What are SaaS funnel metrics?
And why are they important?
Simply put, funnel metrics are indicators that describe how well your SaaS business is doing at each stage of the sales funnel. It’s something every SaaS marketer should monitor closely.
But what exactly do these metrics measure, and how do you track to improve them?
Ready to put the fun in funnel cakes?
Just kidding, this article has nothing to do with desserts. We’re dealing with the SaaS funnel.
This article will explore the various metrics you need to track at each marketing funnel stage.
This Article Contains
- Why Is Tracking SaaS Funnel Metrics Important?
- SaaS Funnel Metrics to Track at Each Marketing Funnel Stage
Let’s get started!
Why Is Tracking SaaS Funnel Metrics Important?
First things first, what is this SaaS funnel we’ve been talking about?
Well, the SaaS sales funnel is a metaphor for your sales process.
Sales funnel metrics monitor your customer journey as it starts from lead generation to qualification, conversion, and retention.
Simply put, a lead or potential customer enters the SaaS sales funnel, and a loyal customer exits.
As such, funnel metrics measure how you’re performing at each stage of the sales funnel.
But how do they help your business?
Using these metrics, you can improve SaaS marketing and sales efforts and develop strategies that’ll work for your company at each stage of the funnel.
These metrics can also help set definite goals ⚽ for your sales and marketing team and keep them on track. It helps them understand how to increase your revenue, retain customers, and convert them into brand advocates.
Now that we know why these metrics are essential to track, let’s look at each in more detail.
SaaS Funnel Metrics to Track at Each Marketing Funnel Stage
Let’s travel through each stage of the funnel and learn more about the SaaS metric to track in each one.
1. Acquisition Stage
Typically, in SaaS, the acquisition stage deals with users deciding to sign up for a free trial or demo of your product. This is at the top of the SaaS marketing funnel.
These are the metrics to track during the acquisition stage:
A. Marketing Qualified Leads (MQLs)
A marketing qualified lead is a potential customer interested in what a brand offers based on your product’s marketing efforts. These leads are curious and are considering you but haven’t yet entered a sales conversation.
Why should you track your marketing qualified leads?
This SaaS marketing metric uses your marketing team’s engagement data from social media, an email marketing campaign, and other user-facing platforms. This data allows them to efficiently sift through the prospects and identify the highest-quality leads based on criteria set by your business.
How do you track MQLs?
MQLs can be tracked by doing the following:
- Tracking demographic data to understand what types of people are interested in your SaaS product
- Watching your user’s behavioral patterns to identify how they’re interacting with your marketing material
- Analyzing customer engagement
- Developing a lead scoring system
How do you improve MQLs?
- Clearly define MQL Criteria
- Segment your leads
- Create customized content for different funnel stages
- Offer value
- Create multiple touchpoints
- Have clear CTAs
B. Product Qualified Leads (PQL)
Product qualified leads (PQLs) are leads that have experienced value from using your product, whether via a free trial, a limited model, or any other way. They’re more likely to close on a sale since they already understand what the product offers.
Why should you track PQLs?
Targeting leads who already find value in your product will help reduce the length and cost of your sales cycle — without squandering your sales and marketing budget.
How do you track PQLs?
Since there’s no one-size-fits-all approach for this SaaS metric, let’s look at some industry standards for identifying PQLs:
- With Slack, it’s when an account reaches the 2,000 message limit
- For Facebook, it’s when a user adds ten friends in seven days
How do you improve PQLs?
- Provide a great onboarding experience
- Use a PQL scoring benchmark
- Pay attention and keep in touch with users
C. Sales Qualified Lead (SQL)
A sales qualified lead is already interested in your product and plan to buy it. The clearest sign of their intent is when they give their contact information to your sales team.
Why should you track SQLs?
Because by tracking sales qualified leads (SQLs), you give your sales team the clearest tools to forecast conversions. The leads that are sales qualified show a high likelihood of conversion, making them piping hot leads 🔥
How do you track SQL?
You can measure your opportunities to SQLs by tracking the number of scheduled demos and meetings.
How do you improve SQL?
- With effective communication between your marketing and sales team
- Take your time with the process, and don’t rush leads that aren’t ready
D. Customer Acquisition Cost
Customer acquisition cost (CAC) is the amount you spend to acquire new customers.
Why should you track CAC?
The CAC metric allows you to monitor marketing and sales efficiency and forecast how scalable sales and marketing team efforts will be when acquiring a new customer. It is an excellent way for SaaS companies to determine if they operate sustainably.
How do you track CAC?
Customer acquisition cost = (Cost of sales + Cost of marketing) / New customers acquired
How do you improve CAC?
The best way to reduce CAC and improve this metric is to generate high-quality leads that are more likely to convert while keeping your SaaS marketing and sales spending within a budget.
2. Activation Stage
Users experience the “Aha” moment when they derive value from your product. Once they reach this point, they can be considered ‘activated.’
A. Activation rate
Activation rate refers to how many new users reached activation or that “Aha” moment during a given period. But before measuring this metric, you must choose your business’ “Aha” moment.
Here are some examples of activation points:
- Loom: When a user’s Loom receives one view
- Twitter: When the user follows 30 users and ⅓ of those users follow them back.
Why should you track the activation rate?
It helps you monitor if your users are getting the full value of your product and if they’re moving along the sales journey.
How do you track the activation rate?
Activation Rate = Number of users who’ve reached activation milestone / Number of users who signed up * 100
How do you improve the activation rate?
- Understand what your customer wants from your product
- Familiarize yourself with the behavior of your users
- Optimize the user experience by making it easy for them to engage with your product
B. Conversion Rate
Conversion rates measure the number of prospects who convert by becoming a paid user.
PS: This metric is near the middle of your SaaS marketing funnel and can say a lot about your sales process.
Why should you track the conversion rate?
Tracking your conversion rate lets you analyze the effectiveness of your sales and marketing efforts throughout the sales cycle.
How do you track the conversion rate?
Conversion rate = Total conversions / Total leads * 100
How do you improve the conversion rate?
- Ensure your users have a smooth buying experience
- Capitalize on exclusivity with limited edition offers
- Instill a sense of urgency that pushes the user to act quickly
3. Retention Stage
This stage measures whether users continue using and paying for the product after the initial purchase. To ensure this happens, constantly engage with your users, collect feedback, and find ways to improve the product.
A. Customer Churn Rate
Customer churn rate measures how quickly your business is losing customers. It’s the percentage of customers you lose during a given period.
Why should you track customer churn rate?
Customer churn helps track at which stage of the sales cycle your customers are leaving and why.
How do you track customer churn rate:
Churn rate = Number of churned customers during the period / Number of customers at the start of the period * 100
How do you improve customer churn rate?
A certain level of customer churn is unavoidable in any business. But you can understand why it happens and try to keep your product’s churn rates below the industry average.
Start by comprehensively understanding the biggest factors for people quitting your product with exit surveys, product usage data, one-on-one interviews, etc.
The solution may be anything from fixing the product’s UI to rethinking the pricing plan to suit your target demographic better.
B. Customer Retention Rate
Customer retention rate is the percentage of customers who continue using your product/service.
Why should you track customer retention rate?
This metric is crucial as it helps measure your product’s performance and predict future earnings. More importantly, it’s always cheaper to retain an existing customer instead of acquiring a new customer.
So always treat your existing users like they’re worth their weight in gold 🥇 Coz they are.
How do you track the retention rate?
Retention rate = Number of paying users at the end of time period / Total number of paying users at the beginning of that period * 100
How do you improve your retention rate?
- Constantly update and add new features to your product
- Reward regular users so they continue engaging with the product
- Offer top-notch customer support.
4. Referral Stage
In the referral stage, users become product advocates and recommend your product to others.
Engaged users who’re invested in your product’s growth are the best marketing.
A. Net Promoter Score (NPS)
Your Net promoter score measures how likely a user is to refer your product to others.
Why should you track NPS?
Because it measures how likely your customers will use your product again, act as a brand ambassador and resist pressure to go elsewhere.
How do you track NPS?
You can measure this metric by asking customers if they plan to recommend your business to others and have them answer on a scale of 0-10, with zero being highly unlikely and 10 is then extremely likely.
You’ll have to group your scores into three categories, namely:
- Promotors (9-10)
- Passives (7-8)
- Detractors (0-9)
Then you use this formula:
NPS = % of promoters – % of detractors
A higher NPS indicates that customers are satisfied with your product since it meets their needs. Positive NPS results correlate with higher customer retention scores which is a good sign for your Saas company.
How do you improve NPS?
- Reward your users when they share product experiences, like reviews or ratings.
- Quickly follow up with negative NPS responses
- Ensure your surveys are user-friendly
B. Customer Satisfaction Score
The Customer Satisfaction Score (CSAT) measures your customer’s experience and satisfaction with your product or specific features.
Why should you track customer satisfaction scores?
You should measure CSAT at different touchpoints in the customer journey. This’ll help you understand the overall impact your SaaS product has on customers.
How do you track CSAT?
You can measure this score by asking the following types of questions:
- How helpful was the product?
- How satisfied were you with [the customer service representative’s answer/ waiting time]?
Then apply this formula:
CSAT = Total number of satisfied responses / Total number of responses * 100
How do you improve your CSAT?
Once you learn about your user’s biggest pain points, work on addressing them. This could involve reducing support time, improving transparency regarding billing, reducing clutter from your UI, etc.
5. Revenue Stage
This is where you generate more revenue from account expansion through upselling, cross-selling, and add-ons.
A. Expansion Monthly Recurring Revenue
Monthly Recurring Revenue or Expansion Monthly Recurring Revenue is the additional revenue from existing customers through upsells, cross-sells, and add-ons.
Why should you track Expansion MRR?
Tracking this metric lets you see if your expansion strategies are practical and help you gain insight into the reaction to new feature releases and future revenue growth.
How do you track Expansion MRR?
Expansion MRR = Total monthly revenue – (Revenue from new customers + Regular subscriptions)
How do you improve the MRR rate?
You can improve this metric with upsells and account upgrades. The higher the expansion MRR, the higher value your customers see in your premium features.
B. Average Revenue per User (ARPU)
Average Revenue per User is the revenue generated by each active customer.
Why should you track ARPU?
It’s essential when measuring a product’s profitability, revenue targets, evaluating your marketing ROI, and much more.
How do you track ARPU?
To calculate this, you must determine your monthly recurring revenue (MRR) and divide it by the total number of paying users.
ARPU = MRR rate / Number of paying users
How do you improve your ARPU?
- Provide limited access to premium features to demonstrate their value
- Rethink your pricing model to approach a broader user base
- Consider tiered pricing to attract users at a lower price point
- Prioritize service for revenue generating customers
- Offer add-ons that you can continue to cross- and upsell with
Finally, once you’ve considered all options, think about increasing the prices across the board.
C. Customer Lifetime Value (CLV)
CLV is how much money your customers will bring you throughout the business relationship.
Why should you track CLV?
CLV is one of the best benchmark metrics on to base long-term business decisions. It helps forecast future earnings and educates you about your business’ risk appetite.
How do you track CLV?
Customer lifetime value = Customer value * Average customer lifespan
How do you improve CLV?
- Focus on retaining existing customers over gaining new ones
- Increase your average order value
- Build long-lasting customer relationships
- Follow good advice
- Quickly respond to customer queries
- Improve your customer service
Ready to Start Tracking SaaS Funnel Metrics?
‘Track it to grow it’ — is the new SaaS credo!
And tracking funnel metrics is the foundation for any rock-solid growth strategy. They provide you with a concrete measure of which direction your product must steer in, as well as some real brag material 😎
Use the tips and formulas above to optimize the growth of your SaaS business.
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