Are You Really Doing Something with Your SaaS Metrics?

August 26, 2011

In a lot of ways, metrics are the pulse of Software as a Service (SaaS) companies. But the question is, which SaaS metrics should you really be tracking?

SaaS Metrics: Tracking and Improving the Right Metrics

If you run a SaaS company, you already understand the importance of metrics.

Metrics can speak to the health of your company, tell you how your product strategy, go-to-market strategy, and other strategies are working, and offer insights as to how you might improve them.

In a lot of ways, some metrics are the pulse of SaaS companies. But the question is, which SaaS metrics should you really be tracking?

Joel York has compiled the most important SaaS metrics on one sheet of paper (if you print double-sided). If you follow that link, you’ll also find York’s prior posts, which neatly explain the metrics in more detail. If SaaS is your business, download York’s PDF, laminate it, hand it to your team, and begin calculating your own metrics.

SaaS metrics

Even easier, just track these 4 SaaS metrics.

But that’s just the first step.

If you stop there, you’re not adding any value to your company. Once you have a good grasp of your SaaS metrics, it’s important to identify the metrics that you want to improve in order to add the most value to your company.

The basic approach for improving any metrics:

1. Identify the current measure (e.g., current churn rate is 3%) and your goal for the metric (e.g., churn rate under 1%)

2. Get insights into the current measure by researching the reasons behind it (e.g., customer research indicates that the smaller customers leave to go to our top competitor, but larger customers tend to renew and grow their business.  The larger customers that churn tend to never have really adopted our platform).

3. Build a great backlog of ideas that you could execute to improve your metric.  You can get your backlog together by brainstorming with your team, doing some internet research (do a search on the OpenView Labs website, for example), asking a question on Quora or in a LinkedIn group, and/or talking to some of the people in the industry that have tackled the issue in the past.  Generally, the more ideas you have, the higher the probability of finding one or two great ideas!

4. Prioritize your ideas and execute the first one or two on your list.  You can prioritize in a lot of different ways, but I generally like prioritizing the “quick wins” first so that you can get something done and show progress against your goal.

5. Rinse and repeat by examining how the metric has changed and why, and then deciding what to do next (keep iterating on the first item, expand the work on the first item because it works so well, kill the item because it doesn’t work, pick off a new item from your prioritized backlog, etc.).

An example

Let’s take a look at one particularly important metric for SaaS companies: churn rate. If you find that you have a high churn rate (low customer renewal and high customer attrition), you’ll want to know what the issues are that could be causing it.

Here are some possible culprits and a few ideas on how to resolve them:

Selling to a poor customer segment

Determine if customers exist with characteristics that have high churn or low churn (in the example above, the smaller customers had high churn and the larger customers had low churn, for example). Next, look for marketing channels and messages that will help you attract more low churning customers. If all your customers have high churn, identify other segments you can target that have lower churn (a more difficult problem to solve, but it is usually solvable).

Overselling your customers

If you make promises that you can’t keep during the sales cycle, you’re probably overselling your customers. That’s a mistake a lot of SaaS companies make, according to a 2009 survey by Gartner Research. Of the reasons SaaS customers listed for their displeasure with a particular service, it was the vendor’s propensity to overpromise and underdeliver that ranked highest.

If you think you might be guilty of that, call on a few non-renewing customers to identify if it was a reason for their departure. It should be relatively easy to adjust your sales messages, toning down the promises you make.

Failure to properly onboard your customers

Many early SaaS companies focus on acquiring signed customers, yet fail to properly onboard them. Again, you can narrow this issue by calling recent customers that should already be onboarded and find out how they’re doing (or check usage records and explore how they’re using your product), as well as former customers that may have failed to renew because of the onboarding process.

If it’s a problem, you may need to implement a “customer success” unit to ensure customers are properly onboarded.

Failure to set up for the renewal

It’s critical for SaaS companies to begin setting up their customers for renewal well in advance of their renewal date. Your best competitors will know those renewal dates and will undoubtedly attempt to knock you out and move their product in. If your team isn’t prepared, you may lose the acquisition to a competitor.

So call your customers periodically to ask how they’re doing. That attention to detail will show them that you care about addressing issues proactively. It’s a step that doesn’t require a lot of resources and it could help to reduce your churn (Note: for lower price point products, you might try this via e-mail).

Product may not work very well in practice

There are plenty of opportunities out there that will help improve the usability and features of your product, so there’s little excuse for those two things contributing to your high churn rate. If you ask them, your customers will likely share any issues they have with the software. You can take that information and proactively resolve those issues.

You can also check usage records, perform usability testing, and implement a customer survey (Net Promoter Score or another approach) to receive feedback from your customers that will allow you to identify key areas for improvement and the customer segments that seem most satisfied. That information should help you determine your next course of action.

Looking at the bigger picture

The list above is not meant to be exhaustive. Those ideas simply reflect one SaaS metric. But that example helps portray the ways in which you can use your SaaS metrics to identify relatively specific actions to improve them. That approach works with all metrics in every type of company. The trick is to retrieve your metrics, identify the ones needing adjustment, and then drill down to the most important issues or opportunities and start working on them.

Utilizing this vector will also naturally benefit your company by helping to create competitive advantage and identify business growth strategies. Better yet, it’s a fantastic overall company development strategy because it helps you focus on the few things that matter.

So, now you have your SaaS metrics on one sheet of paper. What are you going to do about it?

Founder & Partner

As the founder of OpenView, Scott focuses on distinctive business models and products that uniquely address a meaningful market pain point. This includes a broad interest in application and infrastructure companies, and businesses that are addressing the next generation of technology, including SaaS, cloud computing, mobile platforms, storage, networking, IT tools, and development tools.