How to Build an Empire with 5 SaaS Basic Metrics

How to Build an Empire with 5 SaaS Basic Metrics

November 26, 2014

 

Measuring, everyone is measuring. After researching and asking founders of SaaS startups we have found two common answers: 

  • We don’t measure enough or don’t know what to measure!

  • We measure everything and don’t know what to do with the data!

Break it Down

What are the key indicators for a healthy business, your business?

 

Similar to when going to the doctor, there are general, must have indicators that are measured such as cholesterol, heart rate, blood pressure, and your BMI.  What are the key indicators for your business to remain healthy and to grow?

 

What should you be measuring?

Simple:

  • Acquiring

  • Retaining

  • Monetizing

 

In order to actually grow your company you should be examining your data in order to fine tune your product.  Your dashboard should be set up to measure every aspect of your customer’s interaction with your site and application. Starting with google analytics but also in depth product analytics.

 

  • What features are they using?

  • How are they using it?

  • What are they not using?

 

For example:

You can optimize your pricing decisions based on your data.  Your goal might be to have a prepaid subscription model. If customers are trusting you enough to pay for a year then you know that the product is what the market wants – you have solved their problem and they trust your product and they trust you as a vendor.

 

Gauge your company’s success, although the goal is to measure, and measure deep, avoid an overload of data. How? Make sure that there is a question behind each metric. Let your data become your “go to’ for answers.

 

What every SaaS Blogger talks about as the 5 Basic Metrics:

  1. Monthly Recurring Revenue  - MRR

    a. This is probably your most important business metric. 

  2. Cost Per Acquisition -  CAC

    a. Divide the sum of your sales, marketing and all customer acquisition activities by the  number of customers.

  3. Churn

    a. Simple – the number of customers who leave your product. Each company should define  their churn metric depending on payments and subscriptions.

  4. Average Revenue per Customer - ARC

    a. So, how much money are you making per customer?

  5. Lifetime Value - LTV

    a. This is a critical metric when looking to make strategic decisions, you need to knowthe  history of each customer segment.

If you are just embarking on your startup dream, and have only started on the foundations of your empire, you might not and don’t be embarrassed, understand all the metric lingo, here are some explanations of SaaS metric terminology:

 

Foundations are set, now build that empire!

 

Once you have the foundations – your five basic metrics set up, it’s time to set up your dashboard so that you can start building and expanding your empire. Not all metrics are equally important – focus on the critical! In addition when you start with benchmarks remember that they are a tool for understanding don’t rely blindly on industry averages. Each company has very different strategies.

 

Here are some excellent examples of SaaS metric Dashboards

http://christophjanz.blogspot.co.il/2013/04/a-kpi-dashboard-for-early-stage-saas.html

http://andrewchen.co/the-easiest-spreadsheet-for-churn-mrr-and-cohort-analysis-guest-post/

https://docs.google.com/spreadsheet/ccc?key=0AkJVUDhVuAHldE1kY04wbWpYQUtpdXpMdmgzdjAzbWc&usp=sharing#gid=0

 

Stay tuned – next up – getting down and dirty with metric numbers!

 

Image: http://www.slideshare.net/iridize/4-hacks-to-help-you-reduce-saas-churn-rates

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Incentive Management Inc.
Ariel University Center of Samaria Upper Campus, Building 10 
+972 (0)3 908 5000
+972 (0)3 936 6873
Incentive, Peregrine Ventures Incubator 

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