9 Worst Practices in SaaS
Metrics Christoph Janz Point Nine Capital

About me Founder Angel investor
VC More about me: LinkedIn: www.linkedin.com/in/christophjanz Point Nine Capital: www.pointninecap.com Twitter: chrija

www.theangelvc.net When I find the
time I blog at www.theangelvc.net, mainly about SaaS topics. My SaaS KPI dashboard: http://bit.ly/saasdashboard

9 HORROR worst practices in
SaaS Metrics

I want to talk about
9 of the worst practices in SaaS metrics – like the SaaS metric equivalent of 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) 9 worst practice

MRR: • Monthly Recurring Revenue
• Shows how much revenue you make next month if you don‘t win any new customers (assuming no churn, no upgrades/downgrades, etc.) • #1 SaaS metric. Much more important indicator than bookings or cash inflow (but cash inflow pays the bills!) • 2 customers • 1 on a $20/m monthly plan • 1 on a $120/y yearly plan => MRR = $30 Example:

Underestimate churn (by mixing up
monthly with yearly plans) 8 worst practice

Churn rate # of customers
who churned # of customers who could have churned Including customers who can‘t cancel in the denominator screws up your churn estimate! If you include customers who can‘t churn in your churn calculation, you‘ll be hit by a bad surprise once they can leave!

7 worst practice Ignore your
cohorts

Cohort analyses are the only
way to get a good understanding of retention and customer lifetimes Image source: MixPanel

Don‘t track each step of
the conversion funnel worst practice 6

Whether you use the age-old
AIDA formula ...

AARRR! ... or Dave McClure‘s
„AARRR“ ... (for Acquisition, Activation, Retention, Referral and Revenue)

Visitors Free Trial Signups Paying
Customers Visitor-to-Trial Conversion Rate Trial-to-Paying Conversion Rate ... you have to track the key steps of your conversion funnel and you should be obsessed about improving each of them. Retention Rate and Account Expansions Referrals

Mix up visitors to your
marketing website with users of your software worst practice 5

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 are going 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 it looks like this.Turns out your signup rate didn‘t go down (good news) but you‘re not growing website traffic (bad news), which is a very actionable insight.

Show CACs on a blended
basis only 4 worst practice (mixing up paid and non-paid sources of leads)

• 100 customers @ $0
per customer • 20 customers @ $500 per customer average CACs of $83.33, but the average is pretty meaningless Example:

Catch the low-hanging fruits, just
don‘t expect them to scale!

Attribute all conversions to your
sales team 3 worst 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 doing something similar. :)

Find out how well your
signups are converting without being called by a salesperson. A/B test and calculate the ROI on your sales investments based on the conversion uplift.

Assume you‘re growing exponentially 2
worst practice

• True exponential growth is
very, very rare in SaaS – requires virality which 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 to sustain for a longer period of time Reading exponential growth into linear growth numbers can lead to wrong conclusions

Don‘t start tracking KPIs until
investors request it 1 worst 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, when to invest in acceleration, etc. • Metrics help you focus your team on what matters most Because...

Thank you.
Questions?
christoph@pointninecap.com