Staying up-to-date on your business growth and stimulating its constant development requires tracking KPIs – key performance indicators. They show essential information about how business is performing and help you make data-driven decisions.
In this article, we’ll focus on SaaS (Software as a Service) companies and outline what KPIs they should monitor (some of them are applicable to other types of businesses as well). And as Craft Innovations works in the User Experience design field, we will highlight how good UX design can impact these metrics.
Metrics SaaS companies should track
Here we gathered a list of common SaaS product metrics and a brief description of each.
Monthly Recurring Revenue (MRR)
The total amount of predictable recurring revenue generated from customers each month. MMR helps subscription-based companies estimate the current financial health of their service and do financial forecasting and planning.
Annual Recurring Revenue (ARR)
The total amount of predictable recurring revenue generated from customers each year. This metric best suits companies that sign most customers to a term of at least one year.
Customer Acquisition Cost (CAC)
The total cost of acquiring a new customer, including marketing and sales expenses. Basically, it shows how much money and effort you need to persuade a customer to buy your service.
Lifetime Value (LTV)
The total revenue a customer is expected to generate for a company over the entire time they use the product. It’s a fundamental metric in subscription-based business models, along with MRR.
Gross Margin
The difference between revenue and the cost of goods sold, is expressed as a percentage of revenue. This indicator helps to understand how profitable your business is.
Gross Churn Rate
The rate at which customers cancel their subscription or stop using the product, expressed as a percentage of total customers.
Net Churn Rate
The rate at which customers cancel their subscription or stop using the product after considering new customer acquisitions, expressed as a percentage of total customers.
The contrast between gross churn and net churn lies in whether expansion revenue is taken into account. Gross churn offers a more truthful representation of lost revenue, as it does not include upsells or add-ons. On the other hand, net churn provides insight into the revenue changes that can be expected from existing customers.
Monthly Active Users (MAU)
The number of unique users who actively use the product each month.
Monthly Unique Visitors (MUV)
The number of unique visitors to a website or application each month.
Engagement
A measure of how actively users use the product, such as time spent on site or frequency of use.
Conversion Rate
The percentage of visitors to a website or application who take a desired action, such as making a purchase or signing up for a free trial.
Average Revenue per User (ARPU)
The average amount of revenue generated per user over a specified period of time. This metric is also used in calculations of MRR and LTV.
Stickiness
A measure of how likely users will continue using the product over time. The measurement of the metric based on calculation of DAU (daily active users) / MAU (monthly active users).
Retention
The percentage of users who remain active after a specified period of time, such as one month or one year. It reveals the extent of the SaaS company’s revenue regardless of whether it gains new clients or not.
How product UX design can influence each of the above SaaS metrics
User experience or UX design determines a user’s overall experience when interacting with a product or service. It focuses on the user’s journey, the emotions and behaviors associated with the product, and its overall usability and accessibility.
How to tell that UX design is good? It’s unnoticeable. If you have no confusion or problems while interacting with the product and notice no logical gaps, UX design is good. People usually don’t think, “Wow, what a great usable, enjoyable, and accessible service”; they take it for granted. But when it’s not seamless, users will notice it. And that means UX design is not good.
Here we explain how the quality of UX design influences each of the business metrics.
- Monthly / Annual Recurring Revenue (MRR): Smart UX designers focus on making it easier for customers to subscribe and pay for the product, using wite behavioral and design patterns to achieve that. As a result – the growth of MRR or ARR.
- Customer Acquisition Cost (CAC): Clever UX design and actionable UX writing influence the conversion rate of visitors to paying customers, increasing the marketing ROI and, as a result reducing the cost per acquisition and lowering CAC.
- Lifetime Value (LTV): Customers’ satisfaction and engagement increase if they enjoy their experience with a product o service. All like to feel good. The main goal of good UX is to make users feel great and help them achieve their goals. It leads to higher LTV as users are more likely to remain subscribers for longer.
- Gross Margin: In parallel with the growth of conversion rates, convenient UX design reduces the number of customer requests to support services and influences price elasticity so you can keep the price vs. competitors longer or even increase it.
- Gross Churn Rate: UX design can improve customer satisfaction and reduce customers’ likelihood of canceling their subscriptions or stopping using the product.
- Net Churn Rate: As with Gross Churn Rate, seamless UX design can reduce the number of customers who cancel their subscriptions, leading to a lower net churn rate.
- Monthly Active Users (MAU): UX design can increase the number of users who actively use the product each month by making it easy and enjoyable to use.
- Monthly Unique Visitors (MUV): Good UX design can increase the number of unique visitors to a website or application by making it more appealing and easy to navigate.
- Engagement: Smooth and consistent UX design can increase user engagement by making the product more enjoyable and rewarding to use.
- Conversion Rate: UX design can increase the conversion rate by making it easy and intuitive for visitors to take the desired action, such as making a purchase or signing up for a free trial.
- Average Revenue per User (ARPU): With flawless UX design ARPU can be increased by making it easier for users to discover and purchase additional products or services.
- Stickiness: When users are satisfied with UX design, they spend more time and increase the recency of interaction with a product, which increases stickiness.
- Retention: Good UX design can improve retention by making the product easy to use and reducing the likelihood that users will stop using the product.
As you see, UX design is an essential element of success for any SaaS business. It not just creates a positive user experience and makes customers enjoy your service, but even this is enough. UX design also helps to reduce customer support costs, stimulate users to make purchases, improve the overall brand perception, and attract more customers.
Contact us if you need to make a good UX design from scratch or conduct a UX audit to find the gaps in customer expectations and opportunities for business improvements.
