An interesting challenge that comes with building a disruptive SaaS solution is that it is often difficult to figure out which metrics are most important to measure and monitor. And when there is continuous company evolution, there isn’t always related information from year to year for determining if progress is being made.
According to Statista, the SaaS market is going to hit $157 billion next year. While that stat might sound like cause for celebration, McKinsey predicts that SaaS companies with 20 percent growth or less have a 92 percent chance of failure. Even if a company is growing at 60 percent, they only have a 50/50 chance of becoming a billion-dollar company.
David Skok, author of For Entrepreneurs, says there are three key ingredients for sustained SaaS growth: (1) acquiring customers; (2) retaining customers; and (3) monetizing customers. There are, of course, other perspectives on what will drive success but the beauty of Skok’s take is its simplicity. There is a myriad of ways a business can go about pursuing growth but these three concepts should be the underpinning of a successful plan.
Gartner’s managing vice president Steve Crawford makes a case for not rushing into an aggressive growth mode too soon. He argues that timing is everything – startups need to focus on optimizing the right metric at the right time in order to avoid “falling into a ‘vicious cycle’ of increasingly negative cash flow, resulting in financial failure of the business.”
ReferralCandy’s growth manager Darren Foong offers his own two cents on the subject. He advises those who are a getting an early stage startup off the ground should avoid focusing on metrics like monthly recurring revenue (MRR) and customer acquisition cost (CAC) too soon. There is so little data available for these measures, there won’t be enough to work with in any meaningful way.
Once there are some metrics up and running, Wart Fransen from LeadBoxer says it’s important for startups to focus on the bottom of their funnel (the closed deals/sales) and reverse engineer every step of that conversion. The data that flows from this process can provide information valuable for the future of the company, including the number of opportunities, leads, trials, and Market Qualified Leads (MQLs) that will inform marketing strategies moving forward.
“Focus on that – other metrics are often vanity metrics and should be ignored,” Fransen adds. “You should be able to say something like, ‘For each $1 we put into this specific marketing campaign, we get a result of $5 in terms of revenue.”