The ultimate guide to key metrics that drive growth for your SaaS company4 min read
This post is by DesignWithValue.
What are SaaS metrics, and why are metrics important for SaaS companies / Startups?
If you want to grow and be successful as a SaaS company or Startup, it is necessary to keep track of your numbers. Metrics are essential in all parts of your funnel, whether in marketing in the acquisition phase or in sales in the revenue phase. If you don’t track your numbers, you will not know if you are moving closer to your goal or further away. Only measuring your metrics will help you improve and adjust to your
journey of growth. This article will guide you through the labyrinth of SaaS metrics by showing you all the definitions and helping you understand which metrics to measure and how to calculate and improve each of them.
Why you should not measure everything & how to find the right metrics that move the needle for your company
There are different metrics to measure for every part of your sales funnel, but not all metrics are essential to achieve your goal. There are over 50 SaaS / Startup metrics. However, tracking all of them is not helpful, and if you want to monitor them all, you will easily get lost. These four steps help you find the metrics that affect your business success:
- Define your companies’ goal
- Define what metrics will help reach this goal
- Rank metrics based on business impact and viability
- Create action steps to improve the underlying metrics
Monitoring the right metrics requires a sound business strategy. First, ask yourself what your companies’ goal is. Here it is vital to be as precise as possible. For example, “increasing revenue” is a poorly drafted goal since everybody has a different opinion of what increasing revenue means. However, if you state it
like “increase this years’ revenue by 3%, compared to last year”, it is clear what you are trying to achieve. Based on your overall goal, start creating key performance indicators. Key performance indicators (KPIs) represent the most critical metrics in your company and help you measure your growth. This goal may be to increase sales, reduce costs, or expand into a new market. KPIs are metrics that move the needle, therefore keep them limited.
After you have defined your KPIs, ask yourself what underlying metrics will help you reach your goal. For example, your goal could be to increase customer lifetime value by 2% by the end of this year. A possible underlying metric that directly influences this goal is the average order size per customer.
Once you have a list of underlying metrics, start prioritizing these metrics based on impact and viability. For instance, if you measure the effectiveness of your e-mail campaign (which directly affects your sales), it is crucial to measure the open rate, click-through rate, and click-to-open rate. Yet, only the overall conversion rate shows you if you are moving closer to your goal. So keep in mind to prioritize the metrics that support your companies’ success.
What is the suitable benchmark for SaaS metrics?
Especially when you start, it isn’t easy to know what growth numbers are reasonable and what goal you can achieve. There is little sense in setting arbitrary goals without further exploration. Instead, research industry benchmarks in your area to get a feeling, what numbers make sense, and what goal you can set for your company. If we look at revenue growth, for example, according to SaaS-capital,
“a $2 million SaaS company needs to be growing at over 90% year-over-year to be in the top 25% of its peers.”
However, do not be scared off by those numbers. These benchmarks are good to get the first indication for growth. Yet, it is more important to measure your own numbers and compare them to your companies’ results. For example, track your key metrics for February and compare them to January’s results to see what growth rate is realistic for your firm.
How to monitor your metrics
Once you know which metrics impact your business and which metrics to track, monitor the KPIs in a dashboard. Keeping an overview is easier this way, and you can share it with your team regularly, so everyone is on the same page. To make the most out of your dashboards, keep these two steps in mind:
Group similar KPIs and metrics:
Grouping similar metrics in your dashboard has the advantage that you can use the dashboard in a task oriented way. For example, if you focus on the acquisition phase and want to get people on your website, group metrics like organic reach, visits, traffic sources, etc. Suppose you focus on the Retention phase and want people to continuously visit your website, grouping metrics like returning visitors or logins might go well together.
Make it easy to understand:
One of the prime mistakes of creating a dashboard is making it too complicated to assess the situation immediately. To avoid this, make sure only to use the important metrics and provide them in a comprehensible way that can be interpreted easily.
Read more about all the important metrics to track.
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