Many SaaS businesses ask “how to work out the ROI of SaaS marketing”, believing marketing could be a rigorous task. There are some others who consider marketing as optional. However, for any SaaS advertising campaign, marketing is the ultimate way to acquire more customers. Thus, you need to be fully aware of the numbers and calculations that affect it. It’s a prerequisite to become a successful SaaS business.
However, you’d be happy to know that for any SaaS business the data we need is locked into the system. This gets the job half done for you. As a rule of thumb, a standardized pricing model and web analytics make it a lot easier for SaaS businesses to effectively measure Return on Investment (ROI).
Master the Industry Metrics
Creating a calculator that measures the result or gives an idea of a question they have can be of extreme value. This will bring in highly appropriate traffic. Whether it is to communicate compliance, demonstrate increasing demand for learning or prove the value of your service to the business, the need to master industry metrics impacts your business directly.
For instance, an advertising firm can have a Google PPC ROI calculator. People who think about PPC ROI are certainly also prospects for an advertising tool. In the same way, potential customers who search for developer productivity are also consumers of project management software.
We say this because creating a form of collateral that your company can leverage can be of great value. Another example is a mortgage company that has built or using a mortgage calculator on their site. This is to drive effective traffic to their site. You can use these types of tools in your PPC efforts for people who are still likely to be in the research phase.
There are two kinds of SaaS business:
- The first one is with predominantly monthly subscriptions. Sometimes there could be some longer-term deals. In this circumstance, the primary focus will be on MRR (Monthly Recurring Revenue).
- There are others with mainly annual contracts, with some contracts for several years. In this scenario, the key focus is on ARR (Annual Recurring Revenue).
You can easily calculate monthly recurring revenue (MRR). You just need to keep in mind these two basic principles
- MRR only includes monthly revenue (over a subscription period). MRR only includes subscription revenue, no service fees or one-offs.
- Annual recurring revenue (ARR) consists of monthly recurring revenue x 12.
SaaS and subscription business model is investment management. Subscription business models follow the strategy to sell a product or service to receive monthly or yearly recurring subscription revenue. They focus on customer retention over customer acquisition. Basically, a subscription business model always focuses on the way revenue is gained. This is to ensure that a single customer makes payments in a recurring manner for a good or service. Thus, cash investments are made to acquire customers, who will return the amount plus a margin in revenue.
You can simply decide on a number of customers that you want to acquire in 12 months and multiply it with the ARR.
SaaS ROI (return on investment) % = (ARR / Costs) x 100
*ARR = Annual recurring revenue for the given period
*Costs = CAC customer acquisition costs or CRC customer retention costs
Lead to Sale Conversion Rate
Usually, lead conversion is accomplished when the lead becomes a paying client. However, conversion in itself can mean many different actions to different people. For instance, signing up for an online seminar, downloading your white paper offer, becoming a newsletter subscriber, a specific length of time spent on your homepage, or sharing content on social media.
Now that you have clearly defined “conversion”, you can now know what to measure and how to calculate your lead conversion rate. As you define what conversions you want to track, you can easily calculate the conversion rate and use it to your business’s advantage.
Conversion rates are equal to the total number of conversions divided by the number of leads and then multiplied by 100. If your conversion is defined as leads who buy your SaaS product, then the formula should look like this:
Lead Conversion Rate = Total Number of New Customers / Number of Leads x 100
So if you had 100 leads, and 20 of them buy your SaaS product, your lead conversion rate is 20%.
Calculate Your SaaS Advertising ROI
To simplify it all for you, we put together an easy to use calculator to measure your SaaS business’s ROI.
You can simply fill in the number blocks based on your own assessment and expectations to get the most realistic picture possible. Click here to get the SaaS ROI calculator now.
Over the years, we have lent a hand to many SaaS businesses to make their products ‘stand out from the crowd’. SaaS business is a competitive industry but we are determined to solve the problems that most SaaS business owners are facing every single day. Our expertise help them reach the figures that they want to reflect in their Return on Investment. After all, the goal of your business should be getting people to pay for your service or product every month because it provides value.
So what do we do? We decide not to turn out to be simply one of those average companies offering low-quality solutions for a few dollars on a monthly basis. There are already thousands of companies doing that. We try to make the most out of every dollar spent for your SaaS business.
If you’re one of those looking to catch up to their competitors in today’s highly competitive SaaS marketing scenario, then feel free to get in touch with us right away!