SaaS Metrics – Measuring and Improving What Matters
-
Upload
hieronylucerro -
Category
Documents
-
view
219 -
download
1
Transcript of SaaS Metrics – Measuring and Improving What Matters
![Page 1: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/1.jpg)
SaaSMetrics– AGuidetoMeasuringandImprovingWhatMatters
This is aguest postby DavidSkok. Davidis a fivetime serialentrepreneur
S U B S C R I B ET O T H EB L O G !
First Name *
Email *
Submit
AnalyticsBloggingBrandingCase StudiesContentMarketingConversionDemandGenerationEmailMarketing
B R O W S EM A R K E T I N GT O P I C S
![Page 2: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/2.jpg)
entrepreneurturned VC,at MatrixPartners
“If youcannotmeasureit, youcannotimproveit” –LordKelvin
This articleis acomprehensiveanddetailedlook at thekeymetricsthat areneeded tounderstandandoptimize aSaaSbusiness. Itis acompletelyupdatedrewrite ofan olderpost. Forthis
MarketingEntrepreneurshipFeaturedHigh GrowthLeadGenerationLeadNurturingLocal SEOMarketingAutomationMarketingResourceGuidesMobileMarketingMost SharedOperationsPodcastEpisodesReferralMarketingSellingSEOSocial MediaSpeakingandCommunicationSplit TestingTrafficGenerationTrafficReportsVideoMarketingWebsiteWebsiteAudits
![Page 3: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/3.jpg)
thisversion, Ihave co-opted tworealexperts inthe field:Ron Gill,(CFO,NetSuite),and BradCoffey (VPof Strategy,HubSpot),to addexpertise,color andcommentaryfrom theviewpointof a publicand privateSaaScompany.My sincerethanks toboth ofthem fortheir timeand input.
SaaS/subscriptionbusinessesare morecomplexthantraditionalbusinesses.
Audits
![Page 4: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/4.jpg)
businesses.Traditionalbusinessmetricstotally failto capturethe keyfactorsthat driveSaaSperformance.In the SaaSworld,there are afew keyvariablesthat makea bigdifferenceto futureresults.This post isaimed athelpingSaaSexecutivesunderstandwhichvariablesreallymatter,and how tomeasurethem andact on theresults.
The goal of
![Page 5: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/5.jpg)
The goal ofthe articleis to helpyouanswer thefollowingquestions:
Is mybusinessfinanciallyviable?
What isworkingwell,andwhatneedsto beimproved?
Whatleversshouldmanagementfocuson todrivethebusiness?
ShouldtheCEO hittheaccelerator,or thebrakes?
What is
![Page 6: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/6.jpg)
What istheimpacton cashandprofit/lossofhittingtheaccelerator?
(Note:although Ifocus onSaaSspecifically,the articleisapplicableto anysubscriptionbusiness.)
What’ssodifferentaboutSaaS?SaaS, andotherrecurringrevenuebusinessesaredifferent
![Page 7: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/7.jpg)
differentbecausetherevenuefor theservicecomesover anextendedperiod oftime (thecustomerlifetime). Ifa customeris happywith theservice,they willstickaround fora longtime, andthe profitthat can bemade fromthatcustomerwillincreaseconsiderably.On theother handif acustomerisunhappy,they will
![Page 8: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/8.jpg)
they willchurnquickly,and thebusinesswill likelylosemoney ontheinvestmentthat theymade toacquirethatcustomer.Thiscreates afundamentallydifferentdynamic toatraditionalsoftwarebusiness:there arenow twosales thathave to beaccomplished:
1. Acquiringthecustomer
2. Keepingthecustomer(tomaximize
![Page 9: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/9.jpg)
maximizethelifetimevalue).
Because oftheimportanceofcustomerretention,we will seea lot offocus onmetricsthat helpusunderstandretentionand churn.But firstlet’s look atmetricsthat helpyouunderstandif yourSaaSbusiness isfinanciallyviable.
TheSaaS
![Page 10: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/10.jpg)
TheSaaSP&L /CashFlowTroughSaaSbusinessesfacesignificantlosses inthe earlyyears (andoften anassociatedcash flowproblem).This isbecausethey haveto investheavilyupfront toacquire thecustomer,butrecoverthe profitsfrom thatinvestmentover a longperiod oftime. Thefaster thebusinessdecides to
![Page 11: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/11.jpg)
grow, theworse thelossesbecome.Manyinvestors/boardmembershave aproblemunderstandingthis, andwant to hitthe brakesatpreciselythemomentwhen theyshould behitting theaccelerator.
In manySaaSbusinesses,this alsotranslatesinto a cashflowproblem,as theymay onlybe able toget thecustomerto paythem
![Page 12: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/12.jpg)
themmonth bymonth. Toillustratetheproblem,we built asimpleExcelmodelwhich canbe foundhere. Inthatmodel, wearespending$6,000 toacquire thecustomer,and billingthem atthe rate of$500 permonth.Take alook atthese twographsfrom thatmodel:
![Page 13: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/13.jpg)
If weexperiencea cash flowtrough foronecustomer,then whatwillhappen ifwe start todo reallywell andacquiremanycustomersat thesametime? Themodelshows thattheP&L/cashflowtroughgetsdeeper ifweincreasethe growthrate for thebookings.
![Page 14: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/14.jpg)
But thereis light atthe end ofthe tunnel,aseventuallythere isenoughprofit/cashfrom theinstalledbase tocover theinvestmentneeded fornewcustomers.At thatpoint thebusinesswould turnprofitable/cashflowpositive –assumingyou don’tdecide toincreasespendingon salesandmarketing.And, asexpected,
![Page 15: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/15.jpg)
the fasterthe growthincustomeracquisition,the betterthe curvelookswhen itbecomespositive.
Ron Gill,NetSuite:
Ifplansgowell,youmaydecideitistimetohittheaccelerator(increasingspendingonleadgeneration,hiring
![Page 16: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/16.jpg)
hiringadditionalsalesreps,addingdatacentercapacity,etc.)inordertopick-upthepaceofcustomeracquisition.ThethingthatsurprisesmanyinvestorsandboardsofdirectorsabouttheSaaSmodel
![Page 17: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/17.jpg)
modelisthat,evenwithperfectexecution,anaccelerationofgrowthwilloftenbeaccompaniedbyasqueezeonprofitabilityandcashflow.
Assoonastheproductstartstoseesome
![Page 18: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/18.jpg)
somesignificantuptake,investorsexpectthatthelosses/cashdrainshouldnarrow,right?Instead,thisistheperfecttimetoincreaseinvestmentinthebusiness.whichwillcauselossestodeepenagain.
![Page 19: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/19.jpg)
again.Thegraphbelowillustratestheproblem:
Noticeintheexamplegraphthatthefivecustomerpermonthmodelultimatelyyieldsamuchsteeperrateofgrowth,butyouhave
![Page 20: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/20.jpg)
havetogothroughanotherdeeptroughtogetthere.Itistheconceptofneedingtore-enterthattypeoftroughafterjusthavinggottenthecurvetoturnpositive
![Page 21: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/21.jpg)
thatmanymanagersandinvestorsstrugglewith.
Ofcoursethisaspecialchallengeearly-onasyouneedtoexplaintoinvestorswhyyou’llrequireadditionalcashtofundthatnextround
![Page 22: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/22.jpg)
roundofacceleration.Butitisn’tjustastartupproblem.AtNetSuite,evenasapubliccompanyourrevenuegrowthratehasacceleratedineachofthelastthreeyears.Thatmeansthat
![Page 23: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/23.jpg)
thateachannualplaninvolvesastepping-upofinvestmentinleadgenerationandsalescapacitythatwillincreasespendingandcashflowoutforsometimebeforeitstartsyieldingincrementalrevenue
![Page 24: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/24.jpg)
revenueandcashflowin.Aslongasyou’reacceleratingtherateofrevenuegrowth,managingandmessagingaroundthisphenomenonis apermanentpartofthelandscapeforanySaaScompany.
Why is
![Page 25: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/25.jpg)
Why isgrowthimportant?We havesuggestedthat assoon asthebusinesshas shownthat it cansucceed, itshouldinvestaggressivelyto increasethe growthrate. Youmight askquestion:Why?
SaaS isusually a“winner-takes-all”game, andit isthereforeimportantto grabmarketshare asfast aspossible tomake sureyou are the
![Page 26: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/26.jpg)
you are thewinner inyourspace.Providedyou cantell a storythat showsthateventuallythatgrowth willlead toprofitability,WallStreet,acquiringcompanies,andventureinvestorsall rewardhighergrowthwith highervaluations.There’salso apremiumfor themarketleader in aparticularspace.
Howevernot allinvestments
![Page 27: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/27.jpg)
investmentsmakesense. Inthe nextsection wewill look ata tool tohelp youensurethat yourgrowthinitiatives/investmentswill payback: UnitEconomics.
APowerfulTool:UnitEconomicsBecause ofthe lossesin the earlydays,which getbigger themoresuccessfulthecompanyis atacquiringcustomers,it is much
![Page 28: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/28.jpg)
it is muchharder formanagementandinvestorsto figureoutwhether aSaaSbusiness isfinanciallyviable. Weneed sometools tohelp usfigure thisout.
A greatway tounderstandanybusinessmodel is toanswer thefollowingsimplequestion:
Can Imakemoreprofitfrommycustomersthan itcosts
![Page 29: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/29.jpg)
costsme toacquirethem?
This iseffectivelya study ofthe uniteconomicsof eachcustomer.To answerthequestion,we needtwometrics:
LTV –theLifetimeValueof atypicalcustomer
CAC –theCost toAcquireatypicalCustomer
(For moreon how tocalculate
![Page 30: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/30.jpg)
calculateLTV andCAC, clickhere.)
Entrepreneursare usuallyoveroptimisticabout howmuch itcosts toacquire acustomer.Thisprobablycomesfrom abelief thatcustomerswill be soexcitedaboutwhat theyhave built,that theywill beat apath totheir doorsto buy theproduct.The realityis oftenverydifferent! (Ihavewrittenmore onthis topic
![Page 31: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/31.jpg)
this topichere:StartupKiller: TheCost ofCustomerAcquisition,and here:How SalesComplexityimpactsCAC.)
IsyourSaaSbusinessviable?In the firstversion ofthis article,Iintroducedtwoguidelinesthat couldbe used tojudgequicklywhetheryour SaaSbusiness isviable. Thefirst is agood way
![Page 32: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/32.jpg)
good wayto figureout if youwill beprofitablein the longrun, andthe secondis aboutmeasuringthe time toprofitability(which alsogreatlyimpactscapitalefficiency).
Over thelast twoyears, Ihave hadthe chanceto validatetheseguidelineswith manySaaSbusinesses,and itturns outthat theseearlyguesseshave held
![Page 33: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/33.jpg)
have heldup well.The bestSaaSbusinesseshave a LTVto CACratio thatis higherthan 3,sometimesas high as7 or 8. Andmany ofthe bestSaaSbusinessesare able torecovertheir CACin 5-7months.HowevermanyhealthySaaSbusinessesdon’t meettheguidelinesin the earlydays, butcan seehow theycanimprovethe
![Page 34: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/34.jpg)
businessover timeto getthere.
Thesecondguideline(Months toRecoverCAC) is allabout timetoprofitabilityand cashflow.Largerbusinesses,such aswirelesscarriersand creditcardcompanies,can affordto have alongertime torecoverCAC, asthey haveaccess totons ofcheapcapital.Startups,on the
![Page 35: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/35.jpg)
on theotherhand,typicallyfind thatcapital isexpensivein the earlydays.Howevereven ifcapital ischeap, itturns outthatMonths torecoverCAC is avery goodpredictorof how wella SaaSbusinesswillperform.Take alook at thegraphbelow,whichcomesfrom thesamemodelusedearlier. Itshows howthe
![Page 36: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/36.jpg)
theprofitabilityis anemic ifthe time torecoverCACextendsbeyond 12months.
I shouldstress thatthese areonlyguidelines,there arealwayssituationswhere itmakessense tobreakthem.
ThreeusesfortheSaaSGuidelines
![Page 37: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/37.jpg)
Guidelines1. One
of thekeyjobsof theCEO istodecidewhento hittheacceleratorpedal.Thevalueofthesetwoguidelinesis thattheyhelpyouunderstandwhenyouhave aSaaSbusinessthat isingoodshape,whereitmakes
![Page 38: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/38.jpg)
makessenseto hittheacceleratorpedal.Alternativelyif yourbusinessdoesn’tmeettheguidelines,it is agoodindicatorthatthereismoretweakingneededto fixthebusinessbeforeyoushouldexpand.
2. Anotherway tousethetwoguidelinesis forevaluating
![Page 39: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/39.jpg)
evaluatingdifferentleadsources.Differentleadsources(e.g.GoogleAdWords,TV,Radio,etc.)havedifferentcostsassociatedwiththem.Theguidelineshelpyouunderstandifsomeof themoreexpensiveleadgenerationoptionsmakefinancialsense.If theymeetthese
![Page 40: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/40.jpg)
theseguidelines,itmakessenseto hittheacceleratoronthosesources(assumingyouhavethecash).Usingthesecondguideline,andworkingbackwards,wecantellthat ifwe aregettingpaid$500permonth,wecanaffordtospend
![Page 41: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/41.jpg)
spendup to12xthatamount(i.e.$6,000)onacquiringthecustomer.Ifwe’respendinglessthanthat,youcanaffordto bemoreaggressiveandspendmoreinmarketingorsales.
3. Thereisanotherimportantway tousethis
![Page 42: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/42.jpg)
typeofguideline:segmentation.Early-stagecompaniesareoftentestingtheirofferingwithseveraldifferentuses/typesofcustomers/pricingmodels/industryverticals.It isveryusefultoexaminewhichsegmentsshowthequickestreturnorhighest
![Page 43: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/43.jpg)
highestLTV toCAC inordertounderstandwhichwill bethemostprofitabletopursue.
UnitEconomicsinAction:HubSpotExampleHubSpot’suniteconomicswererecentlypublishedin anarticle inForbes:
You cansee from
![Page 44: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/44.jpg)
see fromthe secondrow in thistable howthey havedramaticallyimprovedtheir uniteconomics(LTV:CACratio) overthe fivequartersshown.The bigdriver forthis wasloweringthe MRRChurn ratefrom 3.5%to 1.5%.This droveup thelifetimevalue ofthecustomerconsiderably.They werealso ableto drive uptheir AVGMRR percustomer.
BradCoffey,
![Page 45: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/45.jpg)
Coffey,HubSpot:
In2011andearly2012weusedthischarttoguidemanyofourbusinessdecisionsatHubSpot.BybreakingLTV:CACdownintoitscomponentswecouldexamineeachmetricand
![Page 46: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/46.jpg)
andunderstandwhatleverswecouldpulltodriveoverallimprovement.
Itturnedoutthattheleverswecouldpullvariedbysegment.IntheSMBmarketforinstancewehadthe
![Page 47: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/47.jpg)
therightsalesprocessinplace–buthadanopportunitytoimproveLTVbyimprovingtheproducttolowerchurnandincreasingouraveragepriceinthesegment.IntheVSB(Very
![Page 48: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/48.jpg)
(VerySmallBusiness)segment,bycontrast,therewasn’tasmuchupsideleftontheLTV(VSBcustomershavelessmoneyandnaturallyhigherchurn)sowefocusedonloweringCACbyremovingfriction
![Page 49: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/49.jpg)
frictionfromoursalesprocessandmovingmoreofoursalestothechannel.
TwokindsofSaaSbusiness:There aretwo kindsof SaaSbusiness:
Thosewithprimarilymonthlycontracts,withsomelongerterm
![Page 50: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/50.jpg)
contracts.In thisbusiness,theprimaryfocuswill beon MRR(MonthlyRecurringRevenue)
Thosewithprimarilyannualcontracts,withsomecontractsformultipleyears.Heretheprimaryfocus ison ARR(AnnualRecurringRevenue),andACV(AnnualContractValue).
![Page 51: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/51.jpg)
Most ofthe time inthis article,I will refertoMRR/ACV.Thismeans useMRR if youare thefirst kindofbusiness,or ACV ifyou are thesecondkind ofbusiness.Thedashboardshownbelowassumesmonthlycontracts(MRR).Howeverin thedownloadablespreadsheet,there is atab thatshows thesamedashboardfor thesecond
![Page 52: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/52.jpg)
secondkind,focusingon ACVinstead ofMRR.
SaaSBookings:ThreeContributingElementsEverymonth in aSaaSbusiness,there arethreeelementsthatcontributeto howmuch MRRwill changerelative tothepreviousmonth:
Whathappenedwith newcustomersadded inthe month:
![Page 53: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/53.jpg)
NewMRR (orACV)
Whathappenedin theinstalledbase ofcustomers:
ChurnedMRR (orACV)(fromexistingcustomersthatcancelledtheirsubscription.This willbe anegativenumber.)
ExpansionMRR (orACV)(fromexistingcustomerswhoexpandedtheirsubscription)
![Page 54: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/54.jpg)
The sumall three ofthesemakes upyour NetMRR orACVBookings:
Irecommendthat youtrack theseusing achartsimilar tothe onebelow:
This chartshows thethreecomponentsof MRR (orACV)Bookings,and theNet NewMRR (orACV)Bookings.
![Page 55: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/55.jpg)
Bookings.Bybreakingout eachcomponent,you cantrack thekeyelementsthat aredrivingyourbusiness.The onevariationwe wouldrecommendmaking tothis chartis to showa dottedline for theplan, soyou cantrack howyou aredoingagainstplan foreach of thefour lines.This is oneof themostimportantcharts tohelp you
![Page 56: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/56.jpg)
understandand runyourbusiness.
Ron Gill,NetSuite:
Thischartisreallygood.IalsoliketolookatthisdataintabularformbecauseIwanttoknowy-o-ygrowthrates.E.g.
![Page 57: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/57.jpg)
E.g.“NetnewMRRisup25%overJuneoflastyear”.TheY-o-Y%is ametriceasilycomparedwithincreasedspending,salescapacity,etc.
TheImportanceofCustomerRetention(Churn)
![Page 58: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/58.jpg)
(Churn)In the earlydays of aSaaSbusiness,churnreallydoesn’tmatterthat much.Let’s saythat youlose 3% ofyourcustomerseverymonth.When youonly havea hundredcustomers,losing 3 ofthem isnot thatterrible.You caneasily goand findanother 3to replacethem.Howeveras yourbusinessgrows insize, theproblem
![Page 59: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/59.jpg)
problembecomesdifferent.Imaginethat youhavebecomereally big,and nowhave amillioncustomers.3% churnmeansthat youare losing30,000customerseverymonth!That turnsout to be amuchhardernumber toreplace.CompanieslikeConstantContacthave runinto thisproblem,and it hasmade itvery hardfor them
![Page 60: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/60.jpg)
for themto keep uptheirgrowthrate.
Ron Gill,NetSuite:
Oneoft-overlookedaspectofchurnisthatthechurnrate,combinedwiththerateofnewARRadds,notonlydefineshowfastyoucan
![Page 61: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/61.jpg)
cangrowthebusiness,italsodefinesthemaximumsizethebusinesscanreach(seegraphbelow).
Itisanenlighteningexercisetobuildasimplemodellikethis
![Page 62: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/62.jpg)
thisforyourbusinessandplotwhereyourcurrentrevenuerunratesitsonthebluelinedefinedbyyourpresentrateofARRaddsandchurn.Areyouneartheleft-
![Page 63: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/63.jpg)
handside,wherethegrowthisstillsteepandtheceilingisstillfarabove?Or,areyoufurthertotherightwhererevenuegrowthwillleveloffandthereislimited
![Page 64: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/64.jpg)
limitedroomlefttogrow?Howmuchbenefitwillyougetfromsmallimprovementsinchurnorthepaceofnewbusinesssign-up?
AtNetSuite,we’vehadgreatsuccessshiftingtheline
![Page 65: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/65.jpg)
lineinthelastfewyearsbybothdramaticallydecreasingchurnandbyincreasingaveragedealsizeandvolume,thusincreasingARRadds.Theresultwasbothtosteadilymovethelimitupward
![Page 66: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/66.jpg)
upwardandtosteepenthegrowthcurveatthecurrentARRrunrate,creatingroomforincreasinglyrapidexpansion.
ThePowerofNegativeChurnTheultimatesolution tothe churnproblem isto get toNegativeChurn.
![Page 67: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/67.jpg)
Churn.
There aretwo waysto get thisexpansionrevenue:
1. Use apricingschemethathas avariableaxis,suchas thenumberofseatsused,thenumberofleadstracked,etc.Thatway,asyourcustomersexpandtheirusageof
![Page 68: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/68.jpg)
ofyourproduct,theypayyoumore.
2. Upsell/Cross-sellthemtomorepowerfulversionsofyourproduct,oradditionalmodules.
To helpillustratethe powerof negativechurn, takea look atthefollowingtwo graphsthat showhowcohortsbehavewith 3%churn, andthen with
![Page 69: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/69.jpg)
3%negativechurn.(Since thisis the firsttime I haveused thewordCohort, letme explainwhat itmeans. Acohort issimply afancy wordfor agroup ofcustomers.In the SaaSworld, it isusedtypically todescribethe groupthat joinedin aparticularmonth. Sotherewould betheJanuarycohort,Februarycohort, etc.In ourgraphs
![Page 70: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/70.jpg)
graphsbelow, adifferentcolor isused foreachmonth’scohort, sowe can seehow theydecline orgrow,based onthe churnrate.)
In the topgraph, weare losing3% of ourrevenueeverymonth,and youcan seethat with aconstantbookingsrate of $6kper month,therevenuereaches$140kafter 40months,andgrowth is
![Page 71: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/71.jpg)
growth isflatteningout. In thebottomgraph, wemay belosingsomecustomers,but theremainingcustomersare morethanmaking upfor thatwithincreasedrevenue.With anegativechurn rateof 3%, wereach$450k inrevenue(more then3x greater),and thegrowth inrevenuesisincreasing,notflattening.
![Page 72: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/72.jpg)
For moreon thistopic, youmay wishto refer tothese twoblog postsof mine:
WhyChurnis SOcriticaltosuccessin SaaS
Multi-axisPricing:a keytool forincreasingSaaSrevenue
DefiningaDashboard
![Page 73: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/73.jpg)
Dashboardfor aSaaSCompanyThefollowingsectionshould bemostuseful forreaderswho areinterestedputtingtogether adashboardto helpthemmanagetheir SaaSbusiness.To this, wecreated anexcel filefor animaginarySaaScompany,and laidout atraditionalnumericreport onone tab,and then adashboard
![Page 74: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/74.jpg)
dashboardof graphson asecond tab(seebelow).Theserepresentone viewon how todo this.You mayhave averydifferentapproach.Buthopefullythis willgive yousomeideas. Iwouldrecommendadding adotted linewith theplannumber toall graphs.This willallow youto quicklysee howyou aredoingversus
![Page 75: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/75.jpg)
versusplan.
There aretwoversions oftheDashboard:the oneshownbelow,which isdesignedforcompaniesusingprimarilymonthlycontracts(focusedon MRR).And asecondversionthat can befound herewhich isdesignedforcompaniesusingannualcontracts,focusingon ACV(AnnualContractValue).
![Page 76: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/76.jpg)
Value).
BradCoffey,HubSpot:
![Page 77: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/77.jpg)
HubSpot:
AtHubSpotweobsessoverthesemetrics–andwatchmanyofthemeveryday.Eachnightwesendouta‘waterfall’chartthattracksourprogressagainstourtypicalprogress
![Page 78: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/78.jpg)
progressgiventhenumberofbusinessdaysleftinthemonth.Hereisanexampleofwhatwelookattoensurewe’reontracktomeetournetMRRgoals.
![Page 79: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/79.jpg)
By lookingat thisdaily wecan takeactionimmediatelyif we’retrackingtowards abad monthor quarter.Things likeservicespromotion(forchurnedMRR) orsalescontests &promotions(for new &expansionMRR) areadjustmentswe makewithin agivenmonth inorder tonail ourgoals. (Inthis modelwecombineexpansion
![Page 80: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/80.jpg)
andchurnedMRR intoonechurnedMRR line).
Detaileddefinitionsof thevariousmetricsusedDetaileddefinitionsfor each ofthe variousmetricsused canbe foundin thisreferencedocument:
RevenueChurnvsCustomerChurn– whyarethey
![Page 81: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/81.jpg)
theydifferent?You mightbewonderingwhy it’snecessaryto trackbothCustomerChurn andRevenueChurn.Imagine ascenariowhere wehave 50smallaccountspaying us$100 amonth,and 50largeaccountspaying us$1,000 amonth. Intotal wehave 100customers,and anMRR of$55,000 atthe start ofthe month.Now
![Page 82: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/82.jpg)
Nowimaginethat welose 10 ofthem. OurCustomerchurn rateis 10%. Butif out ofthe tenchurnedcustomers,9 of themwere smallaccounts,and onlyone was alargeaccount.We wouldonly havelost $1,900in MRR.Thatrepresentsonly 3.4%RevenueChurn. Soyou cansee thatthe twonumberscan bequitedifferent.But each isimportant
![Page 83: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/83.jpg)
importanttounderstandif we wanta completepicture ofwhat isgoing on inthebusiness.
GettingpaidinadvanceGettingpaid inadvance isreallysmart ideaif you cando itwithoutimpactingbookings,as it canprovidethe cashflow thatyou needto coverthe cashproblemthat wedescribedearlier in
![Page 84: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/84.jpg)
earlier inthe article.It is oftenworthprovidinggoodfinancialincentivesin the formofdiscountstoencouragethisbehavior.The metricthat weuse totrack howwell yoursales forceis doing inthis area isMonths upFront.
Gettingpaid moreupfrontusuallyalso helpslowerchurn. Thishappensbecausethecustomerhas made
![Page 85: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/85.jpg)
has madea greatercommitmentto yourservice,and ismore likelyto spendthe timegetting itup andrunning.You alsohave moretime toovercomeissues thatmight arisewith theimplementationin the earlydays.CalculatingLTV andCAC
The Metric“Monthsup Front”has beenused atbothHubSpotandNetSuite inthe past asa way to
![Page 86: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/86.jpg)
incentsalespeople toget morepaid upfront whena newcustomeris signed.Howeverasking formoremoney upfront mayturn offcertaincustomers,and resultin fewernewcustomers,so becarefulhow youbalancethese twoconflictinggoals.
CalculatingCACandLTVDetailedinformation
![Page 87: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/87.jpg)
informationon how tocalculateLTV andCAC isprovidedin thesupplementaldocumentthat can beaccessedby clickinghere.
MoreonChurn:CohortAnalysisSincechurn issuch acriticalelementfor successin a SaaScompany,it is anarea thatrequiresdeeperexplorationtounderstand.Cohort
![Page 88: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/88.jpg)
CohortAnalysis isone of theimportanttechniquesthat weuse to gaininsight.
Asmentionedearlier, acohort issimply afancyname for agroup. InSaaSbusinesses,we usecohortanalysis toobservewhathappensto thegroup ofcustomersthat joinedin aparticularmonth. Sowe willhave aJanuarycohort, aFebruarycohort, etc.
![Page 89: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/89.jpg)
cohort, etc.We wouldthen beable toobservehow ourJanuarycohortbehavesover time(seeillustrationbelow).
This canhelpanswerquestionssuch as:
Are welosingmost ofthecustomersin thefirstcoupleofmonths?
DoesChurnstabilizeaftersome
![Page 90: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/90.jpg)
someperiodof time?
Then iftook someactions totry to fixchurn inearlymonths,(i.e withbetterproductfeatures,easier on-boarding,bettertraining,etc.) wewouldwant toknow ifthosechangeshad beensuccessful.The cohortanalysisallows usto do thisbycomparinghow morerecentcohorts(e.g. July in
![Page 91: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/91.jpg)
(e.g. July inthe tableabove)comparedagainstJanuary.The tableaboveshows thatwe made abigimprovementin the firstmonthchurngoing from15% to 4%.
Twowaysto runCohortAnalysisThere aretwo waysto runCohortAnalysis:the firstlooks atthenumber ofcustomers,and thesecondlooks at
![Page 92: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/92.jpg)
theRevenue.Eachteaches ussomethingdifferentandvaluable.Theexamplegraphbelowsimplylooks atthenumber ofcustomersin eachcohortover time:
Theexamplegraphbelowlooks athow MRRevolvesover timefor eachcohort.Thisparticularexample
![Page 93: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/93.jpg)
exampleillustrateshow thegraphwould lookif there isvery strongnegativechurn. Asyou cansee, theincrease inrevenuefrom thecustomersthat arestill usingthe serviceis easilyoutpacingthe lostrevenuefromchurnedcustomers.It is prettyrare to seethings lookthis good,but it is theidealsituationthat we arelooking for.For thosewonderingif this can
![Page 94: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/94.jpg)
if this canbeachieved,onecompanyin ourportfolio,Zendesk,that hasnumbersthat areevenbetter thanthoseshown intheexamplebelow.
In thesituationabove, youwill need amorecomplexformula tocalculateLTV, as thevalue oftheaveragecustomerisincreasing
![Page 95: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/95.jpg)
increasingover time.For moreon thattopic, youmay wantto checkout theaccompanyingdefinitionsdocument.
PredictingChurn:CustomerEngagementScoreSincechurn is soimportant,wouldn’t itbe useful ifwe couldpredict inadvancewhichcustomerswere mostlikely tochurn?That waywe couldput ourbestcustomer
![Page 96: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/96.jpg)
customerservicereps towork in aneffort tosave thesituation. Itturns outthat wecan do thatbyinstrumentingour SaaSapplicationsandtrackingwhetherour usersareengagedwith thekey stickyfeatures oftheproduct.Differentfeatureswilldeservedifferentscores. Forexample ifyou wereFacebook,you mightscoresomeonewho
![Page 97: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/97.jpg)
whouploaded apicture asfar moreengaged(andthereforeless likelyto churn),thansomeonewhosimplylogged inandviewed onepage.
Similarly ifyou soldyour SaaSproduct toa 100persondepartment,and only10 peoplewere usingit, youwouldscore thatdifferentlyto 90peopleusing it. Sotherecommendationis that you
![Page 98: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/98.jpg)
is that youcreate aCustomerEngagementScore,based onallocatingpoints fortheparticularfeaturesused.Allocatemorepoints forthefeaturesyou believeare moststicky.(Later onyou can goback andlook at thecustomerswhoactuallychurned,andvalidatethat youpicked therightfeatures asa predictorof whowould
![Page 99: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/99.jpg)
wouldchurn.)Andseparatelyscore howmanyusers areengagedwithspecificscores.
Over timeyou’ll alsocome todiscoverwhichtypes ofuse are thebestindicatorsof possibleupsell.(HubSpotwas thefirstcompanythat Iworkedwith whofigured thisout, andthey calledit their CHIscore. CHIstands forCustomerHappiness
![Page 100: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/100.jpg)
HappinessIndex. Itevolved tobe a verygoodpredictorfor churn.)
BradCoffey,HubSpot:
AtHubSpotwehadalotofsuccesslookingatthismetric–wecalledinCustomerHappinessIndex(CHI).First–by
![Page 101: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/101.jpg)
byrunningtheanalysisweidentifiedthepartsofourapplicationthatprovidethemostvaluetocustomersandcouldinvestaccordinglyindrivingadoptioninthoseareas.Second–weusedthis
![Page 102: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/102.jpg)
thisaggregatescoreasanearlyproxyforsuccessasweexperimentedwithdifferentsalesandonboardingprocesses.If asetofcustomersgoingthroughanexperimenthadalowCHIscorewecould
![Page 103: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/103.jpg)
couldkilltheprojectwithoutwaiting6or12monthstoanalyzethecohortretention.
NPS –NetPromoterScoreSince it islikely thatcustomersatisfactionis likely tobe goodpredictorof futurechurn, itwould beuseful tosurveycustomersatisfaction.
![Page 104: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/104.jpg)
satisfaction.Therecommendedway tomeasurecustomerhappinessis to useNetPromoterScore(NPS). Thebeauty ofNPS is thatit is astandardizednumber,so you cancompareyourcompanyto others.For moredetails onNetPromoterScore, clickhere.
GuidelinesforChurnIf your NetRevenueChurn ishigh
![Page 105: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/105.jpg)
high(above 2%permonth) it isanindicatorthat thereissomethingwrong inyourbusiness.At 2%monthlychurn, youare losingabout 22%of yourrevenueevery year.That isnearly aquarter ofyourrevenue!It’s a clearindicationthat thereissomethingwrong withthebusiness.As thebusinessgetsbigger, this
![Page 106: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/106.jpg)
bigger, thiswillbecome amajor dragon growth.
Werecommendthat youwork onfixing theproblemsthat arecausingthis beforeyou go onto worryaboutother partsof yourbusiness.Some ofthepossiblecauses ofchurn are:
You arenotmeetingyourcustomersexpectations.
Theproductmaynotprovide
![Page 107: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/107.jpg)
provideenoughvalue
Instabilityorbugginess
Yourproductis notsticky.It mightprovidesomevalue inthe firstfewmonths,andthenoncethecustomerhasthatvalue,theymayfeeltheydon’tneed tokeeppaying.Tomakeyour
![Page 108: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/108.jpg)
yourproductsticky,trymakingit a keypart oftheirmonthlyworkflow,and/orhavethemstoredata inyourproductthat ishighlyvaluabletothem,wherethevaluewouldbe lostof theycancelled.
Youhavenotsuccessfullygot thecustomer’susersto
![Page 109: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/109.jpg)
adopttheproduct.Or theymaynot beusingcertainof thekeystickyfeaturesin theproduct.
Yoursalesforcemayhaveoversoldtheproduct,or soldit to acustomerthat isnot wellsuitedto getthebenefits
Youmay besellingtoSMB’s
![Page 110: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/110.jpg)
wherea lot ofthemgo outofbusiness.It isn’tenoughthatwhatyou’resellingissticky.Whoyou’resellingit tomustalso besticky.
You arenotusing apricingschemethathelpsdriveexpansionbookings
The bestway to findout whycustomers
![Page 111: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/111.jpg)
arechurning isto get onthe phonewith themand askthem. Ifchurn is asignificantpart ofyourbusiness,werecommendthat thefoundersthemselvesmakethese calls.They needto hearfirst handwhat theproblem is,as this is soimportantfor thesuccess ofthebusiness.And theyare likelyto be thebestpeople todesign afix for the
![Page 112: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/112.jpg)
fix for theproblem.
TheImportanceofCustomerSegmentationIn all SaaSbusinessesthere willlikely comea momentwhere theyrealize thatnot allcustomersarecreatedequal. Asanexample,biggercustomersare harderto sell to,but usuallyplacebiggerorders,and churnlessfrequently.We need away to
![Page 113: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/113.jpg)
way tounderstandwhich ofthese aremostprofitable,and thisrequiresus tosegmentthecustomerbase intodifferenttypes, andcomputethe uniteconomicsmetrics foreachsegmentseparately.Commonsegmentsare thingssize of ofcustomer,verticalindustry,etc.
Despitethe addedwork toproducethemetrics,there is
![Page 114: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/114.jpg)
there ishigh valueinunderstandingthedifferentsegments.This tellsus whichparts ofthebusinessareworkingwell, andwhich arenot. Inaddition toknowingwhere tofocus andinvestresources,we mayrecognizethe needfordifferentmarketingmessages,productfeatures.As soon asyou startdoing thissegmentedanalysis,
![Page 115: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/115.jpg)
thebenefitswillbecomeimmediatelyapparent.
For eachsegment,werecommendtrackingthefollowingmetrics:
ARPA(AverageRevenueperAccountpermonth)
NetMRRChurnrate(includingMRRexpansion)
LTV
CAC
LTV:CACratio
Months
![Page 116: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/116.jpg)
MonthstorecoverCAC
CustomerEngagementScore
BradCoffey,HubSpot:
AtHubSpot,westartedtoseesomeofourbiggestimprovementsinuniteconomicswhenwestartedsegmentingourbusinessandcalculatingthe
![Page 117: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/117.jpg)
theLTVtoCACratioforeachofourpersonasandgotomarketstrategies.
Asonegoodexample–whenwestartedthisanalysis,wehad12repssellingdirectlyinto
![Page 118: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/118.jpg)
intotheVSBmarketand4repssellingthroughValueAddedResellers(VARs).WhenwelookedatthemathwerealizedwehadaLTV:CACratioof1.5sellingdirect,andaLTV:CAC
![Page 119: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/119.jpg)
LTV:CACratioof5sellingthroughthechannel.Thesolutionwasobvious.Twelvemonthslaterwehadflippedourapproach–keepingjust2repssellingdirectand25repssellingthroughthe
![Page 120: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/120.jpg)
thechannel.Thisdramaticallyimprovedouroveralleconomicsinthesegmentandallowedustocontinuegrowing.
WeendedmakingsimilarinvestmentsinotherhighLTV:CACsegments.Wewentsofaras
![Page 121: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/121.jpg)
astoincentivizeoursalesmanagerstogrowtheirteams–butthenwouldonlyplacenewsaleshiresintothesegmentswiththebesteconomics.Thisensuredwecontinuedtoinvestin
![Page 122: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/122.jpg)
inthebestsegmentsandalignedincentivesthroughoutthecompanyonourLTV:CACgoals.Italsoallowedustopushinnovationdowntothesalesmanagerlevel.Managerscouldexperimentwithorgstructure,
![Page 123: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/123.jpg)
structure,andsalesprocesses–buttheyknewthatiftheydidn’thittheirLTV:CACgoalstheywouldn’tbeabletogrowtheirteams.
CalculatingLTV:CACbysegmentcanbechallenging,especially
![Page 124: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/124.jpg)
especiallyontheCACside.It’srelativelyeasyatthetopleveltoaddupallthemarketingandsalesexpenseinaperiodanddivideitbythetotalnumberofcustomers
![Page 125: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/125.jpg)
customers(togetCAC).Onceyoutrytosegmentdownyourspendyourunintoquestionslike‘howmuchmarketingexpensedoIallocatetoagivensegment’,‘howmuchofthesales
![Page 126: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/126.jpg)
salesexpense’?
Wesolvedthisbyallocatingmarketingexpensebasedonnumberofleadsandsalesexpensebasedonheadcountbutit’snotperfect.Forusthekeysare:1)Needstoaccount
![Page 127: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/127.jpg)
accountforallcosts–nofreelunch,2)Itneedstobeconsistentovertime.Progressonimprovingthemetricismoreimportantthantheactualvalue.
FunnelMetricsThe
![Page 128: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/128.jpg)
Themetricsthat matterfor eachsalesfunnel,vary fromonecompanyto the nextdependingon thestepsinvolved inthe funnel.Howeverthere is acommonway tomeasureeach step,and theoverallfunnel,regardlessof yoursalesprocess.Thatinvolvesmeasuringtwo thingsfor eachstep: thenumber ofleads thatwent intothe top of
![Page 129: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/129.jpg)
the top ofthat step,and theconversionrate to thenext stepin thefunnel (seebelow).
In thediagramabove,(mirroredin thedashboard),we show averysimplethreephasesalesprocess,withvisitorscoming toa web site,and someportion ofthemsigning upfor a trial.Then someof the trials
![Page 130: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/130.jpg)
of the trialsconvert topurchases.As you cansee in thedashboard,we willwant totrack thenumber ofvisitors,trials andcloseddeals. Ourgoalshould beto increasethosenumbersover time.And we willalso wantto track theconversionrates, withthe goal ofimprovingthose overtime.
UsingFunnelMetricsinForwardPlanning
![Page 131: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/131.jpg)
PlanningAnotherkey valueof havingtheseconversionrates is theability tounderstandtheimplicationsof futureforecasts.Forexample,lets sayyourcompanywants todo $4m inthe nextquarter.You canworkbackwardsto figureout howmanydemos/trialsthatmeans,and giventhe salesproductivitynumbers –how many
![Page 132: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/132.jpg)
salespeoplearerequired,and goingback astageearlier,how manyleads aregoing to berequired.These arecrucialplanningnumbersthat canchangestaffinglevels,marketingprogramspendlevels, etc.
SalesCapacityIn manySaaSbusinesses,sales repsplay a keyrole inclosingdeals. Inthose
![Page 133: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/133.jpg)
thosesituations,thenumber ofproductivesalespeople(SalesCapacity)will be akey driverofbookings.It isimportantto workbackwardsfrom anyforecaststhat aremade, toensurethat thereis enoughsalescapacity.I’ve seenmanybusinessesmiss theirtargetsbecausethey failedto hireenoughproductivesalespeopleearly
![Page 134: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/134.jpg)
earlyenough.
It’s alsoworthnoting thatsomepercentageof newsales hireswon’t meetexpectations,so thatshould betaken intoconsiderationwhensettinghiringgoals.Typicallywe haveseenfailureratesaround 25-30% forfield salesreps, butthis variesbycompany.The failurerate islower forinsidesales reps.
![Page 135: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/135.jpg)
WhencomputingSalesCapacity, ifa newerrep is stillrampingand onlyexpectedto deliver50% ofquota,they canbe countedas half of aproductiverep. That isoftenreferred toas FullTimeEquivalentor FTE forshort.
Anotherimportantmetric tounderstandis thenumber ofleadsrequired tofeed asales rep. Ifyou areadding
![Page 136: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/136.jpg)
addingsales reps,make sureyou alsohave aclear planof how youwill drivetheadditionalleadsrequired.
There ismuchmore thatcould besaid onthis topic,but since itis all verysimilar tomanaginga salesforce in atraditionalsoftwarecompany,we willleave thatfor otherblog posts.
Saa
![Page 137: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/137.jpg)
aSMetrics–AGuidetoMeasur
![Page 138: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/138.jpg)
ringandImprovingWhatMatt
![Page 139: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/139.jpg)
Understanding
ters#contentmarketing
CLICKTOTWEET
![Page 140: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/140.jpg)
UnderstandingtheROIfordifferentLeadSourcesOurexperienceswith SaaSstartupsindicatethat theyusuallystart with acouple ofleadgenerationprogramssuch asPay PerClickGoogle Ad-words,radio ads,etc. Whatwe havefound isthat eachof theseleadsourcestends tosaturateover time,and
![Page 141: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/141.jpg)
andproduceless leadsfor moredollarsinvested.As a result,SaaScompanieswill needto beconstantlyevaluatingnew leadsourcesthat theycan layerin on topof the oldto keepgrowing.
Since theconversionrates andcosts perlead varyquiteconsiderably,it isimportantto alsomeasurethe overall
![Page 142: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/142.jpg)
the overallROI byleadsource.
Growingleads fastenough tofeed thefront endof thefunnel isone of theperennialchallengesfor anySaaScompany,and islikely to beone of thegreatestlimitingfactors togrowth. Ifyou arefacing thatsituation,the mostpowerfuladvice wecan giveyou is tostartinvestingin InboundMarketingtechniques
![Page 143: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/143.jpg)
techniques(see GetFoundusingInboundMarketing).This willtake timeto rampup, but ifyou can doit well, willlead to farlower leadcosts, andgreaterscalingthan otherpaidtechniques.Additionallythe typicalSaaS buyeris clearlyweb-savvy,andthereforevery likelytoembraceinboundmarketingcontentandtouchlesssellingtechniques.
![Page 144: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/144.jpg)
WhatLeversareavailabletodriveGrowthSaaSbusinessesare morenumericallydriventhan mostotherkinds ofbusiness.Making asmalltweak to anumberlike thechurn ratecan have avery bigimpact onthe overallhealth ofthebusiness.Because ofthis wefrequentlysee a
![Page 145: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/145.jpg)
see a“quant”(i.e. anumbersoriented,spreadsheetmodeling,type ofperson) asa valuablehire in aSaaSbusiness.AtHubSpot,BradCoffeyplayed thatrole, andhe wasable to runthe modelstodeterminewhichgrowthplaysmade themostsense.
Understandingthese SaaSmetrics isa key steptowardsseeing howyou can
![Page 146: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/146.jpg)
you candrive yourbusinessgoingforward.Let’s lookat some ofthe leversthat theseimply asgrowthdrivers foryourbusiness:
ChurnGetChurnandcustomerhappinessrightfirst (ifthisisn’tright,thebusinessisn’tviable,so nopoint indrivinggrowthelsewhere.You willsimply
![Page 147: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/147.jpg)
simplybefilling aleakybucket.)
ProductYou’rein aproductbusiness– firstandforemost:fix yourproduct.
Ifyou’reusingafreetrial,focusongettingtheconversionrateforthatright(ideallyaround15–20%).
![Page 148: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/148.jpg)
20%).Ifthisisn’tright,yourvaluepropositionisn’tresonating,oryoumayhaveamarketwherethereisnotenoughpaintogetpeopletobuy.
Win/Lossratioshouldbegood
TrialorSalesconversion
![Page 149: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/149.jpg)
ratesonqualifiedleadsshouldbegood
Funnelmetrics
Increasethenumberof rawleadscomingin tothe Topof yourfunnel
Identifytheprofitableleadsourcesandinvestin thoseasmuchaspossible.Converselystopinvesting
![Page 150: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/150.jpg)
in poorleadsourcesuntiltheycan betweakedtomakethemprofitable.
IncreasetheConversionRates atvariousstagesin thefunnel
SalesMetrics
Salesproductivity(focusongettingthisrightconsistentlyacrossa broadset ofsalesfolksbefore
![Page 151: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/151.jpg)
beforehittingthe gas)
AddSalesCapacity.But firstmakesureyouknowhow toprovidethemwiththerightnumberofleads.Thisturnsout tobe oneof thekeyleversthatmanycompaniesrely onforgrowth.Wehavelearnedfrom
![Page 152: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/152.jpg)
fromexperiencehowimportantit is tomeetyourtargetsforsalescapacitybyhiringontime,andhiringtherightqualityof salespeoplesotherearefewerfailures.
Increaseretentionforyoursalespeople.Sinceyouhaveinvested
![Page 153: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/153.jpg)
investeda lot inmakingthemfullyproductive,get themaximumreturnon thatinvestmentbykeepingthemlonger.
Look ataddingBusinessDevelopmentReps.Theseareoutboundsalesfolkswhospecializeinprospectingto atargetedlist ofpotentialbuyers.Formoreon this
![Page 154: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/154.jpg)
topic,clickhere.
Pricing/Upsell/CrossSell
Multi-axispricing
Additionalproductmodules(easierto sellmoretoexistingcustomersthan itis to selltobrandnewcustomers)
BradCoffey,HubSpot:
Turnsoutthepricingyourproduct
![Page 155: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/155.jpg)
productrightcanhaveahugeimpactontheuniteconomics.NotsimplybygettingtheaverageMRRright,orbyprovidingupsellopportunities–butalsobysignalingwhatpiecesofthe
![Page 156: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/156.jpg)
theproductaremostvaluable.
AtHubSpotwechangedourpricingin2011tobetieredbasedonthenumberofcontactsinthesystem–andactuallysawanincreaseinadoption
![Page 157: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/157.jpg)
adoptionofthecontactsapplicationafterwemadethechange.Thisiscounter-intuitivebutmakessensegiventhatwesellthroughaninsidesalesteam.Afterthepricingchange,salesrepsnow
![Page 158: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/158.jpg)
nowcouldmakealotmoremoneybysellingthecontacts.Andtheyquicklybecomemuchbetteratpositioningthatpartoftheproduct,aswellasfindingcompanieswithacontacts-based
![Page 159: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/159.jpg)
basedusecase.Productqualitywillremainparamount–butit’sremarkablehowmuchimpactpricing,packagingandsalescommissionstructurecanhaveonproductadoptionanduniteconomics.
CustomerSegmentation
![Page 160: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/160.jpg)
CustomerSegmentationanalysiswill helppoint outwhich areyour mostprofitablesegments.Twoimmediateactionsthat aresuggestedby thisanalysisare:
Doubledownon yourmostprofitablesegments
Look atyourlessprofitablesegmentsandconsiderchangesthatwouldmakethemmore
![Page 161: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/161.jpg)
moreprofitable:lowercostmarketing& salesapproaches,higherpricing,productchanges,etc. Ifnothingseemstomakesense,spendlesseffortonthesesegments.
InternationalMarketsExpansioninternationallyis onlyrecommendedfor fairlymatureSaaScompaniesthatalreadyhave
![Page 162: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/162.jpg)
havehonedtheirbusinesspracticesin theirprimarymarket. Itis farharder toexperimentand tune abusiness infar offregions,withlanguageandculturaldifferences.
BradCoffey,HubSpot
Oneofthebiggestchallengeswefaceisthetrade-offbetween
![Page 163: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/163.jpg)
betweengrowthanduniteconomics(specificallychurn).Manyofthethingsthatwehavedonetoreducechurnhave(potentially)comeattheexpenseofloweringourgrowthrate.Thosehavebeen
![Page 164: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/164.jpg)
someofourhardestdecisions:e.g.requiringupfrontpayments,requiringcustomersbuyconsulting,holdingsalesrepsaccountableforchurn,etc.Wearealwayslookingatthingsthatgiveusgrowthwithoutthe
![Page 165: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/165.jpg)
thetradeoffoflowergrowth.Forexampleproductimprovementisanobviousone– abetterproductiseasiertosellandprovidesmorevaluetothecustomer.Servicespromotionsactuallyworkwelltoo.
![Page 166: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/166.jpg)
too.ManyoftheoptionsthatSaaScompanieshavetoadjusttheirbusinessarenotsimplyawin-winbutarestillworthexploring.Toomanycompaniesthinkthateveryproblemis aproduct
![Page 167: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/167.jpg)
productproblemandeverysolutionisthattheproductmustgetbetter.
Theotherthingthat’sreallyimportantisthatcompaniesdon’ttrytospinthesenumbers.Thereissomuchpressureto
![Page 168: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/168.jpg)
todismissabadcustomer(whohurtyourchurnnumber)orexcludecosts(onlycountmarketing‘program’spend–notheadcount).Ifyoucangettheaccountingcloseenoughtorightit
![Page 169: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/169.jpg)
actuallyfreesmanagementfromneedingtomakeeverydecision.Iftheaccountingisrightmanagementcanobsessoversettinggoals(growth,LTV:CAC),holdpeopleaccountabletothosegoalsandthengiveautonomy
![Page 170: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/170.jpg)
autonomytotheirteamonhowtoachievethosegoals.
PlanaheadIt takestime formostinitiativesto have animpact.We’velearnedfrom sometoughlessonsthatplanninghas to bedone wellin advanceto drive aSaaSbusiness.Forexample ifyou arenot happy
![Page 171: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/171.jpg)
not happywith yourcurrentgrowthrate, it willoften takenine totwelvemonthsfrom thepoint ofdecisionbefore thegrowthresultingfromincreasedinvestmentin salesandmarketingwillactually beobserved.
TheHighLevelPicture:HowtoRun aSaaSBusiness
![Page 172: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/172.jpg)
BusinessHopefullywhat youwill havegatheredfrom thediscussionabove isthat thereare reallythreethings thatreallymatterwhenrunning aSaaSbusiness:
1. Acquiringcustomers
2. Retainingcustomers
3. Monetizingyourcustomers
Theseconditemshould befirst onyour list ofthings toget right. Ifyou can’tkeep your
![Page 173: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/173.jpg)
keep yourcustomershappy, andkeep themusing theservice,there is nopoint inworryingacquiringmore ofthem. Youwill simplybe filling aleakybucket.Ratherfocus yourattentiononpluggingthe leaks.
SaaSbusinessesareremarkablyinfluencedby a fewkeynumbers.Makingsmallimprovementsto thosenumberscandramatically
![Page 174: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/174.jpg)
dramaticallyimprovethe overallhealth ofthebusiness.
Once youknow yourSaaSbusiness isviableusing theguidelinesprovidedforLTV:CAC,and Timeto recoverCAC, hittheacceleratorpedal. Butbepreparedto raise thecashneeded tofund thegrowth.
Althoughthis articleis long andoccasionallycomplex,we hopethat it has
![Page 175: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/175.jpg)
helpedprovideyou withanunderstandingof whichmetrics arekey, andhow youcan goaboutimprovingthem.
AcknowledgementsI wouldlike tothank RonGill, theCFO ofNetSuite,and BradCoffey &BrianHalligan ofHubspotfor theirhelp inwritingthis. Iwould liketo thanktheHubSpotmanagement
![Page 176: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/176.jpg)
teamwithoutwhomnone ofthis wouldbepossible.Most of mylearningson SaaShave comefromworkingwith them.I wouldalso like tothank GailGoodman,the CEO ofConstantContactwho alsotaught usmany ofthe keymetrics inher role asboardmember ofHubSpot.
AboutDavidSkok
![Page 177: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/177.jpg)
David SkokjoinedMatrixPartnersas aGeneralPartner inMay 2001.He has awealth ofexperiencerunningcompanies.Davidstarted hisfirstcompanyat age 22.Since thenDavid hasfounded atotal offourseparatecompaniesandperformedone turnaround.Three ofthesecompanieswentpublic. HejoinedMatrix
![Page 178: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/178.jpg)
MatrixfromSilverStreamSoftware,which hefounded inJune 1996.Prior to itsacquisitionby Novell,SilverStreamwas apubliccompanythat hadreached arevenuerun rate inexcess of$100m,withapproximately800employeesand officesin morethan 20countriesaround theworld.
David’swork as avalueaddedinvestor isbestknown for
![Page 179: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/179.jpg)
known forhelpingJBoss,Netezza,AppIQ,CloudSwitch,Tabblo andDiligentTechnologiestosuccessfulexits.Davidserves onthe boardsofCloudBees,Digium(makers ofthepopularAsteriskOpenSourcePBX/telephonysoftware),Enservio,GrabCad,HubSpot,OpenSpan,andVideoIQ.He is alsoan investorin Meteor.
Davidwrites a
![Page 180: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/180.jpg)
writes ablog forentrepreneursandstartupson topicssuch asviralmarketing,SaaSmetrics,building asales andmarketingmachine,techniquesforloweringcost ofcustomeracquisition,etc. Theblog canbe foundhere:www.forEntrepreneurs.com.
Hey,thanksfortheinfo.Nowwhat?If you need
![Page 181: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/181.jpg)
If you needany helpwithcontentcreation,we havetons offreeresourcesto get youover thehump. Please subscribeto thisblog belowto ensurethat younever missan article.
Havequestionsorcomments?Pleasecontact usby emailor phone.
If youreallyenjoyedthis post,pleasehelp us tospread theword byclickingone of the
![Page 182: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/182.jpg)
Sharethisentry
one of thesocialmediasharingbuttons.
Thanks somuch!
LIKE WHATYOU'VEREAD?
SUBSCRIBETO THISBLOG!
Just enteryour email
below
First Name *
Email *
Tags:
Marketing
Metrics,
SAAS
![Page 183: SaaS Metrics – Measuring and Improving What Matters](https://reader033.fdocuments.in/reader033/viewer/2022042618/5796d1c41a28abff7e8b7e4c/html5/thumbnails/183.jpg)
entry
You might also like
© 2016 - Groove Digital Marketing - Enfold WordPress Theme by Kriesi
Privacy Policy Terms of Use Contact