Revenue Performance Management (RPM) is when a company monitors its revenue performance, tracks how revenue is affected by strategic decisions, figures out revenue drivers, and then optimizes operations to drive revenue growth.
RPM isn’t easy—and tracking all your metrics just makes a difficult job harder. Instead of relying on old spreadsheets and manually pulling data from many sources, you should try Baremetrics. Baremetrics tracks the 26 most important business metrics by connecting directly to your revenue streams.
Don’t believe me? There’s a couple dozen companies that are happy to let you peek at all of their financials directly by showing you their Baremetrics dashboards publicly.
Our friends at Friendly have even been kind enough to give us the details on how they grew their company from zero to $1,000 MRR in only three months. This is the power of RPM.
RPM is a hallmark of highly performing companies. Without the systemized focus on pushing revenue up, companies can falter. In a growing economy, stagnant sales is a loss of market share and can lead to your company being deemed irrelevant.
As we will see below, RPM requires special tools in the world of SaaS, and Baremetrics is the complete toolbox. From MRR and ARR, to churn and LTV, the 26 metrics offered by Baremetrics give you the granular data you need to maximize revenue performance.
When it comes to revenue management, Baremetrics doesn’t do just metrics. Baremetrics also does cancellation prevention and churn prevention. This helps you keep MRR and receive MRR even when your customers’ payments fail.
Sign up for the Baremetrics free trial and start managing your subscription revenue now.
What is revenue performance in SaaS?
RPM is a systematic process for identifying the drivers and impediments to revenue, precisely measuring them, and then making the changes that will maximize your marketing return on investment and sales growth.
When we think of high performing companies, the first thought is “high profit”, which is maybe followed by “high revenue” and “low expenses.” In these terms, the SaaS paradigm isn’t so different from traditional businesses. But this is where the similarity ends.
Indeed, SaaS businesses earn their revenue in different ways. They also have very different cost structures. Most of all, when they project their revenue, expenses, and profit into the future, they have a completely different understanding of what drives revenue and therefore what metrics need to be tracked.
Drivers of revenue performance in SaaS
Traditional businesses rely on a never-ending parade of customers making one-off purchases. Of course, they hope to offer a good experience and get repeat customers, but the relationship building in SaaS goes well beyond a series of momentary meetings.
To maintain a subscription revenue model, you spend all day focused on what your clients are doing, what they want to be doing, how you are fulfilling those desires, and the pain points in your software.
While you also need to evangelize to expand your customer base, the core to your company’s success can be measured in how well you retain customers, the recurring value of your customers, the growth in revenue from current customers, and how long you can keep them subscribed.
There are so many metrics you should be tracking to keep a handle on your revenue performance! For now, you can find everything you need to know to calculate MRR (Monthly Recurring Revenue), ARR (Annual Recurring Revenue), and LTV (Customer Lifetime Value) on the Baremetrics blog.
See how Baremetrics does it right here:
Impediments to revenue performance in SaaS
While SaaS expenses can be similar to those in traditional tech businesses, including payroll, rent, utilities licensing fees, and hosting fees, the drags on revenue performance can be quite different.
In a SaaS business, you’ll probably obsess over two things: churn and Customer Acquisition Cost (CAC). While these aren’t precisely expenses that can appear on your income statement, they eat away at your revenue performance and need to be considered for successful RPM.
CAC is how much it costs to bring in a single client. This includes attracting customers to your service and converting them into a paying customer. Specifically, you need to make sure your CAC remains below your LTV if you want to be profitable.
Churn, on the other hand, is the loss of a customer. This is one of the important items when calculating your LTV, as the longer a customer lasts before churning, the more total revenue they will generate.
While revenue in and expenses out remain the same, the metrics are different and the flows are different. This requires a new way of thinking about revenue performance and new tools to be utilized.
Baremetrics is a business metrics tool that provides 26 metrics about your business, including churn metrics.
You should sign up for the Baremetrics free trial and start monitoring your subscription revenue accurately and easily.
Check out Baremetrics LTV and churn measurements right on your Baremetrics dashboard:
How can you measure revenue performance?
Now that we have established what revenue performance is, why you need RPM, and how it differs for SaaS enterprises, let’s look at how you actually accomplish RPM.
To measure, understand, and act on your revenue performance, follow this simple four-step plan. It goes without saying that this isn’t a one-and-done scheme but something that you do repeatedly, especially any time your market or services change.
Step 1: Gather data
This is the easiest step and the most crucial one, but it is also the most ignored process and least likely to be done successfully. Too many companies don’t collect data, don’t use the data they collect, or don’t collect the right data. This is simply because they don’t have the skills available in-house to do proper data collection and analysis.
The data you need to collect can be split into two types: qualitative and quantitative.
For the qualitative data, want to get as much information from as many of your clients as possible while not being obtrusive. If your onboarding process is onerous because you ask too many questions, you’ll probably find yourself with more abandoned carts. If you send too many emails asking for feedback, you’ll probably find your marketing messages going unopened.
So, think about what is the core information you need to know, and what information can only come from the customers themselves. This can include what needs the company went in search of fulfilling, why they chose your service, what features they most use, what needs you aren’t fulfilling, and how much value you are adding to their business.
For the quantitative data, you need to keep track of all the stats you can. This includes anything you can pull from your payment gateway, as well as all the metrics discussed above—CAC, LTV, MRR, ARR, and more.
You can optimize your product and marketing based on the qualitative data collected directly from current and potential clients and then track how these changes affect your revenue performance using the quantitative data.
Step 2. Understand your sales funnel
This one is a lot tougher, and we have a dedicated article just on tracking and optimizing your funnel. The funnel concept is basically how you drive traffic—the right traffic—to your website and how your website persuades those visitors to convert to sign ups.
Depending on your revenue model, you may also have a free trial or freemium step in your funnel where visitors convert to your free service and then need to be further nudged into seeing the value of the paid service.
Understanding your target customers and what they are searching for will help you attract not just more visitors but the right visitors. Seeing what features are the hooks will help you convert more visitors.
To do this, you need to be tracking the right information, which leads to the next step.
Step 3: Use metrics to identify where you can improve
To understand your revenue performance, you need revenue metrics. These come in all sizes and each metric can help you optimize a different part of your revenue stream. This is where Baremetrics can really come in handy.
Tracking your Visitors (V) and Conversion Rate (CR) will be the key to improving marketing.
Your LTV and CAC are the primary metrics you need to set your top-level budgets.
MRR and ARR, and importantly their change over time, are how you track growth and can grade the changes you are making. If they are static while you make big changes, then that effort isn’t paying off and you need to go back to the drawing board.
Step 4: Generate more demand (based on your findings)
Having the data at your fingertips, the metrics that go with it, and a general idea of how your funnel is operating (as well as how you want it to operate), it is now time to make more money.
Whether you decide on an email campaign or to push your social media platform, from a new blog to working with influencers in your industry, communication is the word.
You have the best guess of your audience, and now you need to find them and create a dialog. Track the progress as you venture more afield to keep augmenting your messaging. This will lead to improved revenue performance.
Use Baremetrics to measure your revenue performance
Baremetrics not only provides all the revenue performance metrics you need to track but also publishes helpful guides so that you can understand those metrics and fully exploit them.
Setting up your account is easy, and you can immediately see what you’ve been missing.
For revenue performance management specifically, let’s talk a bit about one of the lesser-known features of the dashboard: Annotations.
In a recent conversation with one of the developers, they mentioned how excited they were about Annotations, and we think you’ll agree! Especially for RPM, Annotations allow you to add little notes to all your charts so that you can quickly see how trends change from various specific points in time.
Annotations can be anything—maybe you want to note when you’ve changed prices, started a new marketing campaign, a new competitor entered the market, you released a new pricing tier, and any other relevant moment in time.
Seeing whether these moments represent change points can drastically improve your trend analysis. If they help, you know to double down. If they don’t, you can easily see that you need to try something different.
Sign up for the Baremetrics free trial and start seeing more into your subscription revenues now.
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