The world is more data-driven than ever. And although data has an impact on most jobs, it is amplified for product teams, especially at SaaS companies. Product professionals there have never been more challenged, or rewarded, if they get the role and the product right.
So, how do you help your software offering stand out? It’s actually quite straightforward: Combine a specific vision with quantifiable metrics to measure your progress.
Metric-driven goals are fundamental to building great products. As the CEO of Aha!, I have made it a high priority for our team to identify and track the right ones. You can only improve what you measure, and we strive to not only set up the right metrics but outpace them every quarter.
This growth does not happen by accident. We look at how our business is doing against our goals each week and measure how well we are responding to our customers every day. We also speak with hundreds of product teams every week about their own strategies and roadmaps, so we have a sense for what leading organizations are measuring.
Every business is different, but the following metrics are important to us at Aha! and, we think, imperative for other companies, especially SaaS, to track. They focus on three core areas: marketing, customer success and business operations.
Marketing is an integral piece of our customer-acquisition process. To continue growing, we set detailed goals each year that break down into monthly targets. The following are a few of the metrics used by our marketing team.
1. Monthly Unique Visits
Monthly unique visits indicate the number of unique individuals visiting your website each month. For example, one person visiting the site multiple times counts as one unique visitor, as long as they visit the site using the same device each time. Monthly unique visits is a standard benchmark for marketing teams. Since this data is readily accessible from third-party websites, it is commonly used for competitive analysis as well.
2. Customer Acquisition Cost (CAC)
Customer acquisition cost or CAC is the estimated cost of gaining each new customer. For example, if you spend $1,000 on a campaign that directly results in 10 new customers, the CAC will be $100 per customer. Use this with the annual contract value and customer lifetime value to understand if your customer-acquisition model is profitable
Understanding how much it costs you to acquire new customers is key to profitably scaling a SaaS business. You can also gain a holistic picture of your marketing channels by segmenting CAC by source (organic, paid, email, social).
3. Organic Traffic vs. Paid Traffic
Organic traffic measures how many people find your website via an unpaid organic search; paid traffic measures how many people visit your site from a paid source, such as an ad. Measuring traffic both by organic and paid channels is essential to understanding where and how your business is growing. It also allows you to make better decisions about which marketing campaigns are most valuable.
Customer-success metrics are a way to track our activity and ensure that we continue to grow in a methodical way, responding to support requests from our 30,000 users within a few hours. Here are the key metrics used by our customer success team.
4. Conversion Rate to Customer
The conversion rate to customer is the percentage of potential customers who started a trial and end up converting to paid customers. It is most commonly measured by taking the number of leads or trials (depending on your model) in a given month and dividing that by the total number of new customers added during the same month.
Your conversion rate is a benchmark for how successful you are at turning prospects into buyers. Increasing your conversion rate to customer by even a small amount quickly increases customers and revenue.
5. Number of Support Tickets Created
The number of support tickets created is a measure of how many customers request help. An increase may indicate more users or point to a deeper usability problem. This data allows the team to work on improving self-service options or adding more team members when heavier volume is expected.
6. First Response Time
First response time is the average measure of how long it takes for customer support to respond to a customer or act on a support ticket. For example, if a customer sends a support request at 7 a.m. and receives a response by 8 a.m., the first response time for that interaction is one hour for that day for that customer.
By tracking this metric each day and week, you can easily see areas for improvement and the times when help is most often needed. The first response time is critical to keeping customers happy and engaged with the product.
7. Time to Close Support Ticket
The time to close a support ticket measures how long it takes the support team to completely resolve an issue. This is different from first response time and shows a more holistic perspective on customer satisfaction. No matter how quickly you respond to the original request, the ticket or request will not be closed until the problem is completely resolved and the customer is satisfied.
Churn measures what is lost during a given period in terms of customers, dollars, etc. It’s important to understand that no matter how good your software is, some customers will naturally cancel each month; planning for a healthy amount of cancellations is not a bad thing.
To calculate churn, divide the number of customers lost in a month by the prior month’s total customers. While it is good to know customer churn, in software companies it is even more important to know the revenue lost each month. Over time, you can work to reduce the number of customers who cancel and the revenue associated with it.
One of the key ways we measure how we are doing and how much customer value we are creating is by tracking key growth metrics around account and revenue growth. Here are a few of the operating metrics we review weekly, monthly and annually.
9. Active Users
Active users are the people actively using the product. Generally, this metric is determined by adding up the total number of users who have logged in at least once during the prior 30 days. This is another common benchmark used to determine the growth and relative size of a software company’s customer base. Active users do not include past users who
10. New Monthly Recurring Revenue (MRR)
New MRR refers only to brand-new customers added in a given month; it does not include expansion revenue or upgrades to existing customer accounts. It is a great way to track new revenue growth on a consistent basis and measure the amount and size of new customers added each month.
11. Add-on Monthly Recurring Revenue
Add-on MRR measures revenue attributed to add-ons—through additional product purchases or additional users—from existing customers. A healthy software company should simultaneously add new customers each month and expand relationships with existing customers. In many cases, add-on MRR is an excellent indicator of how useful your product is to the customer base: It is a good sign if they increase their investment with you each month.
12. Total New Monthly Recurring Revenue
Total new MRR is different from new MRR because it includes add-on and churn (cancelled customers). The simplest calculation to use is (new MRR + add-on MRR – churn MRR = total new MRR).
From a financial standpoint, measuring total new MRR allows you to roll up every aspect of your customer base into a single number that measures net change in revenue. For example, if you see a high new MRR but low total new MRR, you are likely losing as many customers as you add each month. By adding total new MRR to existing MRR, you can easily calculate your total annual revenue (see next metric).
13. Total Annual Recurring Revenue (ARR)
Total ARR is your MRR x 12. It is the annual value of recurring revenue from all customers, excluding one-time fees and other variable fees.
14. Annual Contract Value (ACV)
ACV is the value of a customer over a 12-month period determined by their billing plan. Your ACV is important when determining the type of customers you are converting (segmentation), as well as the ROI of your sales and marketing investments. Ideally, you want ACV to be more than four times the average cost to acquire that customer.
For example, paying $4,000 to acquire and sign up a single new customer might sound like a lot, but it is a wise investment for a company whose ACV is greater than $16,000. You would make your money back in the first quarter, assuming your average customer does not churn in that time period.
15. Lifetime Value (LTV)
LTV is the estimated net revenue from the customer over the life of the relationship. You determine LTV by understanding the average revenue per month and multiplying it by the average lifetime of a customer in months.
These are the core metrics that we track regularly at Aha! There are hundreds of possible data points to capture and study, but we do our best to match data that brings the greatest insights to the organization with what is needed to continue to rapidly and efficiently grow.
Metrics are a necessary part of business. Once you become comfortable understanding and applying quantifiable metrics that matter most for your business, it will be easier to spot trends, make decisions and look ahead with more confidence.