By Kevin Dobbs
The best-in-class SaaS companies are obsessed with operational efficiency, and they are constantly testing and monitoring all different types of business processes to improve speed and reduce costs.
A good example of this focus on efficiency is the use of the Customer Acquisition Cost (CAC) metric to measure the overall effectiveness of marketing and sales efforts. Since it is not possible for a SaaS firm to spend as much to sell new customers like a traditional software company, this becomes a very important efficiency metric to track because it has a direct impact on both the top and bottom line of the company.
Just like CAC, there are a number of other process-specific SaaS business metrics that are commonplace for firms to use to monitor all areas of their company. Leading firms will usually track some subset of these types of these SaaS metrics on a quarterly, monthly or even in some cases daily basis. Here is a list of sample SaaS metrics that I have shared with my clients that can be used to kick start the discussion with operational groups inside of a firm that is considering a move to SaaS:
The most obvious areas to track are revenues, COGS, cash flows, bookings, CAC, profits, customer satisfaction, customer lifetime value, revenue per unit, customer satisfaction and churn. Beyond that there are a myriad of process specific metrics and dashboards that can be tracked and monitored, but start with the most important ones first.
Here are some great sources of information on SaaS metrics including:
Joel York’s Chaotic Flow Blog is always really useful and he did a fantastic post on SaaS Metrics and Economics. Joel provides a very scientific approach and a lot of details for those who are really interested in getting into what comprises SaaS metrics theory.
Some firms like j2Communications tracks hundreds of metrics related to their subscription software services but it took them ten years to get to that point. My advice to clients is always, start with something simple, make sure that works and then you can always add complexity as you go along.