Key Metrics for SaaS Business (Subscription KPIs)
SaaS startups are the new kids in the software business. SaaS, or Software as a Service, refers to the cloud applications and software that are readily available on the internet to be used by customers. SaaS has become a common delivery model for many business applications, including office and messaging software, payroll processing software, DBMS software, accounting/management software, development software, etc. SaaS software is generally offered on a subscription basis, such as a monthly or yearly subscription. It is sometimes also referred to as "on-demand software".
The SaaS model offers a win-win situation for both software vendors and its customers. Instead of making a huge investment upfront into IT software, the companies can now subscribe to the software for a smaller periodic fee (shifting the financial burden from capital expenditure to operational expenditure). Since the software lives in the internet, there is also no need for investing in servers or maintenance of the software. At the same time, the software vendor doesn’t have to deploy exclusive resources to install and maintain software in client’s location. Instead any updates can be directly patched and made available to everyone over the internet.
Forbes reports these findings about key metrics for SaaS business (69% based in the U.S and 31% based outside the U.S; median revenues of $4M a year, with 133 companies reporting less than $5M, and 57 over $25M. Annual Contract Value (ACV) across all respondents is $21K, with 17% of respondents reporting ACVs over $100K)
- Median subscription gross margins for SaaS companies in 2015 were 78%.
- Channel sales and inside sales strategies delivered the highest revenue growth rates in 2014.
- Companies in the $5M - $7.5M range achieved 70% revenue growth in 2014, surpassing the median 36% growth rate last year.
Source: 2015, Pacific Crest SaaS survey.
That said let us look at some of the key indicators that will help assess the success of a SaaS software business.
Industry benchmark usage terms are Monthly Recurring Revenue, Net Revenue, Average Revenue per User, Failed Charges, Lifetime Revenue, Revenue Growth Rate, Refunds, Upgrades, User Churn, Customer Growth Rate, Annual Run Rates, Customer Growth Rates, Active Users, ARPU Growth Rate, Per-plan Customer Count, Per-plan Churn and so on. There are far too many indicators, with new ones popping up every other day.
There are however some key metrics for SaaS businesses to assess their performance.
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