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9 Worst Practices in SaaS Metrics
The document outlines nine worst practices in SaaS metrics that can lead to misinterpretation of data and poor business decisions. These include confusing MRR with cash inflow, underestimating churn, ignoring cohorts, and improperly tracking customer acquisition costs. It stresses the importance of accurate KPI tracking to help guide business strategy and attract investor interest.
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Christoph Janz introduces the topic of worst practices in SaaS metrics, providing credentials and links to further resources.
Explains the significance of MRR (Monthly Recurring Revenue) as essential for SaaS metrics while highlighting common confusions regarding cash inflow.
Discusses the importance of accurately estimating churn rates and the pitfalls of including non-cancellable customers.
Emphasizes the necessity of cohort analyses for understanding customer retention and lifetime value.
Highlights the need for detailed tracking of conversion funnels using established models like AIDA and AARRR.
Points out the issues with mixing metrics from website visits and app usage, leading to misleading insights about user engagement.
Warns against showing average CACs without separating paid and non-paid leads, and the significance of meaningful metrics.
Critiques the attribution of all conversions to sales efforts, advocating for testing and measuring true conversion effectiveness.
Discusses misconceptions about exponential growth in SaaS, emphasizing that most growth is linear with challenges.
Stresses the importance of tracking KPIs proactively rather than reactively when demanded by investors, and their impact on management.
Concludes the presentation and invites questions.
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9 Worst Practices in SaaS Metrics
- 1. 9 Worst Practices in SaaSMetrics Christoph Janz Point Nine Capital
- 2. About me Founder Angelinvestor VC More about me: LinkedIn: www.linkedin.com/in/christophjanz Point Nine Capital: www.pointninecap.com Twitter: chrija
- 3. www.theangelvc.net When I findthe time I blog at www.theangelvc.net, mainly about SaaS topics. My SaaS KPI dashboard: http://bit.ly/saasdashboard
- 4.
- 5. I want totalk about 9 of the worst practices in SaaS metrics – like the SaaS metric equivalent of this... Image source: www.hadonejob.com
- 6. ...or this... Image source:www.hadonejob.com
- 7. ...or this! :-) Imagesource: www.hadonejob.com
- 8. Confuse MRR withCash Inflow (or Bookings or Sales or Revenues) 9 worst practice
- 9. MRR: • Monthly RecurringRevenue • 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 = $30 Example:
- 10. Underestimate churn (by mixingup monthly with yearly plans) 8 worst practice
- 11. Churn rate # ofcustomers who churned # of customers who could have churned Including customers who can‘t cancel in the denominator screws up your churn estimate! If you include customers who can‘t churn in your churn calculation, you‘ll be hit by a bad surprise once they can leave!
- 12. 7 worst practice Ignore yourcohorts
- 13. Cohort analyses arethe only way to get a good understanding of retention and customer lifetimes Image source: MixPanel
- 14. Don‘t track eachstep of the conversion funnel worst practice 6
- 15. Whether you usethe age-old AIDA formula ...
- 16. AARRR! ... or DaveMcClure‘s „AARRR“ ... (for Acquisition, Activation, Retention, Referral and Revenue)
- 17. Visitors Free Trial Signups Paying Customers Visitor-to-Trial ConversionRate Trial-to-Paying Conversion Rate ... you have to track the key steps of your conversion funnel and you should be obsessed about improving each of them. Retention Rate and Account Expansions Referrals
- 18. Mix up visitorsto your marketing website with users of your software worst practice 5
- 19. 0,00%$ 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).
- 20. 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.
- 21. Show CACs ona blended basis only 4 worst practice (mixing up paid and non-paid sources of leads)
- 22. • 100 customers@ $0 per customer • 20 customers @ $500 per customer average CACs of $83.33, but the average is pretty meaningless Example:
- 23. Catch the low-hangingfruits, just don‘t expect them to scale!
- 24. Attribute all conversions toyour sales team 3 worst practice
- 25. Do you knowthese 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. :)
- 26. Find out howwell 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.
- 27. Assume you‘re growingexponentially 2 worst practice
- 28. • True exponentialgrowth 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
- 29. Don‘t start trackingKPIs until investors request it 1 worst practice
- 30. Don‘t manage yourcompany likes this. :-)
- 31. • Investors wanthistoric 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...
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