6 SaaS Acquisition Metrics You Should Track + 4 Key Strategies To Improve Them

Curious about acquisition costs and what it means for your SaaS company?

Well…

The acquisition cost, aka CAC, is a crucial SaaS metric that illustrates the amount spent on acquiring new customers and their value.

But relying solely on this key metric won’t guarantee success for your SaaS business.

So what other SaaS metrics should you track alongside acquisition cost?

In this article, we’ll uncover what SaaS acquisition metrics are and the six core metrics you need to track. We’ll cover their formulas, who should be using them, and how frequently you need to track these metrics.

We’ll also highlight eight related metrics that should be on your radar alongside acquisition cost and four easy strategies to lower this metric.

Further Reading

Check out 4 Critical SaaS Referral Metrics to track program success like a pro.
Explore our detailed guide to CAC Payback if you’ve ever wondered what it is and how to calculate it.
Get your facts straight about CMRR SaaS and why it is important for your business.

This Article Contains

What Are SaaS Acquisition Metrics?
6 Key SaaS Acquisition Metrics to Track
8 Related Metrics to Track Alongside Acquisition
4 Simple Strategies to Lower Acquisition Costs

Ready to dive in? Let’s go!

What Are SaaS Acquisition Metrics?

SaaS acquisition metrics help you understand how effectively you’re acquiring new customers and their impact on your business.

One is the amount you need to invest in sales and marketing.

Knowing the cost of acquiring a new customer enables you to develop a strategy that reduces these costs, leading to an increase in your return on investment.

In essence:

SaaS acquisition metrics act as a beacon, helping you assess the effectiveness of your marketing and sales efforts in converting potential customers into devoted new users.

So which SaaS acquisition metrics should you track along with acquisition costs?

Let’s find out.

6 Key SaaS Acquisition Metrics to Track

To track the success of a Software as a Service business effectively, you must measure:

1. Customer Acquisition Cost

What is it: Customer Acquisition Cost (CAC) refers to the money and resources you spend to acquire a new customer.

Who should track it: This metric applies to all SaaS businesses. However, CAC is vital for businesses interested in scaling up their customer base as it allows them to determine the expenses associated with acquiring each new customer.

Why it matters: By understanding and measuring CAC, companies can evaluate the efficiency of their marketing and sales strategies, ensuring that the cost of acquiring a customer is within a sustainable range.

How to measure it: The formula for CAC calculation is as follows:

Customer Acquisition Cost = Total cost of sales and marketing over a specific period / Number of customers acquired during that period

Example:
- A company that offers a project management tool spent $5,000 on sales and marketing in April and acquired 50 new customers.
  
  The CAC calculation would be = $5,000/50 = $100

How often should you measure it: For most, measuring CAC on a monthly or quarterly basis can provide valuable insights into the effectiveness of customer acquisition strategies.

Benchmark: There’s no set figure. Instead, it depends on how much money you make on average from your customers. Looking at industry standards, you want to shoot for an average lifetime value (coming up next) three times the cost of acquisition per customer.

Application: Comparing CAC with the revenue generated from customers helps to determine whether your pricing strategy is viable or not. If revenue is lower than CAC, you could try using organic acquisition channels like content marketing to acquire new customers without spending too much on costly advertising campaigns. Additionally, you can try increasing the average purchase value of a customer (more on this later!).

2. Customer Lifetime Value (CLV) to Customer Acquisition Cost (CAC) Ratio

What is it: The CLV:CAC ratio indicates the lifetime value of your customers and the total amount spent to acquire them — in a single metric. Essentially, it measures how the lifetime value of each customer compares to the cost of acquiring that customer.

Who should track it: SaaS companies specializing in high-value, intricate offerings with extended sales cycles should track the CLV to CAC ratio. As these companies often incur higher customer acquisition costs, it becomes crucial to optimize the long-term value derived from each customer.

Why it matters: The CLV: CAC ratio helps identify customer segments that generate significant value for your SaaS business. An optimal CLV: CAC ratio can also help attract investors as it indicates a possibility for growth.

How to measure it: First, you must know the CLV. The formula to calculate CLV is as follows:

CLV = Average purchase value * average customer lifespan

Once you’ve calculated your CLV, you can compare this figure to your CAC. In this case, using the above example, our CAC is $100.
Now, you can calculate the CLV to CAC ratio:

CLV to CAC Ratio = Customer Lifetime Value / Customer Acquisition Cost

For example, a subscription-based business charges a fee of $50 monthly. The average customer continues using their subscription for 24 months.

CLV = $50 per month x 24 months = $1,200
And, CLV to CAC ratio is = $1,200 / $100 = 12:1

For every $1 spent on acquiring a new customer, it earns $12 in revenue throughout that customer’s relationship with the business.

How often should you measure it: Businesses usually measure this ratio on a regular basis, such as monthly or quarterly.

Benchmark: The ratio benchmark for SaaS companies is any value greater than 3:1. If you make $1,000 on a customer over time, you should only spend a little over $300 to bring them into the fold.

Application: If the CLV isn’t three times the CAC, it’s time to explore methods to boost revenue from existing customers. Strategies like upselling and cross-selling can persuade users to buy a more expensive plan offering advanced functionalities.

3. Trial-to-Paid Conversion Rate

What is it: This marketing metric measures how many freemium or free trial users convert into paying customers.

Who should track it: The trial-to-paid conversion rate can apply to various types of companies that offer free trials or free versions of their products or services.

Why it matters: It helps businesses evaluate the efficiency of their trial experience, product/service offering, and sales process.

How to measure it: The formula to calculate the conversion rate is as follows:

Conversion Rate = (Free users that convert in a specific period / Total number of free users in that specific period) * 100

For example, a SaaS business had 1,000 users sign up for a free trial, and 100 of those users converted into paying customers during that same month.

Conversion rate = 100/1000 x 100 =10%.

This means that 10% of the trial users who signed up converted into paying customers.

How often should you measure it: It all depends on the length of the trial period. For most SaaS companies, monitoring the trial-to-paid conversion rate on a monthly basis is a common practice.

Benchmark: For a new B2B product, target a conversion rate of 15%-30%. For established products with opt-out free trials, aim for a conversion rate of 50-75%.

Application: If you’re not meeting the above benchmarks, here’s what you can do:
- Evaluate the trial experience to spot any pain points or areas where users might be experiencing challenges or confusion.
- Review your target audience and ensure that you’re effectively reaching the right users.
- Ensure effective communication with trial users throughout the trial period. Use follow-up strategies to nurture leads and encourage conversion.

4. Payback Period

What is it: This SaaS metric measures the time it takes for a business to earn back the cost spent on acquiring a customer. The value is determined by the customer’s monthly or annual revenue contribution and the CAC.

Who should track it: A diverse range of SaaS businesses can utilize this metric to assess their financial performance and evaluate the return on their investments. It’s particularly important for early-stage start-ups that need to realize acquisition costs faster.

Why it matters: Understanding the payback period helps assess the impact of customer acquisition on finances and helps companies chalk out more sustainable strategies.

How to measure it: The formula to calculate the payback period is as follows:

Payback period (in months) = Customer acquisition cost / Average monthly revenue per customer

For example, if a SaaS business spends $300 to acquire a customer and that customer generates an average of $50 per month,

Payback point = 300/50
= 6 months

This indicates that it would take six months to recover the expenses incurred in acquiring that particular customer.

How often should you measure it: The payback period should be measured regularly, either monthly or quarterly.

Benchmark: The shorter the payback period, the better. Typically, a CAC payback period of 12 months or less is seen as favorable. Nevertheless, this duration can vary significantly depending on factors such as industry, company size, and annual contract value.

Application: If your payback period exceeds the above benchmark, here are some steps to reduce it:
- Target the right target audience with shorter sales cycles and faster adoption rates.
- Streamline the onboarding process to reduce the activation period.
- Optimize your pricing strategies to align with customer needs.
- Minimize the CAC per customer.

5. Lead Velocity Rate

What is it: Lead Velocity Rate (LVR) measures the rate at which a SaaS business generates new leads over a given period. LVR is generally used to gauge the health of a company’s sales pipeline and predict future revenue growth.

Who should track it: The lead velocity rate applies to different types of SaaS companies, particularly early growth-stage businesses that are more focused on customer acquisition and would want to know the effectiveness of their sales and marketing efforts. Additionally, companies with dedicated sales teams would also want to know how effective their sales pipelines are.

Why it matters: The lead velocity rate is a key indicator of the health and growth potential of a company’s sales pipeline. By tracking the rate at which new leads are entering the pipeline and progressing through the sales funnel, SaaS businesses can assess the scalability and effectiveness of their lead-generation efforts.

How to measure it: The formula for lead velocity rate is as follows:

Lead Velocity Rate = (Number of qualified leads in current month – Number of qualified leads from previous month) / Number of qualified leads from last month X 100

LVR is calculated month over month. So, you must first subtract last month’s qualified leads from the current month’s qualified leads.
For example, if a business’s sales team has 250 qualified leads in the pipeline this month and had 200 last month, then

LVR =(250 – 200/250) x 100
= 50/250 x 100
= 20%.

How often should you measure it: Most SaaS companies measure the lead velocity rate on a monthly basis.

Benchmark: The ideal lead velocity rate for your SaaS business varies based on factors such as your industry, target market, and product type. While a high percentage is desirable, maintaining a consistent LVR over time is essential.

Application: Once calculated, you must compare it with the previous month’s rate to see if the LVR is improving or not. If you experience a decrease from the previous month, you can:
- Invest in targeted marketing campaigns and channels that have proven to yield high-quality leads.
- Optimize your website for lead capture and implement effective lead generation tactics such as content marketing, search engine optimization (SEO), etc.

6. Bookings

What is it: Bookings refer to the total revenue you can expect from contracts signed within a specific timeframe. They reflect your customers’ commitment to pay for your services.

Who should track it: All SaaS businesses as it serves as a vital metric for monitoring and projecting revenue growth in the future.

Why it matters: In addition to revenue forecasting, the total bookings of your SaaS business enable the calculation of the SaaS quick ratio. This ratio compares the growth of bookings to the contraction of bookings, with a higher SaaS quick ratio indicating better performance.

How to measure it: The formula for bookings is as follows:

Bookings = Sum of all contracts’ value

How often should you measure it: It’s best to measure bookings on a regular basis, such as monthly or quarterly. This allows for timely tracking of revenue trends, accurate forecasting, and the ability to make informed business decisions in a timely manner.

Benchmark: Leading SaaS companies aim for a Year on Year (YoY) booking growth rate of 200% in the early pre-seed to seed stages while targeting a 100% YoY growth rate in the later stages.

Application: To achieve YoY growth in your bookings, focus on securing annual or long-term contracts and enhance their appeal by offering discounts and additional benefits.

Now, let’s consider other associated metrics that can provide you with a comprehensive perspective on your acquisition strategy.

Every product manager should consider tracking the following SaaS marketing metrics and growth metrics alongside acquisition:

Sign-ups: Tracks the percentage of website visitors that sign up in response to a SaaS marketing campaign.

Activation rate: Measures the percentage of new users who complete a specific action that helps them see the value of your product.

Monthly recurring revenue (MRR): This measures the total revenue customers generate monthly. This can be divided into two growth metrics: New MRR (gained from a new customer) and expansion MRR (gained from an existing customer).

Number of active users: This metric refers to the total number of users engaged with a product or service within a given period.

Average Revenue Per Account: Measures each customer’s average revenue per account.

Customer Churn: Or the customer churn rate metric measures how much business you’ve lost over a select period. Reducing customer churn rate has a positive impact on revenue growth.

Revenue churn: It measures a loss in recurring revenue (annual recurring revenue or monthly recurring revenue) from customers who’ve canceled or downgraded their subscriptions during a select period.

Customer retention or Customer Retention Rate: This metric assesses how successfully a company retains its customers over time.

Tracking these SaaS marketing metrics is crucial for optimizing customer acquisition and growth.

But what about lowering the acquisition costs?
Let’s check out four simple strategies to help reduce your acquisition costs.

4 Simple Strategies to Lower Acquisition Costs

To reduce your customer acquisition costs and continue making sales, consider the following strategies:

1. Prioritize Targeted Advertising

Ever swiped right on a dating app for someone that’s caught your eye?

Well, targeted advertising is like finding your soulmate on a dating app.

Just as you would pursue a compatible partner, your SaaS company should target customers more likely to appreciate your product or service.

This increases your chances of securing high-quality leads, improving customer satisfaction, and minimizing wasted advertising spend.

2. Boost Customer Retention

If you keep your existing customers happy and retain them, you won’t need to invest excessively in costly marketing campaigns to acquire new customers.

How can SaaS companies improve their customer retention rate?
One effective method of boosting this customer rate is by enhancing customer satisfaction. This can be achieved by:

Providing exceptional customer service
Offering personalized recommendations, rewards, and discounts based on their preferences
Keeping track of the Net Promoter Score to gauge customer satisfaction and their likelihood of recommending your product to others.
Continuously improving your SaaS product to boost customer engagement and customer engagement score.

3. Choose Content Marketing over Paid Marketing

Content marketing can be a highly effective way for your SaaS business to generate organic leads and nurture potential prospects.

You can create valuable content that resonates with your audience to establish credibility and trust as an industry leader.

Want to put your content marketing strategy in expert hands?
Startup Voyager is at your service!

We are a content marketing and SEO agency that can help with:

Product, audience, and competitor research
Site auditing
Article writing and page creation
Conversion optimization and lead nurturing
SEO monitoring, reporting, and more.

4. Optimizing the Onboarding Process

When your onboarding process is long or unclear, it can reduce customer engagement and cause them to abandon your product or service before experiencing its value.

Optimizing the onboarding process can reduce churn and increase customer lifetime value, reducing acquisition costs over time.

Here are some examples of how to improve your customer onboarding process:

Employ personalized messaging, including welcome messages, follow-up emails, etc.
Offer interactive and engaging tutorials and demo videos
Provide appropriate in-app prompts for guidance

From Metrics to Mastery: Achieving Acquisition Excellence

Tracking acquisition metrics could be the key to unlocking effective marketing campaigns, ensuring customer success, and improving your gross margin and growth.

And if you’re looking to optimize the acquisition process for your SaaS company, you can use our handy strategies listed above.

But, to put these metrics to the test, you need customers.

Need a hand roping in customers organically?
Startup Voyager can assist you in achieving exponential organic traffic growth by optimizing your blog content and reducing the need for expensive paid advertising.

Get in touch with Startup Voyager today and take your SaaS solution to the next level!