9 Worst Practices in SaaS Metrics
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9 Worst Practices in SaaS Metrics

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A presentation about 9 mistakes that SaaS founders should avoid, with some practical advice on how (and why) to avoid them.

A presentation about 9 mistakes that SaaS founders should avoid, with some practical advice on how (and why) to avoid them.

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9 Worst Practices in SaaS Metrics 9 Worst Practices in SaaS Metrics Presentation Transcript

  • 9Worst Practicesin SaaS MetricsChristoph JanzPoint Nine Capital
  • About meFounder Angel investor VCMore about me:LinkedIn: www.linkedin.com/in/christophjanzPoint Nine Capital: www.pointninecap.comTwitter: chrija
  • www.theangelvc.netWhen I find the time I blog at www.theangelvc.net, mainly about SaaS topics.My SaaS KPI dashboard:http://bit.ly/saasdashboard View slide
  • 9HORRORworst practicesin SaaS Metrics View slide
  • I want to talk about 9 of the worst practices inSaaS metrics – like the SaaS metric equivalentof this...Image source: www.hadonejob.com
  • ...or this...Image source: www.hadonejob.com
  • ...or this! :-)Image source: www.hadonejob.com
  • Confuse MRR with Cash Inflow(or Bookings or Sales or Revenues)9worst practice
  • MRR:• Monthly Recurring Revenue• Shows how much revenue you make next month if you don‘t winany new customers(assuming no churn, no upgrades/downgrades, etc.)• #1 SaaS metric. Much more important indicator than bookings orcash inflow(but cash inflow pays the bills!)• 2 customers• 1 on a $20/m monthly plan• 1 on a $120/y yearly plan=> MRR = $30Example:
  • Underestimate churn(by mixing up monthly with yearly plans)8worst practice
  • Churn rate# of customers who churned# of customers who could have churnedIncluding customers who can‘t cancel in thedenominator screws up your churn estimate!If you include customers who can‘t churn inyour churn calculation, you‘ll be hit by a badsurprise once they can leave!
  • 7worst practiceIgnore your cohorts
  • Cohort analyses are the only way to get a goodunderstanding of retention and customer lifetimesImage source: MixPanel
  • Don‘t track each step of theconversion funnelworst practice6
  • Whether you use the age-old AIDA formula ...
  • AARRR!... or Dave McClure‘s „AARRR“ ...(for Acquisition, Activation, Retention, Referral and Revenue)
  • VisitorsFree Trial SignupsPayingCustomersVisitor-to-TrialConversion RateTrial-to-PayingConversion Rate... you have to track the key steps of yourconversion funnel and you should be obsessedabout improving each of them.Retention Rateand Account ExpansionsReferrals
  • Mix up visitors to your marketingwebsite with users of your softwareworst practice5
  • 0,00%$0,50%$1,00%$1,50%$2,00%$2,50%$3,00%$3,50%$4,00%$4,50%$5,00%$0$200$400$600$800$1000$1200$1400$1600$1800$1$ 2$ 3$ 4$ 5$ 6$Visits$ Signups$ Signup$Rate$This can lead to a weird chart like this: Your visits aregoing up slowly but surely, but your signups are flat(and hence your signup rate goes down).
  • 0,00%$1,00%$2,00%$3,00%$4,00%$5,00%$6,00%$0$200$400$600$800$1000$1200$1400$1600$1$ 2$ 3$ 4$ 5$ 6$Signups$ Website$visits$ Signup$Rate$If you correctly track separate app visits from website visits itlooks like this.Turns out your signup rate didn‘t go down(good news) but you‘re not growing website traffic (badnews), which is a very actionable insight.
  • Show CACs on a blended basis only4worst practice(mixing up paid and non-paid sources of leads)
  • • 100 customers @ $0 per customer• 20 customers @ $500 per customeraverage CACs of $83.33, butthe average is pretty meaninglessExample:
  • Catch the low-hanging fruits, justdon‘t expect them to scale!
  • Attribute all conversionsto your sales team3worst practice
  • Do you know these cars? When small children take a tour in them,they believe they are steering them around the curves.If you‘re attributing all conversions to your sales efforts you‘re doingsomething similar. :)
  • Find out how well your signups are convertingwithout being called by a salesperson.A/B test and calculate the ROI on your salesinvestments based on the conversion uplift.
  • Assume you‘re growing exponentially2worst practice
  • • True exponential growth is very, very rare in SaaS – requires viralitywhich most SaaS products don‘t have• Most SaaS companies grow linearly and with step changes• Even a modest exponential growth rate of 10% p.m. is very hard tosustain for a longer period of timeReading exponential growth into linear growthnumbers can lead to wrong conclusions
  • Don‘t start tracking KPIs untilinvestors request it1worst practice
  • Don‘t manage your company likes this. :-)
  • • Investors want historic numbers, not just a snapshot• Many metrics are actionable – they tell you what to focus on, whento invest in acceleration, etc.• Metrics help you focus your team on what matters mostBecause...
  • Thank you.Questions?christoph@pointninecap.com