How do SaaS companies measure growth?

SaaS companies measure growth through a combination of financial, customer, and product usage metrics. These metrics help them understand revenue trends, customer behavior, and product adoption. The most common approach involves tracking recurring revenue, customer acquisition efficiency, and retention rates. Developers and technical teams often contribute by instrumenting code to collect usage data, which feeds into these metrics.

The first key metric is Monthly Recurring Revenue (MRR) and Annual Recurring Revenue (ARR), which track predictable revenue from subscriptions. MRR is calculated by multiplying the number of active customers by the average revenue per user (ARPU). For example, a SaaS tool with 1,000 customers paying $50/month has an MRR of $50,000. ARR scales this to a yearly view (e.g., $50,000 MRR becomes $600,000 ARR). These metrics help companies assess revenue stability and growth over time. Developers might build dashboards that pull subscription data from billing systems like Stripe or Chargebee to automate these calculations.

Another critical area is customer acquisition cost (CAC) and customer lifetime value (LTV). CAC measures the average cost to acquire a customer (e.g., $10,000 spent on ads divided by 100 new customers equals $100 CAC). LTV estimates the total revenue a customer generates before churning. A healthy SaaS business typically aims for an LTV:CAC ratio of 3:1 or higher. Technical teams can help by integrating analytics tools like Google Analytics or Mixpanel to track marketing spend attribution and user signup paths. For example, a developer might implement event tracking to trace how users from a specific ad campaign convert into paying customers.

Finally, churn rate and product engagement metrics are essential for measuring retention. Churn rate calculates the percentage of customers who cancel subscriptions in a given period (e.g., 5% monthly churn). High churn often signals issues with product value or usability. Engagement metrics, like daily active users (DAU) or feature adoption rates, help identify which parts of the product drive retention. Developers might track API calls, login frequency, or usage of specific features (e.g., a collaboration tool in a project management app) to gauge engagement. For instance, if a new API integration sees low adoption, the team might prioritize documentation or usability improvements based on this data.