You run a SaaS business, which means you probably have metrics coming out the wazoo. The question is, do you know what to do with all of that information?

Tracking SaaS metrics often feels like drinking from a firehose. Because of this, it can be difficult to discern what the data is telling you. This leads to a myriad of potential pitfalls.

We'd like to help you avoid these mistakes, if at all possible. So keep reading to learn why tracking SaaS metrics is so important (even if analyzing the data makes your head spin) and five mistakes to avoid while doing so.

Note: This article is based on a webinar we hosted with our friends, Future of SaaS. It’s called "Turning Metrics Into Money" and you can watch the entire event here.


Why do you need to track metrics for your SaaS business?

We get it, tracking SaaS metrics sounds like a pain. Especially when you have a mountain of other tasks to do. But it's absolutely essential to the success of your business.

Tracking SaaS metrics will allow you to gauge your company's progress. Are you on track to reach your goals? You won't know until you look at your metrics. It will also help you identify potential issues in your business and remove them before they become massive problems.

Finally, tracking SaaS metrics will help you make better decisions and enable your company to grow at a faster rate. At the end of the day, that's what every SaaS business owner wants.


Tracking SaaS metrics? Here are 5 mistakes to avoid

Can we agree that tracking SaaS metrics is important? Great, now let's talk about mistakes to avoid during the tracking process. Do your best to circumvent these five pitfalls.

1. Tracking too many metrics

Most founders want to track everything when it comes to SaaS metrics.

We understand the impulse. Knowledge is power. The more data you have, the better decisions you'll make, right? Not necessarily…

Oftentimes, an ocean of data makes it harder to analyze SaaS metrics.

You'll get swept up in a tsunami of information and you won't be able to determine what's most important. Instead, we recommend taking a step back and analyzing a few metrics only. Then diving deeper into said metrics to really understand what the data is telling you.

For example, instead of just measuring your company's churn rate, segment your customers to see which segments are churning most frequently.

You may find that, while your overall churn rate is higher than you'd like it to be, most of your churned customers fall outside of your ideal customer profile. With this knowledge, you can adjust your marketing and sales efforts and target higher quality leads.

-> Important metrics for new SaaS companies

"Great," you're thinking, "Analyze less metrics—I can do that! But how do I choose which metrics to focus on? There are a lot of them… Which should I pay attention to?"

New SaaS companies should focus on the pirate metrics, so named because the acronym for these metrics is AARRR, as in, "Arr, Matey, time to walk the plank!"

So, grab your eye patch and three corner hat; here's the nitty gritty on pirate metrics:

  • Acquisition: Metrics in this category deal with company, product, and/or service discovery. They answer the question, "How do customers find out about us?"
  • Activation: Metrics in this category deal with prospect engagement. They answer the question, "Are prospects taking the steps they need to take to become customers?"
  • Retention: Metrics in this category deal with customer churn. They answer the question, "Are my customers sticking around for the long haul?"
  • Referral: Metrics in this category deal with brand advocacy. They answer the question, "Do my customers like our products enough to tell others about them?"
  • Revenue: Metrics in this category deal with the money your company generates. They answer the question, "Are people willing to pay for our products and/or services?"

For a complete and thorough breakdown of the pirate framework, read this blog post.


2. Neglecting  your business model

AARRR metrics work for most SaaS companies. But before you dive in, make sure you consider your business model. Are these metrics really the best ones for your offerings?

If not, find a different set of metrics that's better suited to your situation.

Always remember, you're running a SaaS business, which is different from, say, a traditional widget-selling business. As such, you need to track and analyze different metrics.

If your local grocery store, for example, were to track company metrics, they'd probably focus on things like amount of foot traffic, average transaction value, and typical inventory turnover. 

SaaS businesses, though, should focus on metrics that evaluate recurring revenue including Monthly Recurring Revenue (MRR), churn rate, and customer lifetime value.

Always consider your business model when tracking and assessing your metrics.


3. Not considering your investment situation

You need to consider your level of investment when choosing SaaS metrics, too.

If you're a bootstrapped company, you need to become profitable as soon as possible. Why? Because you don't have a pile of cash in the bank to fall back on. If you don't start making money almost immediately, your business will never get off the ground.

If you have a bevy of investors, on the other hand, near-future profitability is less of a concern. You have time and resources to experiment with different ideas and strategies.

What does this look like in real life?

Well, bootstrapped businesses will want to focus on metrics that deal with cash flow—customer acquisition costs, customer lifetime value, and MRR are good examples.

Investor-backed businesses, though, will probably focus more on growth-related metrics, such as cost per lead, activation rate, and net promoter score.

This doesn't mean that, as a bootstrapped business, you can't keep your eye on growth-related metrics. We suggest that you do! (How else are you going to build the next Salesforce or Adobe or Shopify?) But growth-related metrics shouldn't be your first priority.


4. Focusing solely on quantitative metrics

Do you know the difference between quantitative and qualitative metrics? If not, no worries. Here's a quick definition of each—just to make sure we're on the same page.

  • Quantitative Metrics: Quantitative metrics are precise calculations that produce numerical results. This makes them easy to track and uber reliable. But cold, hard numbers don't always tell the whole story, which is why we have…
  • Qualitative Metrics: Qualitative metrics are those that seek to quantify the value behind the numbers. As such, they're much more subjective in nature.

Here's an easy way to distinguish quantitative from qualitative metrics: quantitative metrics tell you what's happening, while qualitative metrics tell you why it happened.

Now, it's really easy to focus all of your attention on quantitative metrics. After all, they represent facts and aren't tainted by opinion. But this is a mistake.

Consider this example: Awesome SaaS Company Incorporated, ASCI for short, sells a variety of SaaS products in the financial services space. Unfortunately, the company has had a hard time retaining customers in recent months, as evidenced by its 15% churn rate.

ASCI's leadership team can look at quantitative metrics and realize that they must make a change to boost customer retention. But what change should they make? Quantitative metrics don't have the answer. Fortunately, qualitative metrics just might.

ACSI's top brass starts reading through customer reviews and feedback from cancellation surveys. This helps them realize that they aren’t onboarding new customers very well. As a result, customers aren’t getting value out of their products and choose to find other solutions.

By changing their approach to customer onboarding, ASCI hopes to improve its customer retention rate.

Here's the point: both quantitative and qualitative metrics are important. But qualitative metrics tend to be underappreciated. Stop focusing solely on quantitative metrics and give qualitative metrics their due—you'll be glad you did.

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5. Not segmenting your customers

We're just going to come out and say it: customer segmentation is super important.

Many SaaS companies serve a variety of different customers. Examples of customer segments include small businesses, medium-size businesses, and enterprise businesses. One of the biggest mistakes you can make is analyzing these three segments in the same way.

Small businesses have different needs, resources, and expectations than their enterprise-level counterparts. Because of this, your small business customers will behave in very different ways than your enterprise customers and deserve to be treated differently.

If you sell multiple SaaS products, you can segment your customers by product, too. Every company that subscribes to Product A, for example, goes into segment one, while companies that subscribe to Product B go into segment two, etc.

By segmenting your customers, you'll get a clear picture of your business.

You may find, for instance, that your small business customers are churning at a higher rate than your enterprise customers. You can then devise a strategy that will help you retain more of your small business customers without affecting your enterprise customers in any way.


Track the right metrics with Baremetrics

Tracking SaaS metrics is essential. Doing so will help you learn about your customers, minimize problems before they become major issues, and grow your company faster than ever before. Here's the catch: it's not always easy to do.

Many SaaS leaders make the mistake of tracking too many metrics. Or focusing solely on quantitative metrics. Or any of the other five mistakes we outlined above.

Fortunately, after reading this article, you know which pitfalls to look out for. All you need now is a simple way to track and analyze metrics for your company. Once again, we have a suggestion: invest in Baremetrics, a popular analytics and reporting solution for SaaS businesses.

Baremetrics will give you the power to track 26 different metrics and visualize them in ways that make each easy to understand.

Think Baremetrics might work for you? Try it free for 14 days to make sure!