The day-to-day battlefield management and leadership of a SaaS company demands data-based decision-making. This fact holds true regardless of the stage in which you are at your startup.
Interestingly, if you don’t understand these important SaaS metrics, you’ll have a lot of factors against you without knowing it.
Some of the key disadvantages that could be working against you include:
Loss of opportunity: Building a successful software business takes more than product-market fit. Even when great revenue opportunities are out there, you may be losing them because of one bad practice or another. Learn to compete with data-derived insights.
Wasting resources: Speeding blindly on the wrong path will certainly get you to an undesirable destination. In reality, it’s like saving your calamity for a future date. But you don’t have to spend resources doing just that.
Forced exit: This happens to CEOs and founders who fail repeatedly and break even in their entire operations. Regardless of how glamorized it has become, failure isn’t the ultimate outcome you want.
My question is, do you know the misunderstood metrics that have killed many SaaS companies just like your own?
In no particular order, we’ll be looking at metrics that cut across product, marketing, sales, customer support, talent acquisition, and ROI.
12 Important SaaS Metrics For Growth-Minded CEOs
#1. Time To Hire
Most founders in the niche software markets tend to be product-focused. But we all know that great products alone don’t build profitable businesses. It is the team which builds a successful company.
You need to follow ‘Hire Fast Fire Fast’ principles to scale your business. Understandably, quality talent is the backbone of everything. Great talent doesn’t wait for slow hiring processes in a competitive environment.
So try to analyze the average time it takes to fully onboard someone in a role and explore some specific points for improvement.
Mind you, informed people are now using data analytics to leverage on speed as a competitive advantage.
#2. Cost Per Hire
You know that constant hiring is part of the work done by successful CEOs. The question is how much do you spend on an average to fill a vacancy?
If you are overpaying with the impression of building an A-list team, you may have a real problem on your hands right now. Thus, improving everything starts with measuring everything. And that includes cost per hire.
#3. Product Qualified Leads
This one relates directly to repetitive product usage and paying customer acquisition. Specifically, it refers to people who have met some predefined product usage conditions or even metrics. Usage conditions in this case may include login frequency (how frequently a user comes back), key benchmarks hit and session duration.
Especially in businesses with freemium billing models, tracking product qualified leads helps to decide where your sales resources should be spent.
#4. Cost Per Lead
Whatever you are spending to generate leads for your software as a service (SaaS) business should be tracked as well. Among other things, it will help you to gauge whether you are overspending or otherwise, with regard to potential revenue from qualified leads.
Measuring this in relation to other important SaaS metrics will make it possible to identify the best sources of quality leads.
#5. Lead Velocity Rate / Lead Conversion Rate
It is simply the percentage of your qualified leads converting into paying customers. Oftentimes, the people in customer success, support, and sales impact this metric more than anyone else. So strive to discuss, measure, and improve this performance metric with the people in those roles.
According to Jason Lemkin, ‘monthly sales is an indicator of the past.’ But lead velocity rate tells the fact about your future revenue potential.
Practically, filling your pipeline sufficiently enough will ensure sustainability of current revenue as well as create opportunity for future growth.
#6. Organic vs Paid Traffic Rate
Depending on your company’s current stage of development, you could be spending money on these two channels to generate traffic to your website. And that is your source of new leads and paying customers.
The fact is that growth with paid traffic is always limited to your budget. And organic traffic, like people searching for your type of product, is not. In this case, you consider making a budget for active content marketing. If done very well, targeted traffic will continue flowing into your website from top ranking pages.
In a world that lives on social these days, it’s good to keep a track of your social traffic as well. Use a social media reporting software to get all those numbers in one place.
#7. Website Conversion Rate
Without real conversions, your website traffic is practically useless. With standard funnel analytics, you’ll be able to see conversions at different touch points.
Like the store is vital in the retail business, a website is the store of a saas business. It is critical for a saas business to invest time and resources in planning the structure of your website and track visitor journey.
This points to how your prospects are converting into trial sign ups, product-qualified leads and ultimately, paying customers.
So don’t stop at growing website traffic volume.
#8. Customer Acquisition Cost
David Skok, two times entrepreneur turned VC calls this one, ‘the startup killer’. In practicality, misunderstanding this one is enough to kill your startup. Different from cost per lead, it measures the cost of acquiring each paying customer over a specified period.
Especially for those currently at the early stage, jumping head on to use expensive field sales team could move your feet onto quicksand.
For B2C companies with freemium models, it gets even trickier.
This is what I call the leaky bucket challenge. Obviously, your challenge is to keep getting paying customers for as long as possible. What if the opposite is the case for a frustrating percentage of your monthly paying customers?
Churn is about the percentage of your paying users that cancel within a given period.
It also relates to the revenue lost as a result of those cancellations. So you should be measuring both at the same time. In most case, it is either you are signing in the wrong people, your product fails to meet expectations or due to support issues.
#10. Customer Retention
Here is another important SaaS metric you need to monitor in order to keep a balance with the churn. This is because if there is an imbalance that lasts longer than necessary, your entire company could start sinking without you knowing it.
So the challenge is to retain more of the customers you get in every given period.
#11. Monthly Recurring Revenue
This is the sweet spot of all software as a service (SaaS) businesses. The repeatability and predictability of this revenue model makes businesses in this space very much valuable even without high customer base. Measuring monthly recurring revenue enables CEOs to make comparisons with monthly operating cost. (Read about Oracle’s $530 million acquisition of Textura.)
#12. Customer Lifetime Value
This one makes really big difference in the revenue potential of any company. It is specifically about the potential revenue that could be earned over the span of a business relationship with a customer. The longer the span of the relationship, the higher the customer lifetime value.
Many buyers of SaaS businesses often take this metric into account for valuation.
For CEOs and management, understanding this metric helps to estimate the acceptable amount that can be spent on each customer acquisition.
On the other hand, your estimation makes room to plan for aggressive marketing strategies to beat your competitors.
Without being told, walking with closed eyes in a crowded marketplace makes disaster a certainty. And that is what it means to compete in your niche market without empowering insights derived from operational data analytics. While you may not need to keep track of all these on your own, making your team members responsible will definitely move your business forward.
Remember, the ultimate purpose of business is profit making.
Mastering these metrics makes it possible for you to succeed in that regard. All it takes is to put some analytics tools to work. You may ask for expert help if required. At the end, making improvement in scarce resource allocation impacts everything else.