Funnel Metrics in SaaS: What To Track at Each Stage and How To Improve Them?

How do you track SaaS funnel metrics in each stage and improve them?

Developing and optimizing sales funnels is a key part of SaaS product growth. There are a variety of metrics you can use to optimize your sales funnel, but today we’ll be focusing on what matters most.

Let’s see what the most important funnel metrics are that you can utilize for your SaaS.

TL;DR

  • SaaS funnel metrics are essential indicators that describe how well your business is doing at each stage of the SaaS sales funnel.
  • According to the Pirate metrics framework, there are 5 stages in a sales funnel: acquisition, activation, retention, referral, and revenue.
  • The number of signups, demos, and product qualified leads are the main metrics in the acquisition stage that help you where your new users are coming from, how much money you spent to acquire them, etc.
  • In the activation stage, you should track the activation rate, product stickiness, and feature adoption rate.
  • Customer churn and customer retention rate are the most important metrics in the retention stage.
  • The referral stage is all about measuring customer loyalty and promoting users into brand advocates.
  • Lastly, the revenue stage deals with finding new profit opportunities through upsells, upgrades, etc. The key metrics for this stage are Customer Lifetime value, average revenue per user, and expansion MRR.
  • Using welcome screens to segment users, personalizing onboarding experiences later, and sending modals to encourage users to upgrade their accounts are just some of the ways to improve funnel metrics.

What are funnel metrics?

Simply put, the SaaS sales funnel is a visual representation of your sales process, starting from lead generation to qualification, to conversion, and then retention.

Therefore, SaaS funnel metrics are a set of metrics that measure how your business is performing at each stage.

Using these metrics, you can track the right key performance indicators (KPI), which, in turn, helps you understand the strengths and weaknesses of your business, along with growth opportunities.

Why is tracking funnel metrics important in SaaS?

Sales funnel metrics can help your business identify specific areas that you can focus on. By identifying key metrics, you can make insightful decisions based on actual data instead of hunches and assumptions. This allows you to modify your marketing and sales efforts and develop strategies that are more likely to work for your business.

Furthermore, these metrics help you set clear goals for your sales and marketing teams, keeping them on the right track. It gives them actionable insights into how to increase revenue, retain users, and convert them into brand advocates.

What funnel metrics should you track at each stage?

There is no universal sales funnel for all businesses. Structures and terms may differ according to the nature of the business, but their essence remains the same.

Product-led SaaS companies can use the Pirate metrics framework, developed by Dave McClure. This system groups and tracks metrics for the different stages of the user journey: acquisition, activation, retention, referral, and revenue. To put it simply, AARRR.

pirate-metrics-saas
Pirate metrics framework
  1. Acquisition: During the acquisition stage, users decide to sign up for a free trial or a demo of your product.
  2. Activation: This is the stage when users have experienced the “Aha” Moment and got value from your product.
  3. Retention: Retention involves making sure users continue to use and pay for your product after the initial purchase has been made. In order to achieve this, you must engage with your users constantly in your app and collect feedback.
  4. Referral: In the referral stage, your users become product advocates and start recommending your product to others.
  5. Revenue: In this stage, you generate more revenue from account expansion. This is done through upselling, cross-selling, and add-ons.

Acquisition stage metrics

During the acquisition stage, users decide to sign up for a free trial or a demo of your product. You can use metrics like the number of free trial signups or demos booked to measure how well your website and landing pages are converting.

Free trial signups or demos

These metrics measure how many trial signups or demos you acquired over a given period. A high number of signups or demos indicate that your website, landing pages or ad copy is relevant and high converting.

Free trial sign-ups or demos
Free trial sign-ups or demos

Product qualified leads

Product qualified leads (PQL) are individuals or companies that have experienced value from using a product, whether it’s through a free trial, a limited feature model, or other means.

The reason a PQL is more likely to purchase a product than other leads is that they already have an understanding of what the product offers.

Product qualified leads
Product qualified leads

Activation stage metrics

Activation is one of the key stages that need to be tracked and optimized as it affects customer retention, revenue, and satisfaction. In this stage, you should keep an eye on your activation rate.

Activation rate

The activation rate refers to how many new users reached the activation point during a given time period. The top PLG companies maintain activation rates between 20% and 40%, respectively, for freemium and free trials.

activation-rate-formula
Activation rate formula

Retention stage metrics

The retention stage focuses on building strong customer relationships, an essential element when it comes to the SaaS industry. This is crucial for SaaS businesses as retaining old customers is about 6 to 7 times cheaper than acquiring new ones.

Customer churn rate

Customer churn rate measures how fast your SaaS business is losing customers. This is the percentage of the number of customers you lose in a given period.

To calculate the customer churn rate for a particular period, divide the total number of churned customers during that phase by the number of customers at the beginning of that phase, and multiply it by 100.

customer-churn-rate-formula
customer churn rate formula

This metric helps you understand at which stage of the sales cycle your customers are leaving and the possible reasons for it.

A low score indicates that your retention strategies are working. A high score indicates that you need to create better product experiences and retention strategies, which can help reduce the churn rate.

Customer retention rate

Customer retention rate is the percentage of customers you keep in a specified period. With this metric, you can predict your earnings for the future.

A high retention rate means you’re on the right track, and customers are getting value from your product. A low score indicates low customer satisfaction. This is an indicator of potential problems with your product.

user-retention-rate-formula
User retention rate formula

Referral stage metrics

The next stage of the SaaS funnel is the referral one. This is where your customers go beyond using your product and start to actively promote it to their friends and network.

NPS score

Net Promoter Score (NPS) measures the likelihood of your customers recommending your product to their family and friends. This metric is important as it measures your customers’ loyalty.

A high NPS indicates that your customers are more likely to stay with your company and promote your product.

Net Promoter Score Calculation
Net Promoter Score Calculation

Customer satisfaction score

The Customer Satisfaction Score (CSAT) measures the experience and satisfaction your customers have had with your product or specific features.

CSAT should be measured at different touchpoints in the user journey to understand the overall impact your product has on your customers.

For example, you can ask either one of the following questions to measure this score:

  • How helpful was [this answer/article/support session]?
  • How satisfied were you with [the customer service representative’s answer/ waiting time]?
Hubspot’s CSAT Survey
Hubspot’s CSAT Survey

Revenue stage metrics

Measuring how much money you earn from your customers will help you understand if your SaaS business is profitable and on the right track.

Below we’ll break down the most important metrics for the revenue stage.

Customer lifetime value

Customer Lifetime Value (CLV or LTV) estimates the revenue an average customer can bring you throughout their relationship with your company. A high LTV score improves the profitability of your SaaS business.

The longer you’re able to retain customers, the more money they’ll pay you via subscriptions. This lowers your cost per user and increases your LTV score.

Average Revenue per User

Average Revenue per User (ARPU) is the revenue generated by each active customer. Improving your ARPU score is critical to boosting your total revenue.

To calculate this, you need to find out your monthly recurring revenue (MRR) and divide it by the total number of paying users.

Average Revenue Per User Formula
Average Revenue Per User Formula

Expansion MRR

Expansion Monthly Recurring Revenue (Expansion MRR) represents the additional monthly recurring revenue generated during the current month over the previous month, excluding the revenue from newly acquired customers. To put it simply, Expansion MRR is the amount of additional revenue coming from existing customers.

You can improve this metric through upsells and account upgrades. The higher the expansion MRR, the higher value your customers are seeing in your premium features.

Expansion MRR rate
Expansion MRR rate

5 strategies to improve funnel metrics for your SaaS

We’ve talked about the key metrics you can measure to gauge the health of your business. Now, let us take a look at some strategies you can implement to improve your scores, get more customers, and generate more revenue.

Simplify the sign-up form to increase the conversion rate

Users often leave because of a poor sign-up process as requesting irrelevant information is frustrating.

To help users move further along the user journey, sign-ups should be as quick as possible.

Asking relevant questions and personalizing the first interaction improves conversion rates and prevents users from landing on a blank page.

Userpilot Sign-up Flow
Userpilot Sign-up Flow

Personalize the onboarding process to retain new users

Personalizing the onboarding process makes a user journey more catered to user needs. With welcome screens, you can customize user onboarding based on user persona.

This can be done by including a microsurvey on the landing pages that pushes the users to tell you more about which user segment they fall under. You can learn more about their needs and tailor the onboarding journey to help them experience your product’s value faster.

Users become more engaged, and the retention rate improves when they understand the value of your product and experience the AHA! moment faster.

Postify greets its users with a welcome screen
Postify greets its users with a welcome screen

Use in-app modals to prompt users to upgrade accounts

Using modals, you can push your customers to upgrade. By being contextual, you can send the right message at the correct moment.

Slack uses a modal to tell a user that they have reached their 10k message limit and to continue using the service they must upgrade to a paid plan.

With Userpilot, you can create modals without a single line of code. Just book a free demo to get started!

Slack upgrade modal
Slack upgrade modal

Segment users to identify inactive users and offer help

By segmenting users into cohorts, you can identify inactive users who are at high risk of churning. This will help you prevent churn if you proactively reach that segment out and offer help.

With Userpilot, you can create advanced user segments based on user identification, custom events, user behavior, and user engagement.

Advanced Segmentation in Userpilot
Advanced Segmentation in Userpilot

Use NPS surveys to collect customer feedback and act on it

You can gauge customer loyalty and gather qualitative and quantitative feedback by using NPS surveys. By doing so, you can identify potential churn reasons you can address to increase user retention.

If you see a low NPS score, you can reach out to the detractors and offer immediate assistance.

Create NPS Surveys Code-Free with Userpilot
Create NPS Surveys Code-Free with Userpilot

Conclusion

Tracking the right metrics will help you gauge the effectiveness of your overall SaaS strategy and make improvements where necessary.

You should pay attention to each of the 5 stages, as the success of one is dependent on the success of the others.

Want to track SaaS funnel metrics and improve them? Get a Userpilot Demo and see how you can measure key metrics, improve them, and boost your revenue.

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