Are you aware of all the metrics that work for SaaS products in 2021?
A simple Google search will lead you to numerous articles listing every possible metric out there.
But can you set aside enough hours in a day to track and analyze them all?
Instead of spending hours of your valuable time tracking every metric, you need to monitor SaaS metrics that actually matter. This can give you valuable insights into product growth and user engagement.
In this article, we’ve compiled the key metrics for your SaaS product that help you measure customer satisfaction, user activation, retention, product adoption, and growth.
- Net Promoter Score helps track user sentiment and the likeliness of users recommending your product.
- Improved in-app experiences would lead to a greater user activation rate by increasing the value of your product to customers.
- Increase feature adoption to develop an adoption flywheel and ensure consistent value for your customers over time.
- Product stickiness tells you how frequently your users return to your app.
- User retention is more cost-effective than customer acquisition and reduces the pressure on marketing to decrease the customer acquisition cost.
- Expansion MRR is the revenue earned from upgrades plus add-ons in the month.
- Net Promoter Score, user activation rate, feature adoption rate, product stickiness, user retention rate, and expansion MRR are six key metrics to monitor, evaluate, and determine the success and sustainability of your growth.
What metrics can be used for SaaS products?
Metrics for SaaS products provide insight into your customers, customer behavior, and customer habits relevant to your product. Furthermore, it can help you gauge your customer’s overall satisfaction level.
Metrics help you understand how your business is doing. You can find scope for improvement in the future and craft your strategies accordingly.
More importantly, SaaS metrics will help you measure the success and sustainability of your growth.
Now that you know what metrics for SaaS products are and why they are important, let’s see what the individual metrics are and how to calculate them.
Metrics for SaaS products: Measuring customer satisfaction
Customer satisfaction is measured using various customer surveys that allow you to collect user feedback and measure user sentiment.
A customer satisfaction survey is a questionnaire you can use to learn more about your customers’ perceptions about:
- Your product or services
- Your brand
- Other relevant interactions with your business (e.g., tech support or after-sales services)
Customer satisfaction surveys generate insights that guide your strategic decisions. You can identify and assess customer problems and successes to:
The four most common customer satisfaction surveys are:
- Net Promoter Score (NPS)
- Customer Satisfaction Score (CSAT)
- Customer Effort Score (CES)
- Product-Market Fit (PMF)
Net Promoter Score (NPS)
Net Promoter Score (NPS) keeps track of your product’s user sentiment and how likely your users are to recommend your product to their friends, typically on a score of 1-10 (where 10 means most likely).
55% of companies across the globe use NPS to measure customer satisfaction and loyalty.
NPS tells you what makes your customers happy, so you can utilize those insights to steer other customers to the ‘desired behavior patterns’ in onboarding. Therefore, NPS can:
To calculate the NPS metric, you need to subtract the percentage of detractors from the percentage of promoters.
For instance, 48% of the respondents gave a 9 or 10, whereas 16% rated 6 or below.
In that case, your NPS is (48 – 16) = 32%.
Here, you divide the respondents into three separate groups, based on the score they give:
- Promoters: Respondents who give a score of 9 or 10
- Passives: Respondents who give a score of 7 or 8
- Promoters: Respondents who give a score of 6 or below.
Promoters are customers who are likely to recommend your product. They love your product as they are deriving continuous value from it. They are the customers you should reach out to for reviews.
Detractors are customers who are not satisfied with your product. They are not likely to recommend it and may even discourage other people from purchasing it. You might want to look into your detractors for addressing churning.
More often than not, customers become detractors due to one of the two reasons:
- They aren’t getting the expected value from your product. You may want to review your onboarding processes or product-market fit to meet their expectations.
- They are running into issues with your product.
Passives are the ones who like your product but don’t love it yet. Thus, they do not want to harm their image by recommending it. They are not included in the NPS equation because they can either turn into promoters or detractors.
Since they are on the borderline, you can utilize this opportunity to convert them to promoters.
Moreover, the latter will let you track responses and calculate your score automatically. Your survey will look like this:
Metrics for SaaS products: Measuring activation
Activation occurs when your user carries out the key events in your product. It lets them experience the value of that product for their specific use case.
In the long run, user activation influences your revenues and success.
For instance, Stella is a business owner who wants to save time posting on social media. A close friend recommended a certain social media scheduling tool. She then visits their Facebook page to find lots of good reviews. This is the ‘AHA! Moment’.
When Stella signs up for the free trial and uses the scheduler for a fortnight and ends up saving 4 hours, she benefits from the tool and becomes an activated user.
The key activation events will be different based on each use case and user persona.
For example, the activation for a small business owner who applies digital marketing would be different from an agency user well-acquainted in digital marketing.
The following video offers more insight into user activation benchmark:
To measure user activation, you have to define what in-app events need to take place for a specific persona to benefit from your product.
Next, you need to compute the number of people who performed these in-app events within a specific period.
User activation rate
User activation rate gives the number of users who activated out of every 100 new users who signed up in a given period.
To calculate the user activation rate, divide the number of users who reached the activation milestone by the number of users who signed up in the given period and multiply the result by 100%.
The challenge with calculating the user activation rate is splitting the calculation according to different personas and use cases.
Before calculating your activation rate, divide your new users into cohorts based on user personas. Then, calculate the activation rates for each cohort separately.
This can help you improve in-app experiences to enhance user activation.
One way to improve your user activation rate is to build behavioral and personalized user onboarding experiences. Select a group of users who recently signed up and are successfully gaining value from your product.
A correlation test will reveal the most common features or actions among those users. You can replicate this process for different groups based on demographics, such as age, gender, knowledge, etc.
The other way to improve user activation is to perform A/B tests of in-app experiences. Perform A/B tests on experiences against split or null, testing the separate versions against each other.
Metrics for SaaS products: Measuring adoption
Product adoption takes place when your users shift away from the initial activation stage to completely buy into your product. At this stage, users have used and evaluated your product and decided to utilize the key features in the long run.
Feature adoption rate
The feature adoption rate provides the number of users utilizing a specific feature. This way, you can find out the most highly valued product feature.
To calculate the feature adoption rate, divide the number of feature monthly active users (MAUs) by the number of user logins in a given period, and multiply it by 100.
You can increase feature adoption by developing a product adoption strategy and/or focusing on secondary and tertiary onboarding.
Crafting a product adoption strategy is about mapping out the user journey from the initial AHA! moment to the user becoming a promoter. You prepare a set of experiences to help your users along the journey and address any drop-out points.
In turn, you help yourself realize different growth goals. This can lead to an adoption flywheel, allowing you to become more efficient over time and improve metrics for SaaS products.
On the other hand, secondary onboarding is when you introduce the secondary features of your products to your activated users. You continue to drive value to users by demonstrating more and more ways of reaping benefits from your product.
The tertiary onboarding stage is where your users are activated, purchasing your product and satisfactorily deriving value from it. Your job is to focus on converting at least some of them into power users and advocates to generate word-of-mouth.
Product stickiness is the number of daily active users divided by the number of monthly active users.
Using the product stickiness ratio, you can understand how frequently users return to your app.
For instance, if you have 2,400 daily active users and 6,000 monthly active users, the stickiness ratio is 0.40. This means for every 100 monthly daily users, 40 stick around daily.
A 40% stickiness is usually low for simple B2C or B2B products. In this case, you need to improve the percentage by ensuring the same number of DAUs and MAUs. The whole user base needs to obtain value from your product every day.
If your product is more complex, this percentage is good enough since users don’t have to log in and engage every day.
Metrics for SaaS products: Measuring retention
Retention in SaaS refers to ensuring repeated purchases after the first month’s payment.
User Retention Rate
The user retention rate is the percentage of users retained within a given time frame. Use this metric at several points across your marketing campaign. It will guide you in the correct direction and leverage real-time feedback.
Here are some sample time ranges:
- 1 – month user retention rate
- 7- day range retention rate
- Week 1 retention rate
- Day 1 retention rate
To calculate the user retention rate, divide the number of paying users at the end of a given period by the total number of paying users present at the start of that period and multiply the result by 100%.
User retention begins when your customers have reached the ‘AHA! Moment’ and have adopted your product. You now want to ensure consistent ‘AHA!s’ throughout their customer journey.
User retention and acquisition are equally important. According to Forbes, it is five times more cost-effective to invest in customer retention than customer acquisition.
Increasing retention leads to improved metrics for SaaS products. The ROI from marketing expenditure increases with rising retention, putting less pressure on the marketing department to keep customer acquisition cost down.
Furthermore, the longer a customer uses your product, the more value they would get from it. Therefore, they are more likely to have a positive Net Promoter Score.
Greater satisfaction with your product will encourage them to become your brand’s product advocates.
Metrics for SaaS products: Measuring growth
SaaS businesses depend on long-term revenue from (usually monthly) subscriptions.
Let’s look at one of the growth metrics for SaaS products, which is directly related to user retention.
To learn how healthy your SaaS growth is, you have to track and analyze your MRR (monthly recurring revenue) churn, growth, and other SaaS metrics.
However, there is one essential metric you must focus on (that most articles out there don’t emphasize enough) – expansion MRR. It focuses on the fact that it’s easier to sell to existing users than to acquire new ones.
Expansion MRR is the revenue you earn from upgrades in a given month plus the revenue you earn from add-ons in the given month.
Customer expansion improves the chances of renewals by enabling users to gain value from other features they rarely use.
To achieve a greater expansion MRR, you can either upsell, cross-sell, or introduce add-ons.
You are upselling when your customers have upgraded to a premium product or service of a higher level than the original purchase and have increased their spending.
Cross-selling is when you sell a related service or product which is usually standalone but matches the persona of existing users instead of offering an upgraded version.
Unlike cross-sells, add-ons are non-standalone products that work only when users already possess the base product. Thus, to stimulate users to adopt add-ons, you need effective marketing strategies in place.
Summing it up
The SaaS metrics mentioned above hit the core points in the user journey. They will give you a clear picture of trends you need to maintain or improve to ensure revenues and continued growth over the long run.
To sum it up:
- Net Promoter Score (NPS) lets you know what makes your customers happy by measuring customer satisfaction.
- User activation rate measures user activation, which helps you identify how quickly and effectively new users are achieving the perceived value of your SaaS product.
- Feature adoption rate and product stickiness measure product adoption and help you optimize your adoption strategy.
- User retention rate helps you understand if your users are getting enough value from your product in the long run by measuring retention.
- Expansion MRR helps you measure your growth by assessing how much additional revenue is coming from your existing customers.
Want to start measuring these key metrics for SaaS products? Get a Userpilot demo and see how you can get actionable growth insights.