While every SaaS and subscription company should track KPIs that offer valuable insights about business health, many startups are hesitant to invest in subscription analytics software. In fact, a startup that’s strapped for cash might stick to manual analytics and forecasting processes despite the enormous upside.
But effective SaaS reporting tools can help startups streamline metrics tracking so they can make data-driven decisions and scale. A subscription analytics dashboard can offer deeper insights than manual analytics efforts and save startups money in the long run.
In this guide, we’ll discuss some of the most critical metrics for subscription businesses and why SaaS startups should consider investing in an automated analytics and reporting solution.
An excellent analytics dashboard should allow users to analyze data easily and generate insights that are highly relevant to the business. Here are some of the most valuable metrics for subscription-based companies.
Monthly recurring revenue (MRR) and annual recurring revenue (ARR) are arguably the most important metrics for subscription businesses. These metrics track all recurring revenue normalized to a monthly or yearly amount. Startups can use MRR and ARR as a benchmark to track business growth trends over time.
Track MRR trends over time in Baremetrics.
You can also “splice and dice” your metrics by comparing plan type, customer cohort, and dates (as shown here).
Churn is an important metric because it can have an enormous impact on MRR and ARR. This metric is a measure of how many customers or how much revenue is lost during a certain period.
While every company will have some subscription cancellations, a higher churn rate makes it harder to achieve sustainable business growth. Startups can use customer and revenue churn rates to assess customer satisfaction and optimize customer experiences.
Baremetrics tracks User Churn, Revenue Churn, and Net Revenue Churn, giving you a complete picture of the financial impact of canceled subscriptions.
Average revenue per user (ARPU) measures how much revenue a business generates for each active customer. This metric can reveal whether a startup can scale sustainably because a low ARPU rate means there’s not much revenue to reinvest in the business.
Startups can focus on attracting and retaining customers that exceed their ARPU to become more profitable.
As with most metrics, a growing ARPU is a positive sign.
Customer lifetime value (LTV) is the estimated revenue a customer will generate throughout their entire relationship with the business. This metric can be compared with the average customer acquisition cost to determine whether to spend more on sales and marketing efforts.
When startups have an LTV that’s much higher than CAC, they’re in a great position to rapidly grow their business.
Which plans stay with you the longest? Baremetrics can help you answer that, making it easier for you to find more similar customers.
MRR growth rate is a measure of the company’s revenue increases over a certain period. It’s one of the primary metrics used to evaluate the growth potential of startups because it’s a key indicator of business profitability and sustainability. A strong growth rate is critical for securing funding from investors or lenders.
A strong growth rate is critical for securing funding from investors or lenders.
Baremetrics automatically tracks the above metrics plus 21 others, giving you the quick insights you need to grow your business.
If you want to see these metrics in action, check out our open demo account, no sign-in required 😎
Customer acquisition cost (CAC) is the average amount spent to bring in new customers. Acquisition costs can include expenses related to marketing, sales, advertising, and much more. Startups can use CAC to decide where and how much to spend on attracting customers, especially when it’s evaluated alongside customer lifetime value.
Gross margin is the percentage of a company’s total revenue after subtracting the cost of goods sold. It’s essentially the percentage of revenue left over to pay operating expenses and reinvest in the business. Startups should seek to increase gross margins as they grow and begin to benefit from economies of scale.
Burn rate measures how quickly the company is using up its cash. A profitable company would have a negative net burn rate because they’re bringing in more cash than they’re spending. Startups should track their burn rate to understand the runway they have before they need additional outside funding.
While you could calculate metrics using Google Sheets or another manual method, subscription analytics software can help you track KPIs easier, faster, and more accurately. Here are a few reasons to invest in an automated reporting tool.
If you want to track metrics over time to discover trends, you need to calculate them accurately. The problem with spreadsheets and other manual methods is that they can introduce human error. SaaS reporting tools can correctly calculate metrics the same way every time, eliminating errors that could limit the potential for business insights.
As we discussed in the previous section, there are several metrics that most subscription startups should be tracking to get a complete picture of their businesses. Calculating these manually will slow down the decision-making process, so an automated reporting tool is crucial for more efficient operations.
When you have a way to quickly view metrics in real-time, your business can become more agile and solve problems faster. For example, if you discover that your churn rate is increasing, you can identify and alleviate issues to improve your customer experience.
Automated analytics tools with real-time metrics help you optimize your business operations to stay ahead of potential challenges.
Effective SaaS reporting tools can pull data from multiple sources, whether a payment processing solution or a customer relationship management (CRM) system. This helps startups generate deeper insights that wouldn’t have been possible by relying on a single data set.
In short, startups can get a much more holistic view of their business using automated data augmentation.
If you have all your metrics and data in one place, it’s much easier to create sales and cash flow forecasts. For example, the reporting tool should calculate MRR/ARR and the company growth rate, which are crucial numbers for estimating future sales. An effective reporting tool might even have sufficient forecasting capabilities built into it.
An effective reporting tool has the ability to easily filter data by specific criteria, including different sales channels or customer cohorts. By comparing the customer lifetime value and customer acquisition costs of each sales channel, SaaS companies can determine which offers the most significant ROI.
This enables startups to scale their businesses by investing in the most profitable customer acquisition sources.
Baremetrics is a dunning, metrics, and engagement platform that delivers fast and accurate subscription analytics. Baremetrics helps SaaS and subscription businesses evaluate past performance and make accurate predictions by turning complex data into simple interactive dashboards. Start your free trial of Baremetrics today!