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Choosing the Right Metrics for your Startup

Tunji Adeyeri
@tunjiadeyeri
Choosing the Right Metrics for your Startup Cover

Introduction

Do you ever wonder how many people are really using your product? Or which new features they like best? Tracking special numbers called metrics can help you understand what’s working well and what needs improvement. This guide demystifies metrics, covering their importance, how to choose the right ones, and key metrics for different aspects of your business.

Considerations for Choosing Metrics

Business Goals

Metrics should track progress toward specific goals, whether it’s doubling growth or expanding into new regions.

Growth Stage

Your business’s stage influences which metrics to track. Startups may focus on acquisition and new revenue, while established businesses may prioritize retention and customer lifetime value.

Industry

Different industries prioritize different metrics based on usage patterns. For instance, a research tool might focus on customer acquisition, while HR software emphasizes retention.

Customer Base

Metrics vary for different customer segments, such as business versus consumer or small versus enterprise customers.

Billing Model

Recurring billing adds complexity. Metrics like monthly recurring revenue (MRR) need to account for add-ons, varied billing frequencies, trials, and promotions.

Key Metrics for SaaS Growth

Here are ten key metrics for SaaS growth:

  1. Monthly Recurring Revenue (MRR)

    • Indicates growth or contraction on a monthly basis.
    • Useful for predicting future revenue, cash flow, and profitability.

  2. Churn

    • Measures customer loss over time, indicating areas needing improvement.
    • Can be viewed in terms of revenue (MRR churn) or customer count (customer churn).

  3. Expansion RateTracks additional revenue from existing customers through add-ons or upsells.

    • Commonly used by established businesses to generate more revenue from loyal customers.

  4. Customer Acquisition Cost (CAC)

    • The cost to acquire new customers, critical for financial health.
    • Important for managing sales and marketing efficiency.

  5. Customer Lifetime Value (CLV)

    • Revenue generated from a customer over their relationship with your company.
    • Indicates how much value your product or service provides to customers.

  6. Average Revenue Per User (ARPU)

    • Revenue generated per user over time.
    • Useful for analyzing ongoing spending during a customer’s lifecycle.

  7. Payback Period

    • Time it takes for a customer to become profitable.
    • Essential for cash flow management, especially for startups.

  8. Renewal Rate

    • Percentage of customers renewing subscriptions.
    • Indicates product value and customer satisfaction.

  9. Cost of Goods Sold (COGS)

    • Costs to produce and deliver your product.
    • Essential for calculating gross margin.

  10. Gross Margin

    • Total revenue minus COGS.
    • Useful for tracking revenue streams and forecasting.

Department-Specific Metrics

Sales

  • Win Rate: Generated leads or opportunities closed over a period.
  • Sales Qualified Leads (SQLs): Leads ready to speak to a sales representative.
  • Lead Velocity Rate: Growth in qualified leads over time.
  • Deal Velocity/Time to Close: Time taken for a lead to be closed/won.
  • Closed Won/Lost: Ratio of won versus lost deals.

Customer Success

  • Net Promoter Score (NPS): Likelihood of customers recommending your product.
  • Customer Satisfaction (CSAT) Score: Measures customer satisfaction with your product.
  • Service Level Agreements (SLAs): Tracks response times for support tickets.

Marketing

  • Marketing Qualified Leads (MQLs): Leads fitting your customer demographic.
  • MQL to SQL Conversion Rate: Marketing leads qualified by sales.
  • Lead to Customer Conversion Rate: Leads that become paying customers.
  • Organic Traffic: Website visits from organic search.
  • Demo Requests/Talk to Sales: Requests for product demos or sales talks.

People and Talent

  • Time to Hire: Time from candidate engagement to offer acceptance.
  • Cost per Hire: Cost of hiring an employee.
  • Employee Engagement: Measures how connected employees are to the business.

Risk

  • Chargeback Rate: Percentage of transactions with chargebacks.
  • Fraud Losses: Value of unauthorized or fraudulent transactions.

Conclusion

Choosing the right metrics for your business gives you a clear understanding of your product’s performance. With this knowledge, you can make strategic decisions about improvements, new developments, and where to focus your efforts. Metrics are a powerful tool for driving your product’s success.

Ready to put metrics to work for your product? Check out SaasHound – it combines all your metrics into one easy dashboard. Sign up for a free trial!