What are the key metrics for SaaS businesses?

Key metrics for SaaS businesses focus on measuring revenue, customer behavior, and operational efficiency. These metrics help developers and technical teams understand how the product performs, where improvements are needed, and how to prioritize engineering efforts. The most critical metrics include Monthly Recurring Revenue (MRR), Customer Acquisition Cost (CAC), Churn Rate, Lifetime Value (LTV), and Gross Margin.

First, MRR (Monthly Recurring Revenue) tracks predictable income from subscriptions, making it essential for understanding cash flow and growth. For example, if 100 customers pay $50/month, MRR is $5,000. Developers can tie MRR trends to product updates—like a new feature that reduces cancellations. Churn Rate (percentage of customers leaving monthly) directly impacts MRR. A high churn rate (e.g., 5% monthly) signals issues like poor user experience or unreliable infrastructure. Reducing churn often requires technical fixes, such as optimizing load times or fixing bugs. LTV (Lifetime Value) estimates total revenue from a customer over their lifespan. If a customer stays 24 months at $50/month, LTV is $1,200. Comparing LTV to CAC (cost to acquire a customer) ensures sustainable growth. A 3:1 LTV:CAC ratio is a common benchmark.

Second, CAC measures the cost of acquiring a customer, including marketing and sales expenses. For example, if $10,000 spent on ads brings 200 customers, CAC is $50. Developers can influence CAC indirectly by improving onboarding flows or reducing signup friction. Activation Rate (percentage of users reaching a key milestone, like completing a tutorial) is another critical metric. If only 30% of users activate, the team might need to simplify setup steps or add tooltips. Gross Margin (revenue minus hosting, support, and infrastructure costs) reflects operational efficiency. A margin below 60% could indicate overspending on cloud services (e.g., AWS), prompting cost optimization efforts like serverless architecture or caching.

Finally, Daily Active Users (DAU) and Feature Usage metrics help prioritize development. If a dashboard feature is used by 80% of DAU, it’s a core value driver. Low usage might mean poor performance or unclear UI. Customer Support Metrics (e.g., average response time) also matter. Slow ticket resolution due to inefficient logging systems can hurt satisfaction. Developers can build automated monitoring or self-service tools to reduce support load. By tracking these metrics, technical teams align their work with business goals, ensuring code changes directly impact growth and sustainability.