Choose SaaS growth metrics

1. If your business is in the startup phase, figure out how many opportunities, leads, trials, Marketing Qualified Leads (MQLs), traffic, and campaigns your company currently needs to achieve one deal or sale.

The purpose of looking at the bottom of the funnel closed deals and sales, is to find out the factors above and build your way up. You should be able to say something like, “For each $1 we put into this specific marketing campaign, we get a result of $5 in terms of revenue.” Traditional marketing metrics such as Monthly Recurring Revenue (MRR), Lifetime Value (LTV), or Customer Acquisition Costs (CAC), may be obsolete to look at in the beginning. It doesn’t make sense to measure MRR if you have none, and it’s not worth calculating LTV or CAC, if you still lack sufficient data. For example, SaaS startup CandyBar set a content strategy that prioritized long-term potential like foundational and evergreen articles, over short-term returns, and experimented with different content types to see which would earn more shares and links.

2. Ask your marketing team to segment site visitors by the amount of interest they've shown to identify quality leads for the sales team, and review closed deals or sales to refine the segmentation process.

Divide all visitors into three MQLs: Maybe Not: Those people who just like your content. May Be Interested to Buy: Who may convert in the future after more marketing effort. Warm Them Up: Interacting with the CTA and ripe to add as SQL. See whether the content is compelling site visitors and email subscribers to make the leap into sales conversions, or if they just stick with a free trial of the product. Look at product qualified leads (PQLs), as the MQL/SQL model can be highly subjective, rule-based, and relies on basic activities like website visits, email opens, webinars, and gated content downloads. Identify product-qualified leads based on their behavior within your SaaS product. As many as 90% of MQLs never turn into Sales Qualified Leads because they were tagged as MQLs too early in the buyer’s journey.

3. Monitor conversions by lead source to learn which sources generate the most high-quality leads in terms of sales and ROI.

For instance, when you run an A/B test, take the extra step to measure how leads performed throughout the buyer lifecycle instead of assuming the variant that drove most leads is the winner. A page driving record numbers of leads does not necessarily translate into success for your business. Take into account form submissions that led to SQL and increasing sales, but also those that didn’t to determine campaign success.

4. Use both lead scoring and behavioral triggers when handling the SQL to sales teams.

Use lead scoring as an essential tool to avoid passing leads that are not ready to buy to your sales team, and also to highlight leads that need more nurturing in your sales funnel. Sales reps need information on what leads have been doing recently so that they can guide the conversation appropriately when talking to them. Sales don’t need this intelligent thing that says ‘this lead is 66% more likely to buy,’ because they can’t use that to communicate with the prospect. Instead, sales reps need to know that the lead recently installed the trial version of the product, so they can reach out to them and say ‘Hey, you just installed. What are you looking to do next?”

5. Choose a single metric like monthly revenue growth or retention rate to focus on and track as a measure of success.

This is known as a North Star metric, because it’s your primary guide. The overwhelming advice from industry leaders is to keep it simple and follow a less is more principle. For example, Ahrefs used three analytics platforms to track conversions, Kissmetrics, Mixpanel, and Woopra, where each platform was fed with the same data; CMO Tim Suolo and team found out all three analytics platforms provided different conversion numbers at different steps of the funnel. Practice showed the Ahrefs team that reducing analytics reporting to a single North Star Metric was more useful. Hence, they kept on sticking with just tracking only monthly revenue growth for their product with it.

6. Focus on growing the loyalty of your early subscribers, not just their raw numbers.

“After getting your first 100 users, don’t only focus on getting your next 100. Figure out how to make the product so good that most of the first 100 will stay for 5 years.” Jeff Chang. Some 55% of SaaS companies rank customer retention as their key metric to measure, which puts a spotlight on churn. For a SaaS company with a hundred customers, two customers churning isn’t going to make a change. However, churn compounds. If you have half-million customers, that 2% churn rate that wasn’t a problem at the start, translates into a monthly loss of 10,000 subscribers. Replacing that many customers can be unsustainable.

7. When your company is in a growth phase, use the Net Dollar Retention (NDR) metric to bring to the surface issues that otherwise may go unnoticed.

NDR is the percentage of growth a company has after accounting for churn, upgrades, and downgrades. For high-growth private SaaS companies, the median NDR is 101%. That figure mirrors the average for SaaS companies that reach an IPO; NDR also hovers over the 100% mark for acquisitions.  Net dollar retention has a huge impact on the long-term success of a business; companies that go public usually have net dollar retention rates of well over 100%, and in some cases 150%+.  “A SaaS company could be growing ARR (annual recurring revenue) over 100% each year, but if their annualized NDR is less than 75%, there is likely a problem with the underlying business.” – Alex Clayton. “If you’re at ~106%, you’re in line with the average. If you’re below 100%, do a little work to figure out what’s happening. If you’re ~120%+, you’re in great company.” – Sammy Abdullah.