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The SaaS Metrics You Don't Want to Ignore

02.19.2014
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One of the biggest obstacles preventing a lot of magnificent new ideas being born these days is the difficulty behind identifying and measuring the right SaaS metrics.

SaaS has opened up the software world to a lot of new developers who lacked the resources or experience to get into more traditional local platforms due to expensive software and hardware needed to work with that. There’s also a lot of complexity in traditional software that, for some mindsets, is greatly reduced in the web standard SaaS platform.

Can't Figure It OutBig Obstacles:

But, I said SaaS metrics were a barrier preventing this from being as accessible as it could be, and I meant that. Startups have a problem here, just as they do in any niche out there, and that’s the fact that business is a convoluted thing full of confusion and tribulation. There are a ton of metrics discussed in online business forums, some of them meaningful, others just pretentious buzzwords.

Even when you can winnow out all the nonsense, you’re still left with a ton of metrics to look at, some redundant, and some just confusing in how they’re helpful to anyone.

  • Whatever are we to do, with all this sometimes conflicting information?
  • What are the metrics that matter?
  • How do we measure the metrics that matter, and how do we know when what we see is good or bad?

Oh My:

I can’t answer all of that in entirety, because we’d be here for a decade. There are a lot of these metrics that could matter, and measuring and defining positive and negative outcomes of them makes for a lot of information.

So, with that in mind, I’ll make it a bit shorter here, just by going over the more important metrics you should look at, and then we’ll talk about how to measure them easily, where easy is an option at all.

Acquisition Costs, Loyalty and Lifetime Values:

You’ll see metrics like CAC, LTV and Negative Churn mentioned a lot, and I do mean a lot, in the SaaS communities. There’s a reason for this. These are probably your biggest metrics aside from overhead and support expenses, which you’ll have dealt with on a higher, more business aspect before getting to the SaaS-specific nitty gritty stuff here.

CAC, or customer acquisition cost, is probably the one you see thrown around the most. It’s the costs in money and other resources which are incurred by invoking and following a customer experience from the absolute beginning, through need creation, research and comparison, to the sale and delivery/support that follows.

You will incur a lot of costs here in marketing, publicity through publications and content, and in initial costs to deliver to the customer. New customers are therefore more expensive in ratio to what they bring in, than loyal, returning customers.

It’s known by a number of names, retention, loyalty, negative churn. But they all mean the same thing, and that’s a customer that keeps on renewing their subscription to your service for a long term. A repeat customer. These follow the loyalty curve of a customer experience, chopping off a ton of acquisition costs.

All they incur is occasional support, general operations overhead, and maintenance marketing. Loyalty is therefore a hugely important metric, because loyal customers are where your primary revenue is actually going to come from.

Lifetime value is a little harder to explain, though. It depends on the smaller metric of customer life cycle or lifetime, which is a fiscal unit for how long a customer is in place before they may or may not be there any longer.

Lifetime value is usually defined as how much money a customer is worth per cycle, after their very first (acquired) cycle, and after individual overhead of all types are taken out.

Ideally, a loyal customer’s lifetime value is greater than triple the cost of acquiring a new customer on offset. Less than this, and you can choke, or never actually grow.

Churn:

Churn (the most troublesome of SaaS Metrics) is also known as attrition or negative loyalty. See why these SaaS metrics can get confusing? There are several names for some things (a few of them a bit absurd). So, what is churn? It’s the loss of customers over time.

These are the customers who don’t renew that fiscal period, when they were due to. This can be for any number of reasons, often either competition winning out over you, or a loss of need.

Sometimes it’s worse, and is something like poor customer service disgruntling the customer. Churn means not only loss of a loyal customer (a unit from which primary revenue is derived), but also it is an indication of something far larger being wrong. Either competition is doing a better job, is doing an adequate job much cheaper, or something about you really puts people off their mash.

Improving Measurements and Improving Metrics:

Well, measuring these better is all about making sure you have good CRM that can go the distance and be as flexible and intelligent as you could need. Salesforce and Netsuite are very good with most of these metrics.

But, when it comes to improving the status quo, well, there are a number of things you can do. Loyalty can be bolstered through making it more user friendly. Along with boosted loyalty, you can also reduce CAC by reducing overhead relevant to needed training for new customers.

How do you do these things? With an onboard system like WalkMe. This was created as a tutorial creation program which could procedurally guide users step by step through any set of tasks and processes, no matter how complex they are. It can prevent mistakes, prompt on the next steps to take, and record analytics like who’s making what mistakes, how common different mistakes are, and so on.

Implementing this into your SaaS not only brings in valuable usability SaaS metrics such as learnability and efficiency, but it can also encourage loyalty. By being there to teach them any given process or feature as they need to learn it (and get real work done while learning), the software suddenly becomes a much more valuable due to being penetrable and forever learnable ant tenable in the future.

Beyond that, the biggest thing to improving SaaS metrics is all about having exemplary customer support, outstanding service, competitive prices, and a good customer appreciation program which incentivizes loyalty appropriately. There’s no end all solution to this, or else everyone would succeed unchallenged.

Published at DZone with permission of Omri Erel, author and DZone MVB. (source)

(Note: Opinions expressed in this article and its replies are the opinions of their respective authors and not those of DZone, Inc.)