With Metrics, Measuring SaaS Business Health Is Easy

When it comes to SaaS startups, no two are alike. Some subsist on a freemium model B2C model, others service institutional clients with hefty licensing fees. Experts around the software industry are recommending three metrics that can help assess the health of this very unique business.

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The metrics are opportunity creation, churn risk and capacity utilization. These metrics go a level deeper than typical business metrics in order to accurately assess the health of businesses in a lightning-fast sector where change is the norm.

Opportunity creation refers to the number of qualified sales leads that are entering the pipeline in a given period of time. Grasping the full weight of opportunity creation means understanding the marketing funnel from top to bottom.

Business owners must understand the length of the sales cycle, percentage of leads that are typically converted, and the myriad ways these metrics can be compromised due to external forces. If the opportunity creation numbers are at a standstill for weeks or months, successful marketers and entrepreneurs will brainstorm ways to keep the number of fresh leads entering the pipeline increasing.

Churn risk, the second metric in the list, is the anticipation of losing a large percentage of a business’ revenue. Whether clients decide to drop the service altogether or simply reduce their scope, this metric can be taken regularly, even monthly, to forecast the health of a SaaS company should the worst happen.

Capacity utilization, the final metric of the bunch, is arguably the most often overlooked. The metric refers to how well-prepared a business is for anticipated growth. Successful SaaS business owners navigating the treacherous waters of churn and burn would be wise to make sure their companies have enough headroom when scaling. Better yet, a good strategy is to scale in advance to meet anticipated growth. The capacity utilization metric is tied to resource usage, however your particular business defines how specifically that term is employed. Whether it’s number of requests per second per server, headroom needed for “burst” events, or the overhead necessary to endure horizontal scaling, or all three, attention must be paid to these details if a business is to succeed.