As an architect for growing companies at GSD Venture Studios, I work with startups growing from scratch to billions of dollars. Organizations often fail to identify the correct KPIs. This article discusses the metrics that a SaaS company should focus on.
ARR (Annual Recurring Revenue) is an indicator of the profitability of a company, project and any investment object. SaaS companies that have subscription contracts with predefined contract durations use ARR as a key metric. To calculate this metric, you multiply the number of customers by the payment per year. To improve your ARR, you will need to consider the number of customers you receive on average each month, focus on reducing churn to increase your annual revenue, and also achieve your reported quarterly numbers.
To stay profitable in business requires long-term customer retention. The churn rate is the number of customers who stopped using the service after registering. Churn rate is a great opportunity to analyze emerging problems in order to improve your product or service in the future. The first question you need to ask yourself is why customers are leaving. It is very important to collect feedback and use it to improve your service. See what your competitors are doing and, most importantly, meet and exceed your customers' expectations by delivering on what you promised.
When looking for investments for company growth, it is advisable to have quarterly P&L data with historical data for 2-3 years, forecast for 2-3 years, including cash balance, list of main customers and monthly MRR.
You will need to look at the number of engaged users, current customers paying for a subscription, and the frequency of engagement. These metrics affect your churn metrics and will be reflected in your renewal periods.
Efficiency to market
Once you've identified the product and how it meets the market's expectations, it's time to consider scaling your SaaS business against the established Go-to-Market performance metrics. Life-time value (LTV), magic number, SaaS quick liquidity ratio and customer acquisition cost (CAC) are all important metrics that need to be analyzed regularly. Overall, however, I think the most important thing to consider is ROI and cash efficiency.
How much money are you spending to increase your annual recurring income? Does this indicator give S&M or R&D? You will be ahead of the competition if you start to perform well in these indicators.
How do you generate leads that eventually turn into paying users, and annual or even multi-year contracts? If you have free sign up periods, what is the conversion rate from free to paid users? Understanding the nuances of these conversions is important.
Go to market
In the case of the formation of the Go To Market strategy, it is necessary to take into account the indicators reps for quotas, time to ramp, on-target earnings, number of quota-carrying reps, as well as quota attainment by rep.
The sales pipeline allows you to analyze the sales cycle from a qualitative point of view. How does a shopper make a decision regarding bookings, cash and ARR conversions? How does this affect ROI?
Historically, everyone wants to predict the percentage of chances of winning / losing, as well as the reasons for possible losses. Analyze the nature of the existing losses, perhaps they are related to competitors, internal product development or budget. There is not much information like this when you are just starting your business, but these are key metrics to consider when forecasting growth. The other half of this process will involve customer feedback and testimonials. Simplicity and focus on these KPIs will ensure the long-term success and sustainability of your SaaS business, which is vital in this period of uncertainty.
Originally published on VC.Ru