“If you cannot measure it,” declared Lord Kelvin, “you cannot improve it.” Perhaps SaaS companies have taken this advice too literally.
SaaS sales and marketing teams can get overwhelmed by metrics. But without any metrics, it’s impossible to track growth. And without growth, a SaaS company is dead in the water.
According to Statista, the SaaS market will reach $157 billion next year. And while that figure is promising, early-stage SaaS companies need a ton of growth to survive. In fact, SaaS companies with an annual growth rate of 20% or less have a 92% chance of failure, according to research by McKinsey.
That same research found that “super growers” were eight times more likely than “stallers” to grow from $100 million to $1 billion, and three times more likely to do so than “growers.”
If growth is the best way to get out alive, marketing metrics do little unless they correlate with sales. After talking with a bunch of SaaS experts, here’s what I learned about which SaaS metrics deserve focus—and which ones don’t.
The nuts and bolts of measuring SaaS growth
Software and online-services companies can quickly become billion-dollar giants, but the recipe for sustained growth remains elusive.
It’s common for companies to put a revenue figure on what it means to be successful in SaaS. But only 400 software companies have made it to the $500M revenue mark.
- Acquiring customers;
- Retaining customers;
- Monetizing customers.
According to Gartner, three metrics form the foundation for those growth levers:
Gartner Managing VP Steve Crawford argues that improving those metrics can supercharge a SaaS company and fund future growth organically:
But moving too quickly into an aggressive growth mode without putting the proper focus into optimizing the right metric at the right time can have the opposite effect.
It can lead to a “vicious cycle” of increasingly negative cash flow, resulting in financial failure of the business.
There is a natural progression regarding when and where to focus on optimizing each of these metrics—that is, at which stage of a SaaS offering’s customer adoption life cycle.
So what should you focus on when? Here are seven insights on SaaS metrics from successful founders and consultants.
1. Don’t focus on metrics like MRR too early on.
Are you trying to grow an early-stage startup? Chances are you’ve been told to focus on metrics like:
- Monthly Recurring Revenue (MRR);
- Lifetime Value (LTV);
- Customer Acquisition Cost (CAC).
But if you don’t have enough data to return accurate, instructive measurements, it can be a waste of time.
Foong said the company knew right away that they couldn’t rely on the same metrics for CandyBar that they had been using to measure ReferralCandy’s success, like LTV or …read more
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