Updated on October 14th, 2020 at 7:26 am
Many entrepreneurs jump in the SaaS pool with the desire of making it big, but according to a report by Mckinsey, “Only about 28% of the Software and Internet companies managed to generate a revenue of $100 Million dollars and around 3% reached $1 Billion dollar revenue.” Out of the 3000 companies they analyzed, 85% of the companies were unable to maintain their growth.
But why is it so hard to make your SaaS company a success?
One reason might be market saturation. This makes it vital for SaaS companies to keep track of their growth in order to stay ahead of their competitors.
This is probably the most important SaaS metric on this list – the count of the number of unique individuals who’ve visited your website in a particular month, i.e., if a visitor visits your website with the same device and browser (and doesn’t clear his/her browser cookies between the visits) a couple of times, it will be counted as one.
This metric is a great reflection of your audience size and its an effective way to understand the results of your marketing strategies. You can also sort all the visitors on source basis and this can eventually help you analyze which platform helps you drive the most traffic, so you can later focus all your efforts on that particular one for better and effective results.
Along with this parameter some other metrics like average time on site, repeat visits, downloaded content, no. of email subscriptions, etc. are also worth noting. These metrics will help you understand the quality of your traffic. There are a bunch of tools to analyze the above-mentioned metrics, however, Google has overtaken this market as well with its free Analytics tool. Other popular analytics tools are ProfitWell and MainMetrics.
The freemium pricing model is the most popular one in the SaaS industry. It offers what the company and the customers want, a good amount of traffic, and a trial of the software before actually paying for it, thus offering a win-win situation for both the parties.
For SaaS companies offering freemium or self-service, signup is the most important SaaS metric.
Whether you’re offering a free trial or a freemium plan, for any SaaS startup the initial marketing goal is to drive signups. Writing educational content for both existing and potential customers can help increase the signups and optimize your website’s conversion rate as well. You can sort this on source-basis to analyze which marketing channel is contributing the most to lead generation and to each stage of your sales funnel.
Analytics has an altogether different jargon and while analyzing the metrics we’ve to familiar with it. One common term used is Organic and Paid traffic – Organic is the non-paid listing in the search result and Paid traffic is the visitors from PPC ads (Pay-Per-Click).
We recommend opting for PPC only if you desire immediate results and have the budget for it.
If not, you can focus your time and budget in generating SEO friendly content for better and increased steady organic traffic. But if you can afford both, do them.
While generating traffic is important, but that’s not the goal of SaaS companies. You want visitors to convert. So you need to keep a check on the conversion rate (especially the leads that are generated using paid ads). Either way, it’s important to keep a check on the amount of traffic generated using both methods and conversion rates of each.
To analyze this you can use tools like Google Analytics or HubSpot. These tools help you measure the amount of traffic your website gets on weekly, monthly, or any other basis as well, customer acquisition volume by each channel, and leads these channels have generated.
Being in the SaaS industry, it’s pretty obvious that you will receive a certain number of complaints, questions, or suggestions from your customers. This metric tells you how many customers are requesting for your help. While knowing the total number of support tickets raised is important, you should preferably look for the average number of daily or monthly tickets.
To enhance the data generated from this, you can tag these tickets as bugs, questions, feedback, feature requests, or any other form of the ticket as well. This will give you a better understanding of what problems your customers are facing while using your software.
Staying organized is the key! It will help you quickly detect customer’s pain points and provide them a prompt solution. In order to monitor your support tickets, you can use services like Zendesk, Help Scout, or Intercom.
As we already discussed, being in the SaaS industry generating traffic is not your ultimate goal. Generating sales is.
Generating traffic or getting ‘x’ number of subscribers can be your objective but let’s face it, in the end, it’s the revenue that matters.
For starters, you might have divided your leads into the following categories:
In order to measure the conversion rate to a customer, we use the simple formula:
Conversion Rate to Customer = No. of Customers/Total no. of customers during that particular period of time.
The resultant will serve as a benchmark for how good a job you’ve done at turning leads into customers.
CAC shows you exactly how much it cost you to acquire a customer and how much value it has brought to your business. In order to calculate this, you need to divide your total sales and marketing spend by the total number of new customers you added during a given period of time. In case you’re following a field sales model, then make sure you include salaries as well.
David Skok, founder of SilverStream Software has called CAC a startup killer because a large number of startups fail as they’re not able to lower this cost.
Once you’ve understood the CAC and identified which channel works the best for you – which one is the most profitable for your business, you can develop strategies accordingly to scale up your SaaS business.
A SaaS company, often finds itself struggling to balance the 2 variables – CAC and LTV. In order to make your business a success, you’ll always want that both the variable are balanced.
To reduce CAC, you can try A/B testing, to improve the conversion rates and minimize the follow-ups required. To track and calculate CAC you can either use the traditional spreadsheets or use QuickBooks and track the number of new paid users.
Recurring revenue is the soul of SaaS businesses for which you need to keep a track of the MRR – a single, consistent number that helps you summarize all the revenue you receive from your paying customers.
To do this, you can multiply the total number of paying customers by the average revenue per user.
What types of MRR should you calculate?
As a SaaS company, you’ll always want that you have a better customer LTV and a better customer retention rate. You want people to continue using your product for a longer period of time.
The customer retention rate is a metric that indicates what proportion of your current customers have continued using your product. In order to calculate this, look for the repeat customers in the past month and compare them to the numbers from 2 months before.
The next thing will be the customer LTV – calculated as the “inverse of the Customer Churn Rate.” The result will help you make some important business decisions about sales and marketing and even product development. The number, hence generated, is also vital to check if a particular business model is viable for SaaS company or not.
In a completely balanced business model, CAC will turn out to be less than LTV while in the case of an imbalanced business model, CAC will exceed LTV.
Obviously all the aforementioned metrics can be applied to all types of businesses and should be tracked and monitored on a regular basis, but they’re necessarily important for SaaS businesses.
Now that we’ve reached the end of the blog, you’ve got a lot of work to do. Also, make sure to put the necessary reports in place and set benchmarks for each of the above metrics.
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