How to measure the success of your Micro SaaS business?

We all know that Micro SaaS businesses are the current hottest trend. So you won’t be much surprised to see that it has grown by over 500% in the past seven years.

Many entrepreneurs are building their SaaS businesses, but only a few are growing exponentially. At the same time, others are struggling even in the non-competitive market.

Ever wondered why?

It is because Micro SaaS businesses are complex and have evolving business models.

It’s tough to get a complete picture of the business’s performance when there are fewer resources. Using traditional SaaS metrics won’t do any good in subscription-based models as they may not reflect the complexity.

Some micro SaaS businesses need more access to analytics, data, and complex pricing models to help generate consistent revenue. And so, it leads to high churn, low brand authority, and poor product performance.

However, measuring product success early in your Micro SaaS business can help you to:

• Identify areas for improvement,
• Retain and attract the right customers,
• Improve profitability,
• Attract investment.

When you are clear on what success means to your business, you can track the progress.

Subscription models in Micro SaaS

Picture Credits: Freepik

But what exactly does it mean for a micro-SaaS business to be successful?

Customer needs and business goals contribute to the success of micro SaaS businesses.

Lisa Dietrich, Partner at girokonto.io, says, “Measuring success can be challenging for any business but especially for those in the SaaS space. One of the most difficult aspects is accurately measuring the impact of different initiatives on conversions and sales. It requires having a detailed understanding of the user journey from the first interaction with your product through making a purchase decision. In addition, many businesses face challenges in collecting accurate data to understand user behaviour or measure outcomes accurately. Therefore, it is important to ensure that your data collection processes are robust so that you can draw meaningful conclusions from your analytics when measuring success.”

Success can mean different things to different companies. Some factors to keep in mind:

• Meeting or exceeding sales and revenue targets
• A growing customer base and high levels of customer retention
• Strong profitability and a positive cash flow
• A scalable business model that can accommodate growth
• Positive customer feedback and high levels of customer satisfaction

A study by Cledera in 2022 states that micro-SaaS will continue to flourish when low-code solutions lower the barrier of entry for non-technical founders.

If this feels overwhelming, do not worry. This blog will cover SaaS metrics that you can use to measure the success of your business. So keep reading and discover how to improve your score. This blog post covers the following:

• Key metrics for measuring your business success
• Ways to improve the metric score
• Profitability of Micro SaaS businesses
• Conclusion

SaaS

Picture credits — Freepik

Key metrics for measuring your business success

Imagine that your company offers a subscription-based meal delivery service. What will your team do if they want to know how the different product elements perform? First, they’ll measure it with the product SaaS metrics.

The SaaS metrics will provide you with the company’s growth and customer interactions.

Use the below six key SaaS metrics to measure your company’s success:

1. Monthly Recurring Revenue

MRR is the best way to measure your product’s performance. MRR is the money you expect to earn monthly from your active subscriptions.

The success of a subscription-based SaaS business depends on repeated purchases from customers. So, the higher the renewal rates, the better your product is.

You can calculate the MRR by multiplying your average revenue per customer by the number of customers each month.

Here’s the formula:

MRR= Average revenue per customer * number of customers/accounts in a month

Here is an example of how to calculate MRR:

Let’s say you have three subscription-based products:

• Product A: $50/month
• Product B: $25/month
• Product C: $100/year (equal to $8.33/month)

To calculate MRR, you should add up the recurring revenue from each of these products:

MRR = $50/month + $25/month + $8.33/month

= $83.33/month

In this example, the company’s MRR is $83.33/month.

Tracking MRR can help you understand your business’s revenue stability and predictability. You can use this to make informed decisions about the company’s growth and development.

Ways to increase your MRR:

Micro SaaS businesses can use several strategies to increase their MRR. Here are a few ideas to consider:

• Upgrade products or services
• Increase the price of your existing products or services
• Offer longer-term subscription plans.
• Upsell or cross-sell to your current customers

2. Customer Lifetime Value

Customer Lifetime Value is the average monetary value of each customer to your business. This metric shows what you can expect from an average customer throughout your business relationship.

You can leverage this to make crucial sales, marketing, product development, and customer service decisions. Besides, this metric helps you gauge your current customer's loyalty toward your product. After all, customer loyalty determines the success of your product.

Here’s the formula:

Customer Lifetime Value= Average Order Value * Average Purchase Frequency * Average Customer Lifespan

Now let’s take a look at an example:

A software company has customers who pay a monthly subscription fee of $50. They stay with the company for an average of two years. To calculate the CLV for these customers, the company could use the following formula:

CLV = $50/month * 24 months

CLV = $1,200

Ways to improve your CLV

Research by Markinblog shows that a 5% increase in customer retention rates increases profits by 25%–95%.

Let’s look at some ways you can boost your CLV.

• To improve your customer retention rate, make your onboarding process smooth. For example, ensure personalised onboarding to educate your users and increase engagement.
• Find out why customers choose your brand by interviewing and connecting with them on various social media channels.
• Give exclusive offers to your existing customers.
• Do not charge for returns. The more difficult and expensive it is, the fewer chances they will make another sale.
• Offer freebies for doing business with you to increase brand loyalty.

3. Net Promoter Score.

The Net Promoter Score (NPS) measures customers’ likelihood to recommend a product or service.

You use an NPS survey to determine the likelihood that customers will recommend your product to others. The scale for NPS is 1–10, with 1 being “Not Likely” and 10 being “Extremely Likely.” There is less chance of churn when the score is higher.

The customers who rate you 9 or 10 are “promoters,” while those who rate you 0 to 6 are “detractors.” Therefore, you can calculate the NPS score by subtracting the percentage of detractors from the percentage of promoters.

Here’s the formula:

NPS= % promoters — % detractors

Based on the score, you can divide your customers into three categories.

0–6 = Detractors

7–8 = Neutrals

9–10 = Promoters

For example, if a company asks 100 customers to rate their production services to others. And if 50 customers rate 9 or 10. 20 customers rate their likelihood as 7 or 8. And 30 customers rate their likelihood as 0 to 6, resulting in the following NPS calculation:

NPS = (50–30) / 100

= 20 / 100

= 20

In this example, the company’s NPS is 20. It indicates that most of its customers are likely to recommend the product or service to others. A high NPS is a positive indicator of customer satisfaction and loyalty.

Ways to improve your NPS score

In 2018, Ambassador Research found that 83% of consumers trust recommendations from family and friends.

There are several steps to improve its Net Promoter Score:

• Identify the root cause of low NPS:

Analyse customer feedback and identify common themes or issues causing dissatisfaction.

• Address customer concerns and complaints:

Make your customer support more robust and offer incentives.

• Analyse and track NPS over time:

It can help you identify trends and areas for improvement.

4. Customer Churn Rate.

Customer churn rate measures the rate at which customers stop using a product or service. It shows a percentage of the total number of customers churned over time.

Create customised retention strategies after knowing how and why your users leave. For example, when do they switch to your competitors’ products? Note the product funnel stage and develop better strategies.

Note: Churn can happen actively or passively.

• Active when a customer cancels a subscription and
• Passive when a customer’s credit card expires or during failed renewal.

Win back those re-activations by diving deep into customer behaviour, offering incentives to them, and holistically improving your products and services.

The formula for calculating the customer churn rate is as follows:

Churn rate = (Number of customers lost during the period / Number of customers at the beginning of the time) * 100

For example:

If you had 200 customers at the beginning of the month and lost 20 customers during the month. Your churn rate would be:

Churn rate = (20 / 200) * 100 = 20%

Ways to reduce your customer churn rate.

• Conduct churn surveys to understand why users are leaving.
• Automate personalised responses.
• Add optional open-ended questions to see their feedback.
• Track monthly, quarterly, and yearly churn rates and then analyse them.

Profitability of Micro SaaS businesses

Micro-SaaS businesses are profitable because of their scalability and easy-to-setup model.

It is scalable because they focus on serving a specific target market, compared to generalist businesses. It is simple to set up due to low overhead and upfront costs.

Darshan Shah, Founder of Dashify, says, “Micro-SaaS start-ups are tapping into the right market at the right time. However, once the business starts catering to niche audiences with simplistic solutions, it becomes easier to churn profitability. With lesser competition, Micro-SaaS startups should prioritise the Customer Acquisition Cost, considering product marketing and advertising costs.”

Here’s a snippet from Reddit by the Micro SaaS community on the benefits of running this business.

Snippet from Reddit about the Benefits of Micro SaaS

Several factors can impact the profitability of a micro SaaS business. They are:

Market Demand-

The business is more likely to be profitable if there is a large and growing market for the product or service.

Competition-

The level of competition in the market can also impact profitability.

If many companies offer similar products or services, it takes time to stand out. Attracting customers would take a lot of work.

Industry growth-

The business can capitalise on the industry’s rapid growth by earning more significant profits.

Pricing strategies-

If the business charges less for its service, it will struggle to generate enough profits. And if the pricing is too high, it may need help attracting customers. So finding a sweet spot in price is crucial to entice customers and retain them.

I recommend watching this video to understand the SaaS business’s profitability better.

Micro SaaS Products — Are they Profitable?

Conclusion:

It’s natural to get confused seeing all the product SaaS and customer success metrics. The catch here is that not all SaaS metrics will be helpful to you. Instead, you must focus on those SaaS metrics relevant to your business objectives.

We hope this blog was helpful and gave you some actionable insights into refining and updating your strategies.