There are many factors to maintaining a scaling business, but business metrics provide one of the most effective ways to determine precisely how a business is growing and what the leadership can do to maintain its progress. They provide a measurement system of a product’s success in terms of how consumers use it, what makes them happy about the product, and how much revenue it brings in. Utilizing this method and interpreting metrics correctly is probably the most important skill for startup founders.
In this post, we would like to elaborate on the role of business metrics most relevant to startups in the SaaS (software as a service) industry.
What Are Saas Metrics?
A business metric is a quantifiable measure that any company can use to track and assess the status of its specific business process or key audience (e.g., investors, customers, employees, or managers) to communicate the company’s progression toward long- and short-term goals achievable by implementing a specific business strategy.
Most businesses incorporate metrics into their general workflows, and every department focuses on their specific ones. For example, marketers measure the success of marketing and social media campaigns and their reach, sales teams — their performance at different stages of the sales pipeline, and the executives — the financial metrics to assess the entire picture.
However, business metrics are meaningful only in a context: a tech startup’s business objectives and processes are pretty different from those of a century-old food company. For SaaS founders, the metrics should provide the ability to gauge their success in reaching three high-level goals: customer satisfaction, growth, and revenue. The reason is that most SaaS startups progress through three stages and follow a triple goal-setting pattern:
- At the prototyping stage, their product development typically requires several iterations to ensure adequate product quality and satisfy customers.
- Once they have released the minimum viable product (MVP), their focus shifts to growth and revenue goals, i.e. customer acquisition and profit-making.
- When a SaaS product is already on track, the driving goal is profit, but it will be impossible without a useful competitive product.
If the startup founders formulate these goals as measurable values, they can track the numbers and changes and evaluate their business strategy’s success.
What Are The Key Metrics For Startups In The SaaS Realm?
The metrics most important for SaaS startups are determined by the unique business model. Since every SaaS business’s lifeblood is recurring revenue, they are concerned with the entire customer life cycle. The key metrics for startups are tailored to meet three inextricably linked needs: sales, marketing, and customer success.
First of all, the SaaS business plan implies a significant initial investment upfront to create a product but does not allow upfront payment by the customers. Instead, your SaaS business will rely on relatively small recurring revenues generated via individual sales, such as monthly subscriptions. This means that you will have to survive long enough until your SaaS product becomes profitable. It’s critical for startups with a limited budget to calculate their business’s cost overhead and operations and control their Cash Reserve and Cash Burn Rate.
The primary SaaS metric is Monthly Recurring Revenue, but long before you secure those monthly-paying customers, you will need to prove the future product’s feasibility at the prototyping stage. Customer feedback and Unique Visitors (e.g., to the landing page) become prominent metrics right at the beginning.
At the MVP stage, the startup is still building an appealing product while collecting feedback and finding ways to succeed in the market. Increasing Traffic, Sign-ups, and Lead-to-Customer Conversion should help increase sales. You also need to evaluate your marketing choices’ efficiency, e.g., content creation to generate organic traffic versus paid traffic from pay-per-click ads.
While your marketers are working to attract large volumes of quality leads, your sales team will need to convert as many leads as possible into paying customers. However, every investment in their efforts increases the startup’s Payback Period. It becomes critical to measure the efficacy of your marketing and sales team’s work, e.g., through several conversion rates, and calculate and control your startup’s Customer Acquisition Cost.
At the production stage, the retention of customers and revenue is key to continuous financial growth. The company needs to focus on receiving the greatest financial gain from long-term customer relationships.
Your goal is to make your customers use your SaaS product regularly and share their positive experiences with others so that you can increase your customer base. This requires the understanding, monitoring, and timely acting on the indicators like the numbers of Active Users, the SaaS product’s Stickiness, Customer Retention, and Customer Churn, Revenue Churn, Average Revenue per Account and Customer Lifetime Value, Customer Engagement and Satisfaction scores, product’s Virality and Net Promoter Score, the number of complaints and support tickets, and more.
The SaaS business model is all about building the right product and retaining customers who are willing to pay for it regularly. To ensure its success, the business owners have to make thoughtful, data-driven decisions regarding the company’s marketing, sales, and customer success operations.
This short post makes it possible to mention only a few SaaS metrics — the guiding stars for a startup navigating in the sea of software-as-a-service products. They are enough to show you whether you are moving in the right direction and how fast you are moving towards your goal. Still, remember that there are many other SaaS metrics to explore that may help you measure your unique company’s progress and success.
If you are interested in even more business-related articles and information from us here at Bit Rebels, then we have a lot to choose from.