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9
Worst Practices
in SaaS Metrics
Christoph Janz
Point Nine Capital
About me
Founder Angel investor VC
More about me:
LinkedIn: www.linkedin.com/in/christophjanz
Point Nine Capital: www.pointninecap.com
Twitter: chrija
www.theangelvc.net
When I find the time I blog at www.theangelvc.net, mainly about SaaS topics.
My SaaS KPI dashboard:
http://bit.ly/saasdashboard
9
HORROR
worst practices
in SaaS Metrics
I want to talk about 9 of the worst practices in
SaaS metrics – like the SaaS metric equivalent
of this...
Image source: www.hadonejob.com
...or this...
Image source: www.hadonejob.com
...or this! :-)
Image source: www.hadonejob.com
Confuse MRR with Cash Inflow
(or Bookings or Sales or Revenues)
9
worst practice
MRR:
• Monthly Recurring Revenue
• Shows how much revenue you make next month if you don‘t win
any new customers
(assuming no churn, no upgrades/downgrades, etc.)
• #1 SaaS metric. Much more important indicator than bookings or
cash inflow
(but cash inflow pays the bills!)
• 2 customers
• 1 on a $20/m monthly plan
• 1 on a $120/y yearly plan
=> MRR = $30
Example:
Underestimate churn
(by mixing up monthly with yearly plans)
8
worst practice
Churn rate
# of customers who churned
# of customers who could have churned
Including customers who can‘t cancel in the
denominator screws up your churn estimate!
If you include customers who can‘t churn in
your churn calculation, you‘ll be hit by a bad
surprise once they can leave!
7
worst practice
Ignore your cohorts
Cohort analyses are the only way to get a good
understanding of retention and customer lifetimes
Image source: MixPanel
Don‘t track each step of the
conversion funnel
worst practice
6
Whether you use the age-old AIDA formula ...
AARRR!
... or Dave McClure‘s „AARRR“ ...
(for Acquisition, Activation, Retention, Referral and Revenue)
Visitors
Free Trial Signups
Paying
Customers
Visitor-to-Trial
Conversion Rate
Trial-to-Paying
Conversion Rate
... you have to track the key steps of your
conversion funnel and you should be obsessed
about improving each of them.
Retention Rate
and Account Expansions
Referrals
Mix up visitors to your marketing
website with users of your software
worst practice
5
0,00%$
0,50%$
1,00%$
1,50%$
2,00%$
2,50%$
3,00%$
3,50%$
4,00%$
4,50%$
5,00%$
0$
200$
400$
600$
800$
1000$
1200$
1400$
1600$
1800$
1$ 2$ 3$ 4$ 5$ 6$
Visits$ Signups$ Signup$Rate$
This can lead to a weird chart like this: Your visits are
going up slowly but surely, but your signups are flat
(and hence your signup rate goes down).
0,00%$
1,00%$
2,00%$
3,00%$
4,00%$
5,00%$
6,00%$
0$
200$
400$
600$
800$
1000$
1200$
1400$
1600$
1$ 2$ 3$ 4$ 5$ 6$
Signups$ Website$visits$ Signup$Rate$
If you correctly track separate app visits from website visits it
looks like this.Turns out your signup rate didn‘t go down
(good news) but you‘re not growing website traffic (bad
news), which is a very actionable insight.
Show CACs on a blended basis only
4
worst practice
(mixing up paid and non-paid sources of leads)
• 100 customers @ $0 per customer
• 20 customers @ $500 per customer
average CACs of $83.33, but
the average is pretty meaningless
Example:
Catch the low-hanging fruits, just
don‘t expect them to scale!
Attribute all conversions
to your sales team
3
worst practice
Do you know these cars? When small children take a tour in them,
they believe they are steering them around the curves.
If you‘re attributing all conversions to your sales efforts you‘re doing
something similar. :)
Find out how well your signups are converting
without being called by a salesperson.
A/B test and calculate the ROI on your sales
investments based on the conversion uplift.
Assume you‘re growing exponentially
2
worst practice
• True exponential growth is very, very rare in SaaS – requires virality
which most SaaS products don‘t have
• Most SaaS companies grow linearly and with step changes
• Even a modest exponential growth rate of 10% p.m. is very hard to
sustain for a longer period of time
Reading exponential growth into linear growth
numbers can lead to wrong conclusions
Don‘t start tracking KPIs until
investors request it
1
worst practice
Don‘t manage your company likes this. :-)
• Investors want historic numbers, not just a snapshot
• Many metrics are actionable – they tell you what to focus on, when
to invest in acceleration, etc.
• Metrics help you focus your team on what matters most
Because...
Thank you.
Questions?
christoph@pointninecap.com
9 Worst Practices in SaaS Metrics

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9 Worst Practices in SaaS Metrics