SaaS Metrics – A Guide to Measuring and Improving What Matters

Summary

Key SaaS Goals

Probability

MRR

Micro-Economics (Per customer profitability)

  • CAC

    • Number of deals closed

      • Sales funnel conversion metrics

    • Total cost of Sales & Marketing

      • Marketing program costs

        • ROI per marketing program

          • Number of raw leads
          • Conversion rate to paying customers
          • Cost per lead
      • Level of touch required
      • Personnel costs

Overall Profitability (Accounting)

Profitability per Employee

Cash

Months to recover CAC

how many months of revenue from a customer are required to recover your cost of acquiring that customer(CAC)

% up front vs. monthly customers

Growth

Monthly in increase in MRR

  • Growth in Number of Deals

    • Improvement in overall Funnel Conversion Rate
    • Lead Generation Growth
    • Growth in Funnel Capacity
  • Growth in Deal Size
  • Adding new products for up-sell

Requires sccalable infrastructure

Others

  • Support costs

    • No of incidents

    • Cost per incident

      • Number of support staff
      • Incidents per support staff
  • R & D
  • G & A

Cost of Serve

  • Infrastructure costs
  • On-boarding support costs

2 Key guidelines for Saas Startup

  • LTV:CAC > 3
  • Months to recover CAC < 12 months

Three ways to look at Profitability

Drill down on CAC

The formula to compute CAC is: CAC = Total cost of Sales & Marketing / No of Deals closed

two CAC numbers:

  • purely at marketing program costs: a low touch, or touchless sales model, where the human costs won’t rise dramatically over time as we grow the lead flow.
  • also takes into consideration the people and other expenses associated with running the sales and marketing organization. require more human touch to close the deal.

how to lower CAC

important variables that can be tweaked:

  • Sales Funnel Conversion rates
  • Marketing Program Costs
  • Level of Touch Required
  • Personnel costs: related to the level of touch required

Drill down on Sales Funnel Conversion Rates

Using Funnel Metrics in forward planning

Drill down by Customer Type

Drill down into ROI per Marketing Program

Drill down into Churn Rate

Churn Rate has a direct effect on LTV. We can measure customer satisfaction using customer surveys, and in particular, the Net Promoter Score.

longer term contracts, focus on is renewals.

A good predictor of when a customer is about to churn is their product usage pattern.

  • Two variables that really matter

    funnel conversion rate, and churn

Drill down into ARPU (Average Revenue per Customer)

usually be driven up by focusing on:

  • Product Mix: adding products to the range, and using bundles, and cross-sell and up-sell
  • Scalable Pricing: ome customers that are willing to pay more for your product than others.

Drill down into Cash

affect Cash: which is using longer term contracts and incenting your customers to pay for 6, 12, 24, or even 36 months up front in advance.

If you do use longer term contracts, it will be important to measure “Discretionary Churn”.

Cash Management and forecasting

If you do use longer term contracts, it will be important to measure “Discretionary Churn”.

the most important ways to run a SaaS company is to look at CashFlow profitabilit

comment from Alastair Mitchell of Huddle on this topic: “SaaS companies tuning their model should think not just in terms of the months to recover CAC, but also the topline amount of cash required to get to cashflow profitability (or the next funding round). This is probably the single biggest mistake I see in early stage companies. They don’t look ahead, using these metrics, to figure out that if the time to repay CAC is 12 months, then in aggregate they are going to need 12 months of CAC spend PLUS the number of months required of further growth to cover their operating costs (mostly engineering) BEFORE they are even cashflow positive (let alone revenue profitability). Most businesses I see fundamentally miss this and end up short; frequently through under-estimating the time to recover CAC, and churn. The readers of this blog should be focused on cashflow profitability, not revenue profitability. (Hence why your point about annual/upfront contracts is so important)”

Drill down into Growth

It is the nature of a SaaS business to grow MRR month on month, even if you only added the same number of customers every month.

You can do this by focusing on: • Improvement in the overall funnel conversion rate • Lead Generation Growth • Growth in Funnel Capacity

Other Metrics