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9 Worst Practices in SaaS Metrics

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A presentation about 9 mistakes that SaaS founders should avoid, with some practical advice on how (and why) to avoid them.

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9 Worst Practices in SaaS Metrics

  1. 9Worst Practicesin SaaS MetricsChristoph JanzPoint Nine Capital
  2. About meFounder Angel investor VCMore about me:LinkedIn: www.linkedin.com/in/christophjanzPoint Nine Capital: www.pointninecap.comTwitter: chrija
  3. www.theangelvc.netWhen I find the time I blog at www.theangelvc.net, mainly about SaaS topics.My SaaS KPI dashboard:http://bit.ly/saasdashboard
  4. 9HORRORworst practicesin SaaS Metrics
  5. I want to talk about 9 of the worst practices inSaaS metrics – like the SaaS metric equivalentof this...Image source: www.hadonejob.com
  6. ...or this...Image source: www.hadonejob.com
  7. ...or this! :-)Image source: www.hadonejob.com
  8. Confuse MRR with Cash Inflow(or Bookings or Sales or Revenues)9worst practice
  9. MRR:• Monthly Recurring Revenue• Shows how much revenue you make next month if you don‘t winany new customers(assuming no churn, no upgrades/downgrades, etc.)• #1 SaaS metric. Much more important indicator than bookings orcash inflow(but cash inflow pays the bills!)• 2 customers• 1 on a $20/m monthly plan• 1 on a $120/y yearly plan=> MRR = $30Example:
  10. Underestimate churn(by mixing up monthly with yearly plans)8worst practice
  11. Churn rate# of customers who churned# of customers who could have churnedIncluding customers who can‘t cancel in thedenominator screws up your churn estimate!If you include customers who can‘t churn inyour churn calculation, you‘ll be hit by a badsurprise once they can leave!
  12. 7worst practiceIgnore your cohorts
  13. Cohort analyses are the only way to get a goodunderstanding of retention and customer lifetimesImage source: MixPanel
  14. Don‘t track each step of theconversion funnelworst practice6
  15. Whether you use the age-old AIDA formula ...
  16. AARRR!... or Dave McClure‘s „AARRR“ ...(for Acquisition, Activation, Retention, Referral and Revenue)
  17. VisitorsFree Trial SignupsPayingCustomersVisitor-to-TrialConversion RateTrial-to-PayingConversion Rate... you have to track the key steps of yourconversion funnel and you should be obsessedabout improving each of them.Retention Rateand Account ExpansionsReferrals
  18. Mix up visitors to your marketingwebsite with users of your softwareworst practice5
  19. 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 aregoing up slowly but surely, but your signups are flat(and hence your signup rate goes down).
  20. 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 itlooks like this.Turns out your signup rate didn‘t go down(good news) but you‘re not growing website traffic (badnews), which is a very actionable insight.
  21. Show CACs on a blended basis only4worst practice(mixing up paid and non-paid sources of leads)
  22. • 100 customers @ $0 per customer• 20 customers @ $500 per customeraverage CACs of $83.33, butthe average is pretty meaninglessExample:
  23. Catch the low-hanging fruits, justdon‘t expect them to scale!
  24. Attribute all conversionsto your sales team3worst practice
  25. 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 doingsomething similar. :)
  26. Find out how well your signups are convertingwithout being called by a salesperson.A/B test and calculate the ROI on your salesinvestments based on the conversion uplift.
  27. Assume you‘re growing exponentially2worst practice
  28. • True exponential growth is very, very rare in SaaS – requires viralitywhich 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 tosustain for a longer period of timeReading exponential growth into linear growthnumbers can lead to wrong conclusions
  29. Don‘t start tracking KPIs untilinvestors request it1worst practice
  30. Don‘t manage your company likes this. :-)
  31. • Investors want historic numbers, not just a snapshot• Many metrics are actionable – they tell you what to focus on, whento invest in acceleration, etc.• Metrics help you focus your team on what matters mostBecause...
  32. Thank you.Questions?christoph@pointninecap.com