Marketing is an investment, not an expense.
If your SaaS marketing is an expense, meaning that it is not generating returns (or enough returns), something should be changed…we’d say, urgently!
See a good example of SaaS ROI as an inspiration.
Meanwhile, if your SaaS marketing ROI is not that rosy yet, there’s still something positive here. And that is, YOU KNOW whether your efforts pay off or not.
Knowing and regularly tracking the impact of your marketing, and not only efforts in SaaS, is your top catalyst for growth. And ROI, or Return on Investment, is so far the most informative metric to analyze the effectiveness of the efforts put into the business.
SaaS ROI is a metric combining different sub-metrics you should track to have a real picture of where your money/time/creative resources go.
This guide is super-helpful if you want to explore:
- What is an ROI analysis?
- What is the right SaaS ROI?
- How to measure SaaS marketing ROI?
- How do you increase your SaaS ROI?
What Is The ROI in SaaS Marketing?
ROI is a ratio – you measure what you give against what you get. And in contrast to the philosophy of altruism, the balance here should greatly favor the latter side.
Translated into Math, Return on Investment is the percentage of revenue you get in exchange for the Investment you make.
More simply, it’s how much results you get in exchange for every dollar spent for your SaaS marketing campaign.
Your SaaS ROI is positive if you get more than a dollar for every dollar spent.
An ROI for SaaS can be calculated for every marketing effort you undertake as long as there is a clearly trackable investment and revenue generated from that source. You can have an ROI for all your marketing efforts or a specific marketing campaign.
Importance of ROI for SaaS
There are several factors that make it critical to calculate ROI for SaaS. The most important of them is that SaaS companies are in a very competitive market – around $333.03 billion in 2023 with a projected growth of 214% through the decade.
Companies need to have a tight grip on their finances and make smart decisions to survive in the crowded and competitive SaaS market. It’s especially vital for marketing expenses, as stats show that Marketing accounts for the fifth largest expense direction in SaaS median costs as a portion of ARR.
Source: SaaS Capital, 2023 Spending Benchmarks for Private B2B SaaS Companies
Return on Investment, more than a performance indicator, is a business necessity for SaaS companies. It helps them understand whether their customer acquisition strategies are effective and if their marketing efforts are generating enough returns to sustain and grow the business.
It also enables companies to make informed decisions about where to allocate their resources, identify areas for improvement, and increase efficiency in their marketing strategies.
In a nutshell, ROI for SaaS is crucial for making data-driven decisions and achieving business growth.
Measuring and Optimizing SaaS ROI
So, what does the mechanism of continuous SaaS ROI tracking and optimization look like?
The process can be broken down into three main steps: data collection, analysis, and optimization.
Data Collection
To measure ROI for SaaS, you must collect data on all the relevant metrics related to the Investment made and the resulting revenue generated. This includes tracking customer acquisition cost (CAC), lifetime value (LTV), churn rate, and other key performance indicators (KPIs) specific to your SaaS business.
There are multiple ways to collect marketing data. You should first decide which specific KPIs you want to track and for which timeframe. For SaaS business, we recommend paying close attention to transactional data – showing you which type of users visit your webpage, how long they stay there, etc.
Sync data is usually collected by your hosting provider and can be exported by you as an Excel file for further analysis. You can also integrate your analytics platform with tools like ChartMogul, which automatically analyzes the key SaaS metrics and shows them through insightful reports.
Analysis
Once the data is collected, you can calculate the ROI by applying the formula mentioned earlier in this guide. However, it’s crucial to go beyond just calculating numbers and understand the story behind them. What factors contributed to a high or low ROI? Which marketing channels performed best? What can be improved? By analyzing the data, you can gain valuable insights and make informed decisions about your SaaS marketing strategy.
Optimization
After analyzing the data, it’s time to take action and optimize your SaaS ROI. This could involve reallocating resources to more effective marketing channels, improving targeting and messaging in campaigns, or implementing new strategies altogether. The goal is to improve your ROI continually and drive tangible returns for your business.
For example, if you invest in SEO, PPC for SaaS ads and customer outreach, you can calculate the ROI for each investment separately. These results can give you insight into which of your currently adapted marketing strategies works best (which channel brings you the most SaaS customers).
If paid ads turn out to bring the most subscribed users and SEO efforts seem to have the lowest ROI at the moment, it may be good to adjust your strategy for the upcoming months, allocating more budget to paid ads.
Related reading: Dynamic Retargeting Ads 101: Pro Tips Not to Miss the Mark
1. Key Metrics to Track
As discussed earlier, SaaS ROI is a puzzle that is made up of different sub-metrics. That’s because the investments you make and the returns you get are quite varied and may not be directly related sometimes.
That’s why we recommend you track the below metrics (not limiting you to them, but rather emphasizing their importance) to have a comprehensive picture of your SaaS ROI.
Customer Acquisition Cost (CAC)/Customer Lifetime Value (CLV) Ratio
Each customer you acquire, despite those that are acquired through organic referrals or word-of-mouth, involves a cost (Customer Acquisition Cost).
And when you bring those customers in through paid advertising or other marketing efforts, they start generating some revenue for you as they sign up for your SaaS product, purchase upgrades and additional features or stay subscribed for a longer period. This revenue is called CLV (Customer Lifetime Value), which is the total revenue a customer brings in during their lifetime as your customer.
Apparently, to maintain a healthy ROI, your CLV should always be higher than your CAC, which means you get more revenue from each customer than you spend to acquire them.
If you’re getting 18 leads a month from ads, each bringing in about $99, and it costs you between $250 and $300 to acquire each customer, you’re not making enough profit from each customer to cover your acquisition costs. You want your revenue from each customer to be more than what you paid to get them.
This can be achieved by optimizing your marketing efforts to attract high-value customers, retain them for longer periods, and reduce the overall cost of customer acquisition through efficient targeting and messaging.
Want professional assistance with SaaS advertising that will bring you a positive ROI? Trust Camel Digital – a tried and tested digital marketing agency for SaaS businesses to craft a personalized strategy for your business and drive results.
Churn Rate
An unavoidable reality in the SaaS industry is that some customers will churn and stop using your product. Canceling subscriptions, not renewing licenses, stopping upgrades, leaving the customer journey after the free trial and similar scenarios all contribute to what is called a churn rate.
You can track monthly and annual customer churns, which are basically the same metrics showing the same customer retention tendency but for different periods.
To have more insights into your customer churn rates, you can have separate tabs in your customer data spreadsheet, where you calculate churn rate by time frame (including data only for the specified time period), by revenue (multiplying the number of churned customers by their subscribed pricing data), etc.
You can also use churn rate predictor software like Churnly, Fayrix and others, where you can upload datasets in Excel or other formats and see how these tools calculate your predictable churn rate using machine learning algorithms.
An industry-accepted churn rate is somewhere between 5-7%, depending on the size of your company, sphere, and other factors.
Research based on six studies shows that larger SaaS companies that target enterprise customers usually have lower churn rates. This can probably be explained by the long-term contracts and the more time-consuming process of shifting to alternative solutions for these customers.
It’s crucial to note you’d better track your customer churn over time than absolute numbers. The progress you have here in reducing this metric may have a substantial positive impact on your overall ROI.
MQLs, SQLs, PQLs
People whom you target with your ads, email campaigns, content marketing, or other tactics are called Leads. But not all of them are ready to make a purchase today or even tomorrow and become your customers (“Qualified” leads).
Depending on how close they are to making a purchase decision, these leads can be divided into MQLs (Marketing Qualified Leads), SQLs (Sales Qualified Leads) and PQLs (Product Qualified Leads).
MQLs are people who have shown some interest in your product (e.g., signed up for a free trial, downloaded an ebook, attended a webinar) but haven’t taken any significant action yet. You can refer to them as those who are most responsive to your marketing efforts.
SQLs are a bit more engaged leads who have shown strong interest and intent to make a purchase (e.g., requested a demo and asked specific product-related questions). They are usually passed on to the sales team for further qualification and nurturing.
PQLs are those leads who have actively interacted with your product or service and experienced its value firsthand (e.g., used the trial version and watched a demo video). They are considered the most qualified and likely to convert into paying customers.
Three of those metrics combined are vital for calculating your SaaS ROI. The more qualified leads you attract and nurture, the higher your conversion rates will be and, ultimately, the greater your ROI.
Website Traffic
Since SaaS companies primarily operate online, and usually, your website is the final destination you strive to bring your customers to, there’s a great chance to calculate your ROI for SaaS. Your website has (or should immediately have) Google Analytics integrated, which shows you several crucial metrics.
- How many visitors come to your website
- What channels bring those visitors (organic, paid, direct, referral, social media)
- How long they stay on your website
- Which pages are most visited, etc.
Analyzing website traffic can reveal where your marketing efforts should be focused more and which channels or tactics are the most efficient. If, with many other – non-digital businesses – it may be challenging to track the origin of each sale (e.g., TV ads, leaflets, billboards), with SaaS, you can analyze what brings every customer thanks to the messaging and tracking tools in your advertising platforms (e.g., Google Ads conversion tracking).
Here are some insights from Camel Digital SaaS PPC agency.
- Organic search is usually the biggest source of traffic and growth. Most signups, the longest time on the page, and better engagement rates are usually recorded from users who have come to your website with the organic search.
- Direct traffic refers to users who search specifically for your brand online and enter your website through your website’s URL directly from their browsers. The higher your brand awareness, the higher your direct traffic.
- Paid search – a type of ad where you pay search engines to place your website higher on search results, usually accounts for 30-40% of the traffic. This audience usually has the highest conversion rates because the traffic is very targeted, guaranteeing better engagement rates for the business.
So, ensure you keep an eye on your website traffic metrics and continuously optimize your marketing strategies based on the data it gives.
Sign-Ups
And…this is what you ideally want to bring your website visitors to. If you offer a self-serve SaaS product, which means your website visitors can sign up for your software, download it, or watch the demo video themselves, it’s a notable advantage for tracking your SaaS ROI.
The number of sign-ups compared to visits gives you a crucial hint: your website is either well-optimized for converting your target audience or needs a proper landing page CRO optimization to drive more sign-ups and increase your SaaS ROI.
If you have many website visitors who stay for a good while on your website, but only a few of them sign up after all – you have an issue to be fixed. The problem may be in your landing pages’ structure, content, or relevance to your target audience’s needs and expectations.
A golden rule for having more sign-ups is making your landing pages answer your target audience’s pain points by providing clear solutions to their problems. Your landing page should be easily scannable and your content should be crystal clear to understand – does your software help your audience to save time, boost sales, and automate tasks?
The same refers to the call to action you use on your website. Instead of using standard “sign-up” buttons, try other, more targeted copies like “Start Creating Now!” or “Upload Your Contacts Now!”. Show your users what they can do after taking action and clicking on a button.
Bringing qualified leads to your website but not converting them into buying customers is a mistake that is too costly for a SaaS business. Camel Digital – a specialized SaaS PPC agency, provides you with professional assistance for optimizing your website’s landing pages for better conversions. You can also get a personalized paid ad strategy that will bring exclusively *qualified leads** from the channels that work best for your type of product and target audience.
2. SaaS ROI Calculator in Detail
What is an ROI analysis, after all? You should find all your profit attributable to marketing efforts (which fraction of your sales occur thanks to marketing) and divide it by the total cost of your marketing campaigns (everything, including ads costs, salaries of the marketing team, tools you use for ads and measurement, etc.).
So, for example, if your total revenue is $200,000 and marketing spending are $50,000, then:
$200,000 (revenue) – $50,000 (marketing costs) = $150,000
$150,000 / $50,000 *100% = 300%
In this case, your SaaS ROI is 300%. For each dollar you spend on marketing, you earn 3 dollars in profit. Seems good, right?
Great!
But you shouldn’t stop there. To understand which marketing tactics bring you the highest ROI, you should dive deeper and calculate ROI for SaaS for each individual effort.
Here are some examples you may find relevant.
RoAS
Return on Ad Spend is the way to calculate SaaS ROI if you use paid ads to bring leads to your website. It’s similar to the overall ROI formula, but here, you only count your paid ad expenses instead of all marketing spending:
Let’s say you spent $500 on Google Ads, and it brought you 50 purchase conversions, each worth $20. Then, your formula is simple:
($20 * 50) – $500/ $500 *100% = 100%
Well, not the best result, but you can now optimize your ads to get more sign-ups with the same budget.
Related reading: Proven Tactics for Better ROAS in SaaS
ROI for SEO
If you refer to the help of SEO for driving organic traffic to your website, you know a little bit of extra effort is needed to measure the profit gained from organic search clearly. First, you need to understand how many of the newly acquired website visitors converted to sign-ups.
Google Analytics can help you find both the number of new visitors during the period of actively investing in SEO and the conversion rate for those visitors.
As an example, let’s assume you invested $1,000 in your SEO during the previous month by hiring a trustworthy SEO agency, and it brought you 2,000 new visits. Out of those 2,000 visitors, 20 signed up for your product (the conversion rate is 1%).
The monthly subscription for your software is $150. So, you’re earning $3,000 per month thanks to these 20 subscriptions.
So, here comes the formula for your SaaS ROI for SEO:
($3,000 – $1,000)/ $1,000 *100% = 200%
Your SaaS ROI from SEO is 200%. Looks like consolidating your budget on SEO was a profitable move!
Email Marketing ROI
Software for email marketing and Google Analytics gives pretty clear data about email campaign results. You’re able to see how much you spent on email campaigns and how those emails influenced visitors’ behavior on your website – which pages they visited, how long they stayed on each page, and if any of them signed up for your software.
Since many SaaS products offer free trials or demos, the next step is to understand if those email campaigns brought you paying customers in the end.
Here’s a formula example:
Let’s assume you spent $500 for your email campaign and you brought 100 visitors to your website. Out of those, ten signed up for a free trial/demo. Of those 10, only two became paying customers, purchasing the subscription plan of $150.
($150 * 2) – $500/ $500 *100% = -20%
At first sight, the SaaS ROI from email marketing is negative. BUT! You should also delve deeper and factor in the LTV of those two customers. If they subscribe for $150 and stay with your business, let’s say, for a year, the ROI will be positive because of higher LTV.
Social Media ROI
It’s a bit hard to measure Social Media ROI because it’s not simply about sales. But the more people know your product and talk about it online, the higher the chances that they’ll buy from you.
While it’s quite easy to calculate how much you spent on your social media efforts for a given period, it’s hard to know what your ROI is given that there is no direct revenue generated from social media (unless, of course, you’re selling directly through social media platforms or linking to your landing page from social media ads).
Anyways, closely monitoring the engagement levels across social media channels is a great way to determine your ROI from those efforts. If you’re getting a lot of engagement and interest in your product, it could potentially lead to more sign-ups and purchases down the line.
Content Marketing ROI
Another valuable but tricky-to-measure tactic is content marketing.
You can calculate the ROI from your blog posts or other written content based on the number of visits and sign-ups resulting from those pieces of content. But there may be times when the direct impact of your content marketing efforts is not apparent, and it takes time to see results.
In such cases, you can also consider indirect benefits like brand awareness and thought leadership in the industry when calculating your SaaS ROI for content marketing. Even if a piece of content doesn’t result in immediate sales or sign-ups, it still contributes to building trust and establishing your brand as an authority in the industry, which can lead to future conversions.
Final Thoughts on Improving SaaS ROI
Depending on the individual objectives of your SaaS company, there may be various other tactics and strategies you can use to improve your ROI.
The keynotes you should take from this discussion are:
- Try always to have a reliable tracking system to accurately measure how much you’re spending and earning from each marketing effort.
- Calculate SaaS ROI for specific periods (month, year, etc.) to compare and analyze the effectiveness of your efforts.
- Consider direct and indirect benefits when calculating SaaS ROI for different marketing strategies.
If you want a reliable marketing strategy that skyrockets your SaaS ROI, refer to Camel Digital. We’re a specialized PPC agency for SaaS companies with a rich history of tried and tested marketing tactics that have brought significant ROI improvements for our clients.
We tailor our strategies to fit the specific niche of the SaaS market, ensuring that your marketing efforts are always relevant and targeted.