I am sure that you are thinking that having a single major metric for your SaaS sounds ludicrous. And it does; at first. But, let me explain.
As a founder or VP, you need to have one or two key metrics that just by looking at them, you can gauge your performance in any given time/month. However, different SaaS business models need a different major KPI.
Below, I will describe the most popular SaaS business models and the most important key metric they need to monitor frequently, as well as the reasons for choosing each of those metrics.
Let me explain first why having such a metric and monitoring it daily is so crucial.
Why You Need One Key Metric
Every SaaS business has a range of tools and software that it is using to drive customer acquisition. So, as we all know, things can break from time to time. It can be a bug of the most recent product update, a substantial change in a major traffic source, your email software breaking down, etc.
For this example, let’s say that this “break” results in having 80% of those who would signup, leaving. This is very important and must be uncovered immediately and then be fixed.
Fixing it in most cases is not long or hard. Finding out about the problem early enough though can be trivial. You can’t monitor everything daily…
But, if you are looking at one key metric every day, you can spot such big discrepancies very early and do something about them. If you log in the morning and see that your signups are 20% of what they should be, something is probably going on and you need to find it out as soon as possible!
Every day that this problem goes on can translate into thousands of $$ in loss…
Of course, having one key metric is something every experienced entrepreneur does, as Norm Brodksy and Bo Burlingham tell us in their book “The Knack“. If you haven’t read it, I suggest you check it out, it’s a great book.
Having the why covered, let’s move on to the most popular SaaS business types and what their most important key metric should be…
Self-Served B2B SaaS
This type of SaaS is one that is light-touch (you don’t want having a human assisting the conversion in most of the cases) and it is generally low cost.
Here, you want to have your marketing do all the work, having the customer signing up for a free trial or free lite account, learning the software on his/her own through onboarding or other means and converting to a customer by finding the value in your product.
The most important key metric: Signups
Think about it…
If you want to grow such a business, increasing its signups will almost always bring more customers.
How to increase signups?
You can work backwards and see what could be some quick wins. Redesign your website, drive more signups from your blog, get more traffic, etc.
Did you increase your signups, but the results weren’t as expected?
Dig in what happened after they signed up and uncover any potential issues. Did the method of driving those signups promised something your software didn’t deliver on? Did they had trouble figuring out what your software was all about? Did you forced them to sign up too early?
All these are questions that can easily be answered and worked upon to improve the process.
Enterprise SaaS always includes sales and has a human element in all of its conversions. This usually means that you want visitors to fill out a lead/demo form or signup for a free trial of the software.
However, it’s easy to measure qualified leads in these types of SaaS, so qualified leads/signups, instead of simple signups is a better metric to track. The best metric though for enterprise SaaS is Qualified Lead Velocity, which is the month-over-month growth of qualified leads/signups.
The most important key metric: Qualified Lead Velocity
This is an ideal metric because there is usually a long time window from the moment a sales representative starts talking with leads and the time they close.
Qualified Lead Velocity Rate (LVR) shows the growth (or lack of it) of those qualified leads, so you can instantly anticipate future sales, future needs for additional sales representatives, any potential problems, like lack of leads, etc.
Simply the best metric for enterprise SaaS…
B2C SaaS are businesses like Evernote, Dropbox, etc. These businesses have a much lower customer LifeTime Value than B2B so it’s very hard to drive signups profitably with PPC.
The main driving forces behind them are PR, content marketing, branding and virality.
The most important key metric: Viral Coefficient
The best way to scale a B2C SaaS is by increasing virality, meaning (in short) that every user refers your SaaS to more users (not visitors).
This is like an amplifier, meaning that for every signup you get, it translates into more than 1 actual signup.
For example, if your virality is 1.7 it means that every signup brings an additional 0.7 signups. So, for every 100 signups you get, you end up with 170 instead. That’s 70% more. Not too shabby.
And this is the only way in most cases that B2C SaaS can acquire users through PPC, except if they are burning through cash and they are focusing on growth instead of profitability.
These are the main SaaS models and the most important key metric each one should be focusing on. In general it’s usually best to have your key metric in the middle of the customer journey.
Of course, certain exceptions apply, like if you have a highly refined nurture and inbound marketing strategy getting more email signups should be the primary goal and metric.
Anything else you’d add?
Let me know in the comments below!
4 thoughts on “The Most Important Key Metric For SaaS”
Great sum up of key metrics Alex! Found the viral coefficient especially useful 🙂 Thanks.
Glad you found them useful Alex 🙂
I agree with Alex, I need to work on my viral coefficient skills! Awesome post.
Thanks a lot Trevor, I am sure you will do great!