You probably know tons of different SaaS and subscription metrics, and you probably heard you should be measuring a few of them no matter what. Actually even we have told you that on the “5 metrics that every subscription business should be measuring” article.
Guess what? That isn’t necessarily true.
Don’t get me wrong, those five metrics are still key and should definitely be measured for most part of the SaaS and subscription business, but the whole point here is the stage of your business. Imagine yourself and you co-fouder running a recently created startup in a garage and measuring things like EBITDA, deferred revenue or sales quota per rep. That doesn’t make sense right?
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In a SaaS or subscription business, there are a few key metrics that need your undivided attention — and the priority of these metrics shift as you grow. It means that instead of measuring dozens or hundreds of different metrics, you should start with the core only and evolve from there — as your business grows and demands more control and higher complexity.
“Your company challenges and priorities evolves over time, and your metrics should reflect that”.
The following guideline will help you:
- To focus: by focusing only on the key metrics, you’ll also be focusing on the core problems you need to solve to get your business to the next level.
- To be actionable: data doesn’t do you any good unless you act on it. Each of these metrics clearly tells you how you’re doing. Right away, you’ll know where you need to spend your time.
- To evolve: each stage complements the previous one with more comprehensive and complex metrics. You probably want to add (not remove) metrics along the way.
The chart below demonstrates a comprehensive set of metrics according to a SaaS/subscription company stage. Please keep in mind that this is a suggestions and works for most part of business, but may not be necessarily true for you. As usual, it all depends on your context/type of product/customers.
Click on the image to enlarge it.
There are a few things we can learn from this chart:
Qualitative vs. Quantitative
The more early-stage your company is, the more qualitative your metrics are. That means when you’re early stage you want to talk to the each and every customer you can, and get rich and qualitative feedback on your product or service. That’s key to understand your buyer’s persona challenges, needs and barriers to adopt your product.
As your companies grows, and it’s gets barely impossible to talk to every customer, your metrics become more quantitative and less qualitative — but that doesn’t mean you shouldn’t talk to specific customers segments once in a while ok? It’s extremely important to keep getting qualitative feedback from customer who are churning, for instance.
“The more early-stage your company is, the more qualitative your metrics are”.
As your company grows, the complexity of your metrics grows too. And that’s ok. Take churn for instance: when you’re early stage you may simply measure your gross churn, which is simply the number of customers who cancelled their subscription to your product/service.
As you grow, you may want also to measure gross revenue churn. And later on, gross churn isn’t enough any more, and you move to more complex metrics such as net churn — that takes into consideration expansions, refunds — and may lead you to a negative churn.
The one thing you should be worried about is not to abandon simple/less complex metrics as your companies grow. Although measuring net churn becomes more effective, it’s extremely important to keep measuring gross churn, no matter the size of your company.
“As your company grows, the complexity of your metrics grows too. And that’s ok”.
Super Early Stage
At this stage, you’re just starting to build your product. What you want to do here is validate your hypothesis, and your metrics should reflect that. The number one goal is to capture the key values that your product/service offers that customer are willing to pay for. That’s way at this point, almost all your metrics are qualitative. You want to talk to real customers. We’re not talking about automated emails, ads or retargets, but actual calls to get rich feedback.
Suggested metrics at this stage: Qualitative Feedback; Customer Engagement Score; Website Visits, Leads & Conversion.
At this stage you already have some paying customers, you know your key values, but you don’t have yet a repeatable and scalable sales machine. What we want to do here is to understand your business characteristics, things like: how much does it costs for you to acquire a new customers? How long does a customer usually stays with you as a subscriber? Are customers cancelling their subscriptions after a certain period?
Suggested metrics at this stage: Bookings; Monthly & Annual Recurring Revenue; Customer Count; Gross Churn; Average Revenue per Account; Customer Acquisition Cost; Customer Lifetime Value; LTV:CAC Ratio; Up-front Invoicing; Cash.
At this stage your business is growing rapidly. You’ve found the exact way to market and sell your product/service, you have full-time sales reps, and your process is well designed and documented for the whole company. New employees come on board and have a culture to match, a sales script to follow, a way to do business.
Measuring new customers are not enough any more, you’re looking to expand your ways to bring more revenue with up-sells and cross-sellsand you want to retain your customer as long as you can. Your customer success team is in place and measure more detailed information about your customers behavior and engagement with your product or service.
Suggested metrics at this stage: Net Churn; Up-sell, Cross-sell & Down-sell; Gross Margin; Cost of Goods Sold; Cohort Analysis; Expenses; Forecasted Sales & Quotas; EBITDA; YoY, MoM Customers & Revenue Growth.
At this point, a comprehensive set of metrics is a necessity — and it’s ok if they get complex. Possibly, the standard way to calculate metrics are not enough anymore, you need custom metrics and multiple combinations of metrics. You’re measuring MoM and YoY growth of almost every possible number and cohort analysis is something common.
You measure detailed metrics for customer activation per different acquisition channels, and fight for churn/retention like never before. Your revenue can be seen in many different forms, and you know EBITDA is also not enough anymore.
Suggested metrics at this stage: Deferred Revenue; Marketing Penetration; Segmentation & Exploratory Analysis; and many more.