SaaS companies are based on recurring revenue, usually per month or per quarter, and so we place heavy focus on both gaining new business and retaining current clients. In order to set goals for growth, you need to look at a some key metrics. While it’s not necessary to analyze 200 metrics to determine if your business is in good or bad shape, you can use an important few to gain insights for setting priorities and recognizing areas for improvement.
In order to achieve business growth and to get a good understanding of business health, you want to answer the following three questions.
- Am I gaining new customers?
- Am I keeping existing customers?
- Do I need to improve the product?
You can’t improve what you don’t measure. So, you’ve got to select key metrics for tracking success. I’d recommend the following metrics as a minimum.
MRR – Monthly Recurring Revenue
MRR is the amount of revenue that occurs from a subscription each month – you want to know what you’re bringing in monthly (or yearly if that’s how your contracts work). You can see why this metric is key in understanding if your business is growing.
Churn measures how many subscribers quit using your product in a given period of time. Knowing how many folks are unsubscribing from your service can help you make decisions about whether or not your product needs improvements (like eliminating self-serve cancellations). If you’ve got a ton of churn, chances are, you need to do some research and ask customers that left what you could improve upon. You can even use our awesome feature spreadsheet to determine what your new idea might cost.
CAC – Customer Acquisition Cost
This metric measures how much you’re spending to acquire a new customer. You don’t want to be spending more than you’re profiting!
You can use the three metrics to monitor and improve growth, know when you need to make improvements to your product, and also ensure that you’re not spending too much to acquire new business.
Attainable goals aren’t vague and boring
Now that you know what you need to measure, it’s time to focus on how to set goals to get you where you want to be. Goals need to be these three things:
Don’t say things like, we’re going to go from $0 revenue to $99,000,000 this year. This is unrealistic and can’t be backed up by a legit plan (I mean, maybe it can, but that’s a big leap). Make sure you’ve got an achievable number that’s still big enough to push your company forward. Setting unattainable goals can hurt morale and demotivate your team.
You’ve got a higher chance of achieving a goal that’s specific. Instead of some vague number accompanied by a vague outline, give your team a specific target to work towards.
Make sure you map out a clear path to achieving the goal as well. If you want to increase churn by 2%, then map out the strategies and tactics that your customer success and sales teams will use to retain and upsell current clients.
Part of a bigger vision
It’s good to be specific about the amount of money you want to bring in, or the amount of churn you want to reduce. But, those goals are not the sexiest. You’ve got to keep yourself and your team focused on specific numbers while also maintaining a larger vision.
Want a new, sweet office with nitro coffee on tap and a patio hammocks? Paint that picture. Want to take a team trip to the south of France or give everyone a nice holiday bonus? Paint away! Those things are much more motivating than “reduce churn 3%” – and you can bet they’ll keep your people focused on hitting their marks.
Short and long term goals
Baby steps are easier to take than giant leaps – and that’s how you should organize your goals. All goals need a timeline and benchmarks so that you can monitor (and celebrate!) success along the way. Set clear milestones along your goal timeline to make the trip towards a long-term goal more visible and attainable.
Each milestone comprising your long-term vision should have strategies and tactics that make that milestone attainable. Strategies are overall plans for reaching a goal, while tactics are smaller actions you and teammates will take to complete each strategy. For example, let’s say you’ve got the following goal mapped out:
- Long-term goal – decrease churn 3% in 1 year
- Milestone 1 – decrease churn .5% in Q1
- Strategy for milestone 1 – Improve the product’s interface to increase customer retention
- Tactics for improving interface – Each customer success rep will speak with 3 lost subscribers per week to determine customer pain-points and potential opportunities for improvement
If you’re an SaaS business like us, these metrics and methods are great for monitoring success. It’s easy to get bogged down by countless KPIs and numbers – but, narrowing it down to the most important few can be less stressful, keep your team on task, and help you track results efficiently.