As a SaaS business matures, the importance and value of SaaS metrics
increase. Most SaaS businesses begin their journey down the SaaS metrics path
by tracking recurring revenue in relation to customer acquisition costs.
After building a solid customer base, churn becomes a priority. These
fundamental SaaS metrics are all apparent in the standard SaaS profit
SaaS profit =
current customers x ( avg recurring revenue – avg recurring cost )
– new customers x avg acquisition cost
However, it quickly becomes apparent that fighting churn requires a SaaS
metrics toolkit that digs significantly deeper than simple financial metrics.
Operational metrics are needed that connect day-to-day business reality to
financial performance. It is this realization that gives birth to the new
Metrics-driven SaaS Business as it discovers the goldmine of SaaS customer
Becoming a Metrics-driven SaaS Business is no easy task. It takes time,
commitment and plenty of customers. However, the financial rewards of moving
beyond standard SaaS financial metrics to SaaS customer success metrics and
ultimately to sophisticated predictive analytics are significant. Each step
toward SaaS metrics greatness builds upon the last. The stages of development
can be classified into a natural progression of increasing SaaS business
understanding from financial stability to operational measurability to
revenue predictability outlined at the very beginning... (more)
Over the past few years, the SaaS community has gained a solid understanding
of SaaS financial metrics, as well as many of the operational principles
required to achieve them. However, there has always been an obvious gap
between what happens on the top line and what happens on the ground. It’s
one thing to claim that a 50% reduction in churn will result in a 2X increase
in recurring revenue, but it’s quite another thing to make it happen.
Achieving that 50% reduction in churn is usually a tedious and unreliable
process of trial and error. This is about to change. As the SaaS ind... (more)
We are witnessing a dramatic change in the way SaaS businesses are managed.
While SaaS financial metrics, such as recurring revenue, acquisition cost,
service cost, churn, growth and lifetime value have dramatically increased
our understanding of the economics of SaaS businesses, they have proven
inadequate for managing them. As useful as they may be, SaaS financial
metrics look at the past, not the future. They can tell you that you have a
problem with churn, but they cannot tell you what you should do about it.
Motivated by the need to better understand churn, many Sa... (more)
It seems a little late in the game for me to be asking a question like
“What is SaaS?” But, I’ve always harbored a few embarrassing little
secrets on the subject and I think it’s time I came clean.
There is a classic Harvard Business School case study called Marketing Myopia
by Theodore Levitt that is familiar to every MBA student since the
60′s–the moral of which is not to define your business too narrowly lest
you become obsolete. Well I don’t think software is going away any time
soon and neither is service, but what about software-as-a-service? Between
the rise of the cloud ... (more)