What are you measuring?
KPIs is SaaS is a good way to measure your business. It is not the only way to measure and you often end up measuring the business looking backward. This is wrong. You NEED to measure the business looking forward. So your backward analysis is to define the trends and you project forward looking KPIs.
Don’t start measuring when you get your first customer. Call them instead and understand. A minimum expectation is to get 100 customers before measuring your SaaS business. Anything else, is measuring the mess and have no trends or validity.
In addition, you create levels of acceptable ranges. For example, churn can be between 1-4% monthly. Anything higher is unsustainable and as you measure you can call the red flags.
Each KPI can be viewed in a range of dimensions/segments.
- Dates: Often monthly, quarterly and yearly.
- Channels: License models, sales channels, geography etc.
- Customer segmentation: size, type, profile etc.
SaaS KPI list
||Annual Contract Value.
- Total contract value / 12
||Average revenue per user/unit. An indicator of revenue based on the user or unit base of your business.
- Total revenue / total number of user/units assigned to the revenue
||Average revenue per account. Unlike ARPU, ARPA is calculated on the number of customers.
- Total revenue / total number of accounts assigned to the revenue.
||Monthly recurrent revenue. RR on a monthly scheme.
||Annual recurrent revenue. RR on an annual scheme.
||Recurrent revenue. Often mistaken by run-rate. Not the same.
Recurrent revenue is the portion of your business, which will auto-bill and reoccur automatically.
||Customer acquisition cost. To cost assigned to acquiring a new customer including sales and marketing cost.
||Customer renewal rate.
||Churn is an indication of a loss in your business. We define churn into different elements:
· Customer churn
· Revenue churn
· Seat/user churn
100 customers at the start of the period, 7 of them cancel by the end. Your churn rate is 7/100=0.07 = 7%
You can use customer churn rate to calculate average customer lifetime if you divide 1 by your churn rate.
By dividing 1/0.07, we see that a 7% churn rate equates to a customer lifetime of 14.2 months.
Revenue churn may not be loss of customer. But simply customers moving to another tier or plan.
- Lost customers / total customers
Revenue churn (monthly):
||Cost of goods sold
||Customer lifetime value, also indicated LTV.
The value a given customer delivers to your business over the time.
||Committed Monthly Recurring Rate. More or less a modified version of MRR, the goal of tracking committed monthly recurring revenue is to show what a SaaS company’s revenue stream will be going forward if the business halted its sales and marketing efforts.
||Customer lifetime value. See CLTV.
$100 ARPA / 0.1 churn rate = $1000 LTV
Your LTV / CAC should be >= 3x.
|ARPA / Customer churn rate:
- ( Sum of all customer MRR / Total # of customers ) / ( # of customers who churned / Total # of customers )
- MRR * Gross Profit % * #lifetime in months
||Payback Period. The period before any customer is paid of the investment to acquire.
Your PBP should be <= 12 months.
|PBP = CAC / MRR * Gross profit %
||Return of investment.
This list will be regular updated.
In an earlier article, I described a model for how to optimize your trial and customer experience. In this article allow me to focus on some real tools for you to drive your business.
- A customer platform. A no. Not a CRM platform. A customer platform. What’s the difference? Well, if you think CRM – 99.0875% of all of you think sales force and marketing. In SaaS – the service is everything. From sales, to support to marketing, to help, to customer engagement to conference calls and online webinars. Still there is no single handed SaaS platform on the market, so your platform for customer will be multiple apps integrated… CRM, ERP, HRM etc. Choose wisely and consider the cost of integration.
- Drive your customer onboarding automatically. WalkMe is a set of amazing snippets you design and insert into the framework of your application. WalkMe is a great way to automate “how to use” and “show me” features directly with your SaaS application. The WalkMe use a clever engine to basically do the steps for the user, by integrating into the HTML. I really encourage you to learn the structure – www.walkme.com.
- Automate your customer triggers. Marketo is the defacto standard of optimized process management for onboarding and managing both customer sign up and customer journeys. As you open the doors to your SaaS application, you need to design every aspect of customer experience. From signing up, to activating, to getting people on the platform and to billing. Marketo can design these workflow based on the platform, instead of bundling 100’s of apps to drive the same. www.marketo.com.
- What are my users doing? I have participated in more than 1.000 reviews and board meetings on the discussion of investments and future strategy for these companies. I always see the same conversation; R&D says “we would like to invest into feature A to optimize our code”. Sales says “well new users need feature C so please help otherwise we cannot sell more”. Marketing says “customers search for B”. And I always ask – “what does the customers tell you?”. The room go silent. All think of the burden if any is tasked to call 50-200 customers and ask. Sales and marketing leave the room as they need to do to “the toilet”. Reality is the CEO/MD failed a complete different place, but lets leave that for now. Telemetry is the key to your insight and above all you need this so emmence. SaasOptics or www.telemetrytv.com provide a platform to engage. UPDATE- Microsoft Azure now provide a telemetry as a service. This is technical and not business – so you need to craft a middleware.
- Billing and dunning. This is the most important investment you will drive. Probably a key part of your customer platform, but often a separate ERP integrated with multiple credit card vendors. I urge you to use an automated platform example www.upodi.com.
But wait? You did not explain where the CEO gone wrong in “what are my users doing”. Well please revisit this article, and this. In addition learn the following; in SaaS/Cloud – your product is a service. Your service is your organisation.
There are no siloed organisations where R&D handover to product marketing and they handover to marketing whom handover to Sales. STOP DOING THIS. Your customer is really the center – and there is no boundary. R&D CAN easily own all marketing communication.
UPDATE – Very good article here to review the telemetry designs.
Throughout the last years I have been working closely with corporations, suppliers and vendors on Software As A Service (SaaS red.) and cloud computing. As the IT industry often looks at the technology, I have experienced a radical changing behavior at the offices I visited. We are not only changing on the technology side – but also the way we work.
During the 1960s John Shiflett, had great momentum with his new “action office”, giving birth to the cubical office. For privacy, focus and productivity – employees were arranged in small enclosed one-man configurable cubicals. The mantra was, that employees became more productive, the less noise their experienced and the more you screened them in. Knowledge was shared by meetings and memos. The everyday work was to work, document and re-cap of the work done. Security, paper copies and memos was kept tight in cabinets in each cubical and a central archive. Continue reading