Key performance indicators (KPIs) are how you track the progress of your company. Every department has its own KPIs, and figuring out what KPIs will best improve performance can be difficult.
It can also be difficult to decide who in your firm is responsible for an individual KPI. For example, if your conversion ratio is low, is that because your marketing team is bringing in poor leads, your sales team isn’t succeeding in converting high-quality leads, or your development team hasn’t put the best parts of your platform at the front for a successful free trial?
Each KPI you track gives you a small piece of the puzzle when trying to see how your platform, marketing, and sales come together to generate revenue. While not every piece is needed to understand the performance of your company, you’ll need to track more than one sales KPI to figure out how to best generate recurring revenue.
In this article, we are going to go through 10 of the best sales KPIs available for SaaS companies that bring in revenue through a subscription model. But don’t calculate all these KPIs by hand! That would distract you from all the other important decisions needed to keep your MRR increasing.
Baremetrics does all the heavy lifting for you, intelligently “automating away” meaningless numbers to uncover the true, bigger picture. A crystal-clear dashboard gives you a holistic view of your expenses, profit, and forecasted MRR for specific timeframes. All this allows you to quickly spot inconsistencies, eliminate unnecessary waste, and more accurately model your SaaS business’s future based on multiple scenarios.
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How to utilize sales KPIs
Whether you are considering your sales KPIs or any others, effectively utilizing KPIs requires three specific strategic decisions:
- Determine which KPIs to track. This isn’t an easy decision as there are many KPIs out there, and not all of them will be applicable to your business model. They each offer different information, but tracking too many is both a waste of time and could leave you with information overload.
- Match KPIs to specific personnel. Since you will likely tie incentives to meeting KPIs—from bonuses to opportunities for advancement—your employees will effectively “chase” their KPIs over a well-rounded performance. Selecting the wrong KPIs for them could lead to less effective job performance, so choosing who is responsible for what KPIs and how you will evaluate their performance based on them is important.
- Measure the selected KPIs. This can be the hardest or easiest step depending on how you choose to measure KPIs and what KPIs you choose to measure. Doing all of this in-house by hand is inefficient. Consider Baremetrics for measuring your sales KPIs.
The 10 sales KPIs you need to track and why
Marketing and sales are integral to your company. While your SaaS platform would not exist without developers and it would be so fiddly and ugly that no one would want to use it without your UI/UX team, it only stops being a hobby and starts being a company when you go out in the world and find customers willing to pay for your service. This is where sales KPIs come in.
Measuring the success of your sales team requires KPIs. Every KPI seeks to give you some specific information about your company. Sometimes it is easier to understand the value of a KPI by looking at the question it seeks to answer.
That’s why we list the 10 best sales KPIs along with one of the main questions they answer below:
- Sales Growth: Is your business growing steadily?
- Customer acquisition cost (CAC): What does it cost to onboard a new customer?
- Average revenue per unit (ARPU): How much do you earn per customer on average per period?
- Customer lifetime value (LTV): How much value does your average customer bring during the lifetime of their contract?
- Customer churn rate: How many customers do you lose per period?
- Average sales cycle length: How long does it take to get a customer through your funnel?
- Lead-to-opportunity ratio: What is your lead quality?
- Opportunity-to-win ratio: What percentage of your quality leads become sales?
- Lead conversion ratio: How many of your leads convert into paying clients?
- Incremental sales by campaign: How are your different marketing campaigns leading to sales?
Keep these questions in mind when looking at the sales KPIs in depth below.
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Sales growth: Is your business growing steadily?
Not all KPIs are complicated, and more complicated does not necessarily mean they garner more information. Looking at your change in MRR or ARR over time is a compulsory sales KPI to make sure you are moving in the right direction. To better understand your sales growth, consider calculating your SaaS quick ratio as well.
Customer acquisition cost (CAC): What does it cost to onboard a new customer?
You need to understand CAC, ARPU, and LTV together to get the most out of these three sales KPIs. Your LTV gives your development and marketing teams their budgets. By calculating your CAC, and with it your CAC payback period, you know whether or not your business is sustainable. Your CAC needs to remain below the LTV of your customers to produce profit and not just revenue.
Average revenue per unit (ARPU): How much do you earn per customer on average per period?
ARPU is calculated by dividing your MRR by the total number of customers signed up. If you have a high CAC or ACS (average cost of services), then you need to focus on increasing your ARPU by upselling your customers to improve your expansion MRR.
Customer lifetime value (LTV): How much value does your average customer bring during the lifetime of their contract?
LTV is probably the single most important sales KPI you can track. Knowing the total revenue generated by your clients is the first step in allocating budget to your sales and marketing team. It caps the amount your CAC can reach sustainably. You can improve your LTV in two ways: reducing your churn (i.e., extending the average contract length) or increasing the ARPU (i.e., having each customer pay more per month on average).
Customer churn rate: How many customers do you lose per period?
Customer churn, as well as revenue churn, tells you how much you are losing monthly from your recurring revenue stream. It is important for calculating your LTV. Reducing churn, especially involuntary churn, can often be cheaper than increasing sales, so this sales KPI should always be tracked.
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Average sales cycle length: How long does it take to get a customer through your funnel?
The funnel is the basic sales planning chart of a SaaS business. It tracks the customer’s progress from being a visitor to the site through to a paying customer. Shortening this duration is a great way to improve your sales growth.
Lead-to-opportunity ratio: What is your lead quality?
Every potential lead starts out as unqualified, whereas a qualified lead is one that has been vetted in some way. The BANT method is a common form of vetting. BANT stands for leads with a budget, authority, need, and timeline requirements. If many of your leads do not become qualified opportunities, then you may want to improve your ICP (ideal customer profile).
Opportunity-to-win ratio: What percentage of your quality leads become sales?
Assuming your qualified leads are actually of high quality, then you should be closing a reasonably high portion of them (somewhere around 15% of opportunities should become wins). If this isn’t the case, either your vetting process for leads is wrong or your sales approach needs work.
Lead conversion ratio: How many of your leads convert into paying clients?
Combining the lead-to-opportunity ratio and the opportunity-to-win ratio, the lead conversion ratio tells you how many of the initial leads become paying customers. This sales KPI gives an indication of the synergy between your marketing plan and your sales approach.
Incremental sales by campaign: How are your different marketing campaigns leading to sales?
Most SaaS businesses have multiple marketing campaigns ongoing at the same time. It can be hard to disentangle where a lead came from. If you can get customers to tell you this upon sign up, then you know where to focus your marketing budget going forward.
Every sales KPI aims to answer one or more questions, which is why you need to track several to get a better picture of your business. This allows you to triangulate on the problems in your sales funnel.
To go back to the hypothetical question from the top, by tracking several different KPIs, we can figure out what is to blame for a poor conversion ratio.
The lead-to-opportunity ratio can tell you whether your marketing department is finding the right population to sell to. The opportunity-to-win ratio can tell you whether your sales department can capitalize on the high-quality leads garnered by the marketing campaign. By tracking both, you can pinpoint what needs to change to improve your company’s sales growth.
While many industries are still using the same sales KPIs as they did 50 years ago, this won’t cut it in SaaS. The industry is too competitive, and the best companies are evolving rapidly.
That’s where Baremetrics comes in.
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