Oct 10, 2018 Written by goji

How To Monitor The Core Elements Of Your SaaS Business Part 1

If you’re in early stages of your SaaS business, finding a way to compartmentalize, monitor, and track your core elements is crucial to your success. Many experts have likened a SaaS business to a simple funnel with 3 core components, and that’s what we’re going to focus on here.

It’s simple:

Marketing → Sales → Customer Success → Revenue

The top flow of your funnel is your marketing. This is where your traffic becomes leads. Leads move into the sales process, and either convert or don’t. Once a sale is made, the goal is to ensure customer success with your product. Finally, you’re going to experience some revenue!

Let’s break down each section and look at some tips and tricks to monitor, measure, and track.

Stage 1 = Marketing

Your marketing represents the very top of your funnel. This is where you start attracting potential customers to your business and attempt to lead them down your funnel. It’s essential that you’ve validated your product-market fit at this stage, and continue to do so on a regular basis throughout.

The most basic explanation I can give you about ensuring you’ve nailed your product-market fit (PMF) is to ensure you’re tackling a burning issue that people are actively seeking a solution for – and you need to be able to identify who these people are. Next, you need to create a minimum viable product and have that same group of people test and validate your idea. You do this before building a final product, as you’ll need their feedback to help ensure you create the best possible product. We’ll dig deeper into this concept in another blog post.

With your marketing, there are some key things you need to monitor to ensure you’re nailing the product-market fit.

If your PMF is on track, you will see:

ORGANIC TRACTION: Most of your signups will come from organic, non-paid sources. Your registrations will grow consistently month to month.

If you’ve missed the mark, you’ll find that the bulk of your signups are coming from paid sources.

SIGNUP RATE: Ideally, you should see at least 3-5% conversions from prospects who visit your website.

If you’re only getting around 1% of people converting, that’s not a good sign.

CONVERSION RATE: You should have at least 5-10% of users who opted-in for your free trial transition into paid customers.

If you’re only getting 2-3% of people converting, or less, it’s a strong sign your product-market fit is off.

ACQUISITION CHANNELS: You experience a steady increase of high-quality inbound leads, but you’re also able to generate leads through outbound marketing.

If all of your customers come from outbound marketing, and most of them know each other, this signifies a problem.

If you’re not seeing the numbers you should be, the easiest place to start is with tackling the conversion rates. Ensure your messaging is clear, simple, and powerful. Do the work to ensure you’re targeting the right customer segment, and see what you can change to get your customers to their ideal outcome faster.

All leads are not created equal

Once you’ve clearly defined and understood your main metrics, it’s time to consider your sales channels. You’ll need to create a system to calculate and monitor your sales-qualified lead (SQL) cost per acquisition channel.

When you’re in the seed stages of your business, it’s advised to focus on ONE paid channel that’s both scalable and delivering the lowest cost of acquisition. Unpaid acquisition should remain your top priority channel, and you want to start writing content to grow your inbound acquisition as early as possible.

Once you’ve got your marketing figured out, it’s time to focus on your sales process.

When potential customers are in the marketing stage, we’re talking about leads. But once we manage to bring those people along our journey and they show us an intent to buy, they move into the sales-qualified leads (SQL) part of our funnel and become our prospects.

Stage 2 = Sales

Although it will vary, a typical sales pipeline will look like this:

Prospect → Demo or Trial → Proposal → Negotiation → Win or Lose

You want to make this process as easy as possible for people to flow through. You want to monitor your pipeline’s size and velocity, as well as the conversion rate. Ultimately, you should aim to close 25-30% of your prospects.

It’s important to understand and plan for the sales cycle of your customers. If it’s a smaller purchase, you can expect to close within 30 days. For bigger decisions, it can take 2-3 months. But for monumental decisions, expect a 6-9 month sales cycle.

When calculating how many people you need to drive into your pipeline, plan for 3-4x your revenue targets and work backward to achieve your goals.

The all-important sales team

Your sales team is going to be instrumental to your success, so you want to do everything you can to help them succeed. But, you can’t improve what you don’t track.

You need to invest in your sales people and give them the appropriate amount of time to become successful. On average, it takes new sales people 3-6 months to ramp up to their full potential, so account for that in your forecasting. Once they’re reached their full potential, you should expect them to realistically achieve 85% of their quota.

You will want to calculate and track your average productivity per rep (PPR), as this will be the foundation for much of your sales forecasting and calculations.

A straightforward formula to follow is:

Revenue = # of sales people x average PPR

If you know the productivity you will likely get from your team, you can use that to figure out how many sales people you need to make your revenue targets.

Forecast Lead Velocity

Another major sales element you want to forecast is your lead velocity. Lead velocity refers to the metric that quantifies business growth in terms of qualified leads. Some argue that this is the single most important indicator of your current and future success.

If you’re measuring qualified leads and maintaining a consistent conversion rate, you can use this formula to yield a percentage growth rate for your leads, month over month.

At the end of the day, sales is simply a people and numbers game. With the right calculations and forecasting, you should be able to predict how many sales people you need, what they are capable of producing, and have a clear view of your company’s growth.

Remember that hiring will be your biggest bottleneck, and ensure you give new team members enough time and support to reach their full potential. Use your current PPR as a benchmark, but work on continuously improving it.

Stage 3 = Customer Success

It’s taken a long time to get to this point. You’ve wined and dined your leads, and done the work to convert them once they gave you a sign they were legitimately interested in what you had to offer. You made the sale, closed the deal. Now what?

The SaaS industry has its own set of unique challenges, this being one of them. Customer success is everything. If people aren’t happy, if they don’t continue to use your app after that initial sale, everything was for nothing. Sure, you made some money in the short-term for the sale, but the growth and scalability of your business goes out the window.

Without a solid strategy to track, measure, and improve customer success, all the marketing and selling in the world won’t keep you afloat. Your new customers have a goal in mind. There’s a reason they purchased your product. If you want them to keep using it, you’ve got to give them the outcome they were looking for – and fast. Your onboarding process is a crucial component to helping your customers become successful with your product. People continuing to use your product is a pretty good indicator that they’re satisfied and getting what they need, but how will you keep up as their needs and demands evolve over time?

As we’ve already mentioned, you can’t measure what you don’t track. You’ve got to start somewhere with this, and measuring successful usage and activation is a fairly simple way to do it.

Successful usage and activation

Set your parameters around what you determine successful usage and activation of your product are. Then, you can fill in the dots and essentially create a graph that will show you what percentage of your users are continuing to perform this key action over a period of time.

Image – https://static1.squarespace.com/static/54d90b15e4b0c5fc426718a6/t/5bc775d10d9297d66e3304d4/1539798564196/SaaS+Part3.jpeg Source: [https://medium.com/point-nine-news/monitoring-a-seed-stage-saas-business-345b758334dd

Net Promoter Score

Your net promoter score (NPS) is a tool you can use to measure your online loyalty. What this really comes down to is customer satisfaction. It measures which of your followers are promoters or detractors of your business, in addition to the passive people who sit in the middle that are irrelevant for this purpose. For small ticket items, your NPS should be 25-30, or higher. People rave about your product online, and many say they’d be disappointed if they could no longer access your product. If your NPS is 10-15 or lower, it signifies that your product market fit is off.

For those higher-ticket purchases, expect to see your NPS at 10-20 or higher. Any less than 10, and there’s a problem.

Customer Churn

Lastly, you need to monitor what percentage of your customer base is lost month over month, or year over year.

You can calculate it simply as:

Industry averages show that typical churn rates are:

  • 3-7% for SaaS companies who target SMB’s
  • 1% for SaaS companies who target large-scale enterprises
  • Unknown for companies who target individuals and small businesses

Even at the very beginning stages of your business, reducing your churn rate should be a top priority. A high churn rate can mean all kinds of negative things, all of which should be handled sooner rather than later. Your onboarding process might need work, or perhaps your customer service is lacking. Start with a benchmark and work on improving it.

Tying it all together

So this concludes our 3-part series on metrics to monitor for your marketing, sales, and customer success.

Marketing → Sales → Customer Success → Revenue

If you want to reach the point of earning consistent revenue and building a thriving, growing business, you need to have the right strategies and metrics in place to take people from being strangers to customers and raving fans.