship.
We calculate it by dividing the average revenue per account (ARPA) by the churn rate.
Naturally, the higher the LTV, the better. This metric is also meaningful in the context of customer acquisition cost. You want it to be at least 3x higher than CAC.
If it’s lower, look for ways either to decrease CAC or drive more revenue, for example, through cross- and upsells.
Monthly recurring revenue
Monthly Recurring Revenue (MRR) is a metric used to measure predictable revenue the product generates.
To calculate it, multiply the number of customers in a month by the average revenue per account. So, if you have 100 customers and each pays $249 a month, the MRR is $24,900.
The metrics help SaaS businesses predict their future revenue which is essential for budgeting and making strategic product and business decisions.
As it is determined by the number of paying customers, tracking changes in MRR also gives you insights into the effectiveness of your acquisition and retention strategies.
Apart from the above, there are a lot of other metrics that product teams track, like the NPS or CSAT scores.
How to collect data for analyzing important metrics?
Let’s now look at a few ways you can use a product adoption tool to collect the data that you want to track.
Track product usage analytics
Monitoring product usage is the obvious way to obtain data about your product performance and user behavior.
At a high level, your analytics tool should allow you to track relevant metrics like demo bookings or active daily/monthly users.
For more granular analysis, for example, to calculate the conversion or activation rates, you will need to track specific events your users complete in the product.
Even better if you can create custom events. They enable you to bundle up a number of events and track them as if they were one. For example, three events could be linked with activation, not just one.
Send microsurveys for collecting customer feedback
Microsurveys are an effective user feedback data collection method.
The most relevant metrics that you could track in this way are:
- NPS– Net Promoter Score – it’s an indication of how loyal your users are.
- CSAT– Customer Satisfaction Score – tells you how happy the users are with the value the product delivers.
- CES– Customer Engagement Score – shows how engaged your users are.
With Userpilot, you can design and customize in-app surveys and trigger them for specific user segments.
How to analyze the right metrics for increasing user engagement?
Collecting the data points is just one part of the job. Let’s see how you can analyze the same data to increase customer engagement.
Monitor in-app behavior of different customer segments
Monitoring the in-app behavior and comparing interaction patterns of various segments can provide lots of valuable insights. This will help you devise relevant strategies to improve the user experience for all users.
For example, you could compare the interactions of your most loyal users and the churned ones. In this way, you can identify successful user behaviors that other users with similar JTBDs could later replicate.
Perform funnel analysis to identify drop-offs in the customer journey
For example, to activate a dating app you need to:
- Sign up,
- Complete your profile,
- Upload a photo,
- Start swiping,
- Match with another user,
- And start having a chat conversation.
Each of the actions represents one stage in the funnel. By analyzing how many users progress from one stage to another and how quickly it takes, you can identify unnecessary friction points.
Use heatmaps to track feature engagement
A heatmap is a multi-color layer imposed on the product dashboard showing you how popular different UI elements are.
They are excellent for tracking feature engagement because one look is enough to see which features customers use and which they don’t. The warmer the color, the higher the user engagement.
How can you use the insights?
Let’s imagine, you’ve used funnel analysis to identify a user segment that fails to advance to the next stage. You can then use the heatmap to analyze in detail what users from this group do at this stage.
For example, they may not be able to find a relevant feature while persistently clicking on a non-clickable UI element.
Analytical metrics are the quantifiable measures that product teams use to analyze and optimize product performance.
Some analytical metrics for product-led companies include customer acquisition cost, free trial or demo sign-ups, activation rate, MAUs and DAUs, trial-to-paid conversion rate, churn rate, CLV, and MRR.
If you want to see how Userpilot can help you track and analyze the metrics important for your SaaS, book the demo!