If - like many of the companies I work with - you have a SaaS-based business, then the choice of metrics you use to measure the success of your business model is absolutely critical.
I've quoted David Skok of Matrix Partners before and if you're not already a subscriber to his for Entrepreneurs blog, then I strongly recommend that you sign up today. I want to commend his latest article to you.
In "SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters", David quotes Lord Kelvin's remark that if you cannot measure something, you cannot improve it - a thought that really appeals to the engineer in me.
Clear processes and metrics are even more important in the SaaS world than they are in conventional software businesses. The effect of what might seem like relatively small adjustments at key points can have a dramatic compounding effect on financial viability.
At the end of the day, and as David points out in the article, it really all boils down to just three factors:
- Your success in acquiring new customers
- Your success in retaining existing customers
- Your success in realising the full potential of your customers
If this all seems to be blindingly obvious, of course it is. But the devil is in the detail of what and how you choose to measure and how you interpret and act upon the results. David's article deals with this in a uniquely comprehensive way. I commend it to you.
The article includes a truly comprehensive downloadable spreadsheet that captures all the key metrics and puts them into actionable context. Readers have remarked that it could have saved them years of experience and hours/days of work!
One final point: David highlights the lag between recognising the need for fresh investment and that investment having an impact on revenue - he characterises it as taking between 3-4 quarters to have real impact, and this reflects much of our own experience. But of course, you first need to identify the areas where investment will make a real difference.
If you're in a SaaS business, please read David's article in full today. And if your metrics don't measure up, please do something about it sooner rather than later.