9 worst practices in saas metrics

9Worst Practicesin SaaS Metrics

Christoph JanzPoint Nine Capital

About meFounder Angel investor VC

More about me:LinkedIn: www.linkedin.com/in/christophjanzPoint Nine Capital: www.pointninecap.comTwitter: chrija

www.theangelvc.net

When I find the time I blog at www.theangelvc.net, mainly about SaaS topics.

My SaaS KPI dashboard:http://bit.ly/saasdashboard

9HORROR

worst practices

in SaaS Metrics

I want to talk about 9 of the worst practices in SaaS metrics – like the SaaS metric equivalent of this...

Image source: www.hadonejob.com

...or this...

Image source: www.hadonejob.com

...or this! :-)

Image source: www.hadonejob.com

Confuse MRR with Cash Inflow

(or Bookings or Sales or Revenues)

9worst practice

MRR:• Monthly Recurring Revenue

• Shows how much revenue you make next month if you don‘t win any new customers (assuming no churn, no upgrades/downgrades, etc.)

• #1 SaaS metric. Much more important indicator than bookings or cash inflow (but cash inflow pays the bills!)

• 2 customers

• 1 on a $20/m monthly plan

• 1 on a $120/y yearly plan

=> MRR = $30

Example:

Underestimate churn

(by mixing up monthly with yearly plans)

8worst practice

Churn rate

# of customers who churned

# of customers who could have churned

Including customers who can‘t cancel in the denominator screws up your churn estimate!

If you include customers who can‘t churn in your churn calculation, you‘ll be hit by a bad surprise once they can leave!

7worst practice

Ignore your cohorts

Cohort analyses are the only way to get a good understanding of retention and customer lifetimes

Image source: MixPanel

Don‘t track each step of the conversion funnel

worst practice

6

Whether you use the age-old AIDA formula ...

AARRR!

... or Dave McClure‘s „AARRR“ ...(for Acquisition, Activation, Retention, Referral and Revenue)

Visitors

Free Trial Signups

PayingCustomers

Visitor-to-Trial Conversion Rate

Trial-to-PayingConversion Rate

... you have to track the key steps of your conversion funnel and you should be obsessed about improving each of them.

Retention Rateand Account Expansions

Referrals

Mix up visitors to your marketingwebsite with users of your software

worst practice

5

0,00%$

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1$ 2$ 3$ 4$ 5$ 6$

Visits$ Signups$ Signup$Rate$

This can lead to a weird chart like this: Your visits are going up slowly but surely, but your signups are flat (and hence your signup rate goes down).

0,00%$

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Signups$ Website$visits$ Signup$Rate$

If you correctly track separate app visits from website visits it looks like this. Turns out your signup rate didn‘t go down (good news) but you‘re not growing website traffic (bad news), which is a very actionable insight.

Show CACs on a blended basis only

4worst practice

(mixing up paid and non-paid sources of leads)

• 100 customers @ $0 per customer

• 20 customers @ $500 per customer

average CACs of $83.33, but

the average is pretty meaningless

Example:

Catch the low-hanging fruits, just don‘t expect them to scale!

Attribute all conversions to your sales team

3worst practice

Do you know these cars? When small children take a tour in them, they believe they are steering them around the curves.

If you‘re attributing all conversions to your sales efforts you‘re doing something similar. :)

Find out how well your signups are converting without being called by a salesperson.

A/B test and calculate the ROI on your sales investments based on the conversion uplift.

Assume you‘re growing exponentially

2worst practice

• True exponential growth is very, very rare in SaaS – requires virality which most SaaS products don‘t have

• Most SaaS companies grow linearly and with step changes

• Even a modest exponential growth rate of 10% p.m. is very hard to sustain for a longer period of time

Reading exponential growth into linear growth numbers can lead to wrong conclusions

Don‘t start tracking KPIs until investors request it

1worst practice

Don‘t manage your company likes this. :-)

• Investors want historic numbers, not just a snapshot

• Many metrics are actionable – they tell you what to focus on, when to invest in acceleration, etc.

• Metrics help you focus your team on what matters most

Because...

Thank you.

Questions?

christoph@pointninecap.com