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Why your SaaS business will fail without data
Data are essential for any successful organization.
Thomas Varekamp
November 11, 2022
Most SaaS businesses face 3 challenges:
Getting more customers
Increase profitability
Reduce customer churn
In order to know how you can solve these struggles, it is important to understand the strengths and weaknesses of your business. This is where you use metrics.
A metric is a measurement of an event. In a SaaS business, metrics can measure different aspects of the business, such as customer engagement, revenue growth or profitability. By tracking and monitoring these metrics, you can improve your understanding of how your SaaS is performing and make decisions based on that information.
Metrics are essential for any successful organization, but it's even more crucial for a company operating in the fast-paced world of tech startups.
The pirate funnel (AAARRR framework) gives the perfect structure to analyze your product and your customers. This funnel describes the process of attracting customers, getting them to pay, and keeping them.
Below I present each stage, with questions relevant to that stage and the metrics you should track.
Knowing the answers to these questions ensures that you spend your time on activities that have the greatest impact:
1. Awareness: How do people become aware of you?
Questions to answer:
How effective are our social media efforts?
Where should focus our marketing efforts?
What type of content resonates the best?
Metrics that will answer these questions:
Social media impressions
Ads impressions
Ads click-through rate
Cost per click
2. Acquisition: How do people visit your website?
Questions to answer:
How can we reduce customer acquisition spending?
What channels should we target to drive the most traffic?
For what devices should we optimize our website?
Where do our visitors come from?
How can we improve low-performing pages on our website?
What type of blogs should we write more often to drive more traffic?
Metrics that will answer these questions:
Traffic sources (e.g. Twitter -> website, youtube -> website, etc.)
Page views
Visitor data
Bounce rate
Time on page
3. Activation: How do visitors use your product?
Questions to answer:
How can we make sure customers use our product longer in one session?
What functionalities should we build next?
What functionalities should we scrap or change?
How can we convert more trial users to paid users?
How can we make the onboarding process more smooth?
Metrics that will answer these questions:
Time spent using the product in one session
Time spent using certain functionalities of the product
Most used functionalities of the product
Number of trial users
Number of paid users
Trial to paid user ratio
Number of customers completing the onboarding process
Button clicks on a product
4. Retention: How do customers keep using the product?
Questions to answer:
How can we make sure customers use the product more often?
How can we increase paid customer retention?
Metrics that will answer these questions:
Time-since-last visit
Daily / monthly active users
Number of churned customers
5. Revenue: How do you make money from user activity?
Questions to answer:
How can we grow our revenue?
How can we up-sell a premium service to customers?
How can we improve the customer's lifetime value?
How can we increase our conversion rates?
Metrics that will answer these questions:
Monthly recurring revenue
Expansion revenue
Average Revenue Per User
Customer lifetime value
Conversion rates
6. Referral: Do users promote your product?
Question to answer:
How can we increase customer referrals and word-of-mouth promotion?
Metrics that will answer these questions:
Invites sent
Viral coefficient
If you have answers to the questions above, you will make better decisions. By keeping track of what's working and what isn’t, you can continue making improvements while ensuring that your SaaS remains profitable and competitive. Without accurate information on your performance, you can't make informed decisions about how to improve it.
Tips
Use dashboards to have all these insights in one place
A common mistake made when tracking metrics in a SAAS is not paying enough attention to detail. Too often companies focus only on broad measures like Monthly Active Users or Total Revenue instead of digging deeper into specific details about what's happening with their customers.
Make early assumptions and set goals for what success looks like to you.
If you enjoyed it, please forward this email to friends who want to know more about data in business.
See you next week!
Thomas