SaaS Metrics for Success: Hard Conversions, CAC, ARR & North Star

Starting and growing a SaaS company is no small task. Let’s face it - there’s always something demanding your attention, whether it’s onboarding new customers, perfecting your product or outpacing your competitors.

So how do you cut through the chaos and focus on what really matters? By defining your North Star Metric (NSM).

Think of your NSM as your guiding light - the one metric that points you toward long-term success. It’s not just a fancy buzzword; it’s your company’s compass, ensuring that every action, decision, and resource is aimed at the same ultimate goal.

And let’s be real: without focus, it’s easy to get lost. But with a clear NSM? You’ve got the clarity to prioritize, the confidence to decide, and the motivation to inspire your team. Now, let’s explore what a North Star Metric is and why it’s a game-changer for SaaS companies like yours.

What is a North Star Metric?

Your North Star Metric isn’t just another data point. It’s the single, measurable value that best captures your company’s long-term success. It’s what keeps your team moving in the same direction, making it more than a number - it’s the foundation of your strategy.

A great NSM is:

• Relevant: It aligns with your unique business model.
• Measurable: You can track and analyze it easily.
• Actionable: It drives specific, impactful actions.
• Inspiring: It motivates and connects your team.

Why is a North Star Metric Important?

So, why is your NSM such a big deal? Let’s break it down.

1. Keeps Everyone Focused

Have you ever felt like your team is juggling too many priorities? An NSM solves that. It cuts through the noise, showing your team exactly what to focus on. No more scattered efforts - just laser-sharp attention on what matters most.

2. Aligns Your Team

Ever wonder if everyone in your company is on the same page? With an NSM, you’ll know. Whether it’s marketing, sales, or product development, every team member understands how their work ties into the bigger picture. It’s not just alignment - it’s empowerment.

3. Guides Decision-Making

How often do you face decisions that feel like a gamble? An NSM acts as your decision-making compass. Ask yourself: does this choice bring us closer to our North Star? If the answer is no, you’ll know to pivot. It’s clarity when you need it most.

4. Tracks Progress

Want to know if you’re winning or falling behind? Your NSM gives you a real-time health check on your business. It shows where you’re excelling and where you need to improve, making it your ultimate feedback loop.

5. Drives Action and Motivation

What’s more energizing than knowing your work has impact? A strong NSM translates lofty goals into tangible results. It shows your team that their efforts matter and inspires them to push harder, faster, and smarter.

The Three Core Metrics for SaaS

Now that we’ve hyped up the NSM, how do you measure what really matters? The North Star Metrics for SaaS companies provide a crystal-clear view of performance, focusing on three critical pillars:

1. Hard Conversions: quality over quantity

Let’s face it - acquiring customers is great, but are they the right customers? That’s where Hard Conversions come in. These conversions don’t just measure how many people sign up; they tell you how meaningful those signups really are.

After all, would you rather have 100 customers who leave after a month or 10 loyal users who stick around, actively engage with your product, and advocate for your brand? Exactly.

Marketing’s role here is simple but vital: bring in leads and turn them into signups. Whether it’s through organic efforts like SEO and content, paid campaigns, or even customer referrals, the focus is on sparking interest and driving action.

Hard Conversions show:

• How well your marketing is pulling its weight
• If you’re bringing in customers who’ll stick around for the long haul

So, ask yourself: Are you just collecting signups, or are you building a base of engaged, loyal customers? Because when it comes to scaling a SaaS company, quality beats quantity every single time.

Paid Acquisition Conversions

Let’s start with the heavy hitter: paid advertising. Running campaigns on platforms like Google Ads or LinkedIn Ads can be a game-changer - but only if they’re effective.

How do you know if your paid campaigns are worth the spend? By measuring Paid Acquisition Conversions. This metric shows how many customers your ads are actually bringing in.

Think about it: if you spend €500 on ads and gain 25 customers, that’s a Customer Acquisition Cost (CAC) of €20 per customer. Not bad, right? But here’s the real question - are you attracting customers who stick around or just one-timers? Because your goal isn’t just clicks; it’s commitment.

Organic Acquisition Conversions

Who doesn’t love free traffic? Organic conversions are the customers who find you through SEO, social media, or that killer blog post you wrote last month. These conversions aren’t just cost-effective - they’re a testament to how strong your content and online presence are.

Picture this: your blog attracts 2,000 readers, and 50 of them sign up. That’s the magic of organic marketing. It’s about building long-term visibility and trust, bringing in customers who choose you because they value your expertise - not because you paid to grab their attention.

Referral Conversions

You know you’re doing something right when your customers start doing the marketing for you. Referral Conversions track how many new customers come through recommendations from your existing ones. It’s the ultimate vote of confidence in your product.

Think about it: a happy customer shares a referral link with a friend, and suddenly you’ve got 10 new sign-ups. Not only is this cost-effective, but it’s also a clear sign that people trust and love what you’re offering. Are you giving your customers enough reasons to spread the word?

So, What’s Your Strategy?

Paid ads, organic reach, or referrals - they all play a role in growing your SaaS business. But here’s the question you need to answer: which of these channels is delivering the most value right now? Because when you double down on what works, your hard conversions turn into smart conversions. Ready to optimize?

2. Conversion Ratio

Ever wonder how well your marketing efforts are actually performing? That’s where your Conversion Ratio steps in. It’s the ultimate measure of efficiency, showing how many of your leads make the leap to become paying customers.

A High Conversion Ratio isn’t just a vanity metric - it’s proof that:

• Your strategies are on point
• Your resources are working hard
• Your funnel is doing exactly what it’s supposed to do

So, let’s ask the big question: How’s your Lead-to-Customer Conversion Ratio looking?

High? Great - you’re on the right track.

Low? No worries. Maybe it's time to:

• Tweak your approach
• Refine your targeting
• Rethink your messaging

If your Lead-to-Customer ratio is low, thoroughly examine your funnel to identify the specific area where the conversion rate drops. By making some targeted adjustments, you'll soon be turning those leads into loyal customers.

We recommend marketeers to focus on 3 funnel conversion rates:

• Lead-to-MQL Conversion Rate

A lead is a contact that we consider as a good prospect, and an MQL is a good prospect that has engaged with us. It's the moment where your interesting prospects are considered as hot leads by marketing. Once they reach MQL they are ready to be validated by the sales team.

This is where a good Lead Score Distribution can help us to separate the best from the rest. By analyzing lead engagement - like how often they open your emails, attend webinars, or visit your site - you can prioritize the ones most likely to convert. Why waste time on low-potential leads when you can focus on the gold?

The Lead-to-MQL helps us to evaluate the effectiveness of our marketing machine. Are we able to get our leads engaged enough with our content? Are we targeting them through the right channels and with the right message?

With this data, marketing efforts can be optimized to attract more relevant leads, reducing wasted time and resources.

• MQL-to-SQL Conversion Rate

Marketing Qualified Leads (MQLs) moving down the pipeline to become Sales Qualified Leads (SQLs). We call this the Quality Rate of your marketing-to-sales handover. High-quality leads match your ideal customer profile and are more likely to convert - and faster, too.

A low ratio here is a red flag that marketing and sales might not be speaking the same language. Imagine you generate 500 MQLs, and only 200 become SQLs - that’s a conversion rate of 40%. It means that 300 (60%) of the leads provided by marketing are considered as not valuable by sales.

We consider a good MQL-to-SQL to be around 60-75%, because it's something you can really optimize by focusing on the audience you are targeting. The goal? Target those exact leads that sales are looking for, so that everyone's effort becomes more valuable.

• SQL-to-Customer Conversion Rate

Once leads become SQLs, the focus shifts to converting them into customers. While this is traditionally a sales responsibility, don’t underestimate the power of good marketing to set the stage. The better your leads are nurtured, the easier it is for sales to close the deal.

Example: Out of 200 SQLs, 50 turn into customers. That’s a 25% conversion rate. If sales are struggling to close, it might be time for marketing to revisit how leads are being qualified and nurtured. Remember, teamwork makes the dream work!

Time-to-Close

How long does it take to turn a lead into a paying customer? That’s your Time-to-Close. A shorter time indicates an efficient funnel, where leads are nurtured effectively and sales isn’t overwhelmed with unqualified prospects. If your Time-to-Close is falling behind, it’s a sign to revisit your funnel and smooth out the process.

So, What’s Your Conversion Story?

Your Conversion Ratio isn’t just a number - it’s a story about how well your funnel works and how aligned your marketing and sales efforts are. Whether it’s MQLs becoming SQLs, Quality Rates skyrocketing, or Time-to-Close shrinking, these metrics give you the insights to keep improving.

So, is your team set up for success?

Yes? Fantastic - you’re building momentum.
Not quite? That’s okay. It might be time to:

• Identify any gaps in your process
• Strengthen collaboration between teams
• Fine-tune your strategies for better results

Because when your Conversion Ratio is optimized, you’re not just generating leads - you’re building customers for life. Let’s get those numbers up!

3. Customer Acquisition Cost (CAC)

Let’s cut to the chase - Customer Acquisition Cost (CAC) is a crucial metric for any SaaS company. Why? Because it tells you exactly how much you’re spending to bring in a new customer. It’s the ultimate measure of how efficient your marketing efforts are.

If your CAC is too high compared to your customer’s lifetime value (LTV), you should take a look at it got a problem. But if it’s low and optimized? You’re on the fast track to profitability.

So, what’s eating into your CAC, and how can you improve it? Let’s break it down.

Cost of Paid Advertising

Paid ads are often a significant part of your CAC, whether it’s Google Ads, Facebook, or LinkedIn. But here’s the thing: not all ad spend is created equal.

Example: You spend €500 on ads and acquire 25 customers, giving you a CAC of €20 per customer. Not bad - but what if those customers don’t stick around? High CACs aren’t inherently bad if they bring in long-term, loyal customers.

Tip: Regularly analyze your paid campaigns to ensure you’re getting the best bang for your buck.

Cost of Marketing Materials

Videos, blogs, whitepapers, email campaigns - these are the backbone of your marketing strategy. But they come at a cost. How much are you spending to produce and distribute this content? And more importantly, is it driving conversions?

If your marketing materials aren’t pulling their weight, it’s time to refine your approach. High-quality content that resonates with your target audience will lower your CAC by attracting engaged leads organically.

Cost of Sales and Marketing Salaries

Your team is your biggest asset, but their time and expertise are part of your CAC. Are your sales and marketing teams aligned, efficient, and focused on what works?

A disjointed team can drive up costs, while a well-oiled machine ensures every euro spent contributes to acquiring high-value customers. Regularly revisit your team’s processes to make sure resources are being used effectively.

Cost of Sales Tools and Software

From CRM systems to automation platforms, tools are essential for managing and nurturing leads. But are you overloading on subscriptions? Streamlining your tech collection of tools can significantly reduce CAC while keeping your processes efficient. Let us streamline it together!

So, what’s Your CAC Telling You?

Here’s the big question: Is your CAC under control, or is it eating into your profitability? By analyzing the breakdown - ads, content, salaries, and tools - you can pinpoint areas to optimize.

The goal isn’t just to lower CAC. It's to balance cost with quality, ensuring every customer you acquire is worth the investment. Because when your CAC is lean and mean, you’re not just acquiring customers - you’re building a business that lasts. Let us help you build this business!

Annual Recurring Revenue: The Core of SaaS

In SaaS, while your North Star Metric (NSM) is your guiding light, there’s another metric you can’t afford to ignore - Annual Recurring Revenue (ARR). It complements your NSM, offering the stability and predictability every scaling business needs.

Why Does ARR Matter?

ARR isn’t just about euros. It’s about what those numbers represent for your business.

• Predictability: ARR gives you a stable revenue stream, making it easier to plan ahead and allocate resources effectively. Who doesn’t want more financial clarity?
• Growth Potential: Watching your ARR climb is like watching your business grow. More customers and renewals mean your strategies are working.
• Valuation: Thinking about attracting investors? ARR is one of the first metrics they’ll look at. A high ARR signals reliability and growth potential.

Example: A SaaS company with 1000 customers paying €120 annually has an ARR of €120,000. Now imagine scaling that to 5000 customers. The possibilities are endless!

How to identify MQLs effectively?

Not all leads are created equal, so how do you find the ones that matter - your Marketing Qualified Leads (MQLs)? It’s all about spotting engagement and intent.

• Track Engagement Metrics: Look at website visits, content downloads, or email opens. Are they engaging with your brand?
• Use Lead Scoring: Assign scores based on behaviors like attending webinars or downloading whitepapers. High scores? High potential.
• Analyze Behavioral Data: Are they exploring pricing pages or comparison tools? These actions scream purchase intent.

What’s Your Strategy?

On point? Great - you’re already ahead.
Needs work? No problem. It’s time to:

• Create captivating content that grabs attention.
• Launch nurturing campaigns to keep leads engaged.
• Use automation to work smarter, not harder.

When these strategies align, you’re not just generating leads - you’re building lasting relationships that convert into loyal customers.

How to Choose the Right North Star Metric?

Feeling overwhelmed by all the data at your fingertips? Don’t worry. Choosing the right North Star Metric is simpler than it seems - it’s about focusing on what really matters to your business at this stage.

Ask Yourself These Questions:

1. What’s my primary goal right now? Are you trying to grow your user base, retain customers, or improve engagement?
2. What provides the most value to my customers? Is it usage, satisfaction, or something else?
3. Which metric best reflects my company’s health? Think about what gives you the clearest picture of progress.

Example: If you’re launching a project management tool, tracking monthly active users (MAUs) might be your North Star Metric. It shows how quickly your product is being adopted and loved.

Tip: Your NSM can evolve as your company grows. Early on, it might be about adoption. Later, it could shift to retention or lifetime value. Stay flexible and let your goals guide you.

Conclusion: What's your North Star?

ARR keeps your business alive. MQLs feed your funnel. And your NSM keeps your team aligned. These aren’t just metrics - they’re the backbone of your strategy. Ready to define, track, and optimize them? Your SaaS success story starts here.

By choosing the right NSM and pairing it with actionable supporting metrics, you’ll unlock the clarity, focus, and direction needed to scale faster and smarter.

Already scaling up and ready to reach new heights?

Don’t wait - schedule a call with us today!