T he complete guide to SaaS metrics

Transcription

1 T he complete guide to SaaS metrics What are the must have metrics each SaaS company should measure? And how to calculate them? World s Simplest Analytics Tool

2 INDEX Introduction 4-5 Acquisition Dashboard 6-7 Users chart 8-9 New vs. Canceled Users 10 Sign Ups 11 Visits by referral Conversions Funnel Users World Map Retention dashboard Growth and Churn Active Users Unique Logins 27 2

3 INDEX User Retention Customer Lifetime 30 Users by Lifetime 31 Finance dashboard 32 Monthly Revenue Chart Current Month Revenue 35 Lifetime Value Revenue By Referral 38 Payments By Size 39 Average Payment 40 Paying / Non Paying 41 About the author 42 3

4 INTRODUCTION Figuring out which metrics are important and how to measure them can be difficult. We spent the last 6 months researching the most important metrics, the ones that are an absolute must for SaaS companies to use in order to understand what s going on in their business. We carried out this research because we are currently building Kilometer.io - The world s simplest analytics tool. Kilometer automatically measures, calculates and displays the most important metrics and charts for SaaS companies. In this post I will go over the metrics and charts we chose to add to Kilometer and explain their importance. 4

5 I m going to divide these metrics into three groups: Acquisition - How many users are signing up? Where are they coming from? Retention - Are users coming back? How long do they stay around? Finance - Is the monthly revenue growing? What s the average revenue per customer? Acquisition, retention and finance are also the names of the three dashboards we are including in Kilometer. 5

6 ACQUISITION DASHBOARD The goal of the acquisition dashboard is simple, to show where your most valuable users are coming from. It is relatively easy to find out your traffic sources (using free tools such as Google Analytics), however, in order to find out where your paying customers are coming from for example, you will need the help of a tool that is centred around users and not page views. 6

7 Kilometer.io (and some other analytics tools) uses cookies to track the incoming traffic to your website. When a visitor enters your website, a cookie is created, when this visitor signs up, the cookie is used to link his behavior before and after sign up. Cookies are a great way of figuring out what your users are doing before sign up, where they initially come from, and which traffic source is having the best conversion rates. We recommend that you include 9 charts and metrics in the acquisition dashboard, let us tell you why they are important. 7

8 Users chart (Total Users / Active Users / Paying Users) This chart is highly important as in a single glance it allows you to see what s going on in your company, including: How many users signed up? How many of them are still active? And how many of them are paying? This chart is displaying the actual number of users, in fact the numbers themselves are not that important. What s important is the change rate, the trend that s showing on the graph. Is it growing? How fast? Is it fast enough? 8

9 What to look for? The total users chart should have the highest growing curve (since it includes both the active users and the users who canceled). Growth in total users is useless unless we also see a growth in active users. If the active users chart is not growing, it means you have a retention problem (we ll get back to retention metrics later in this post). Although the paying users graph should naturally belong to the finance dashboard, the number of paying users is usually the most important metric for a SaaS company; therefore we decided to also include it in the users chart. If the paying users graph is not growing as fast as the active users graph, it means one of the following: either new active users don t convert into paying or old active users stop paying. 9

10 New vs. Canceled Users There s a constant battle between signups and cancellations. Getting a new user to sign up is just as important as preventing an existing user from canceling (and usually it s much cheaper to do the latter). What to look for? It is obvious that the green bars should be higher than the black bars, but you will want to find exceptions or spikes in this chart and figure out why they happened. Are there more cancellations on the day you bill most of your users? Are you providing customer support on weekends? If not, how does that affect user cancellations? 10

11 Sign Ups Today/This week/this month This metric displays the number of users that signed up during the current day/week/month. It will also predict how many users will subscribe until the end of the day/week/month based on the current growth rate. The power of this metric is mainly psychological and not analytical, since it encourages you to try to outgrow the number you got in the previous period and move the needle above the max, which is the value for the previous period. This metric can get you thinking, what did I do today to bring in more users? Should I post a new tweet? Start a new social campaign? 11

12 Visits by referral / Sign Ups by referral Both metrics are important, but combined they can give you a whole new level of insights. What to look for? The easiest thing to analyze is always traffic sources and many free tools can be used to achieve that task. Quite often people just analyze their traffic sources and make decisions based on those results. For example: Facebook is bringing us a lot of traffic, let s spend money on Facebook ads. But that s just wrong, traffic should be analyzed in the context of the behavior of this traffic. 12

13 Traffic that comes from Facebook might convert to Sign ups much better or much worse than traffic that comes from Google, for example. In Kilometer we get lots of traffic from Twitter and almost 5 times less traffic from Quora. However, since I m answering only the most relevant analytics questions on Quora, the traffic that comes from Quora is 600% more likely to convert to beta waiting list subscribers, than traffic that comes from Twitter. After all, in order to make the right decisions for your company it s important to know where your active/paying users are coming from. 13

14 Conversions: Website Visit -> Signup Signup -> Paying User Why is tracking conversions so important? Because you need to measure them in order to improve them. Improving your conversion rates can be done with A\B testing of design, usability, on boarding process and much more. The opportunities are endless and even small improvements can have a great impact on your business. For example, if you optimize your landing page and increase your conversion from 2% to 3%, this can boost your revenue by 33%! 14

15 What to look for? Website Visit -> SignUp is a great metric for analyzing the effectiveness of your landing page. While SignUp -> Paying is influenced by many factors, such as your on boarding process, the ability to deliver real value to your customers, building trust and many other factors. Those metrics can be used for testing improvements, but also for preventing disasters. For example if your SignUp->Paying conversion rate suddenly declines significantly, you might have an issue with your payment processing process. This is why it s really important to keep an eye out for unusual changes (in the future Kilometer will spot such changes and alert our users). 15

16 Funnel: Website Visits -> Signups -> Payments The funnel includes the same steps as the conversions we discussed earlier, but this is still a very important metric to look at on its own. Since conversions can t be treated as standalone metrics, you need to look at the bigger picture and funnels are perfect for exactly that. 16

17 Let s take a look at an example that illustrates this point: Option one: A long landing page with detailed info about a product (including pricing). Option two: A short landing page with a screenshot of the product and a big Try it free button (no pricing visible). Option two might convert visitors to sign ups much better, since the only way you will fully understand what the product is all about is to sign up. However, since the users signed up without knowing if they will actually need the product, the conversion rate between sign ups and paying users might be extremely low. In such a case we must consider the overall conversion rate from website visit to paying users (the completion rate metric). In such funnels the only thing that matters is the final step of the funnel, and you can sacrifice the previous conversions if that helps in increasing the overall conversion. 17

18 Users World Map Although it may look as if this is just a nice-to-have metric, the users world map is not just a pretty graphic. What to look for? This metric is especially useful when looking at smaller time frames. For instance, in this example we have set it to display a world map of users who signed up in the last 24 hours. Just this week we obtained great value from this metric; twice. 18

19 The first time was when Kilometer was mentioned in a very popular Turkish blog, we suddenly started to see a lot of beta waiting-list subscribers from Turkey. The next day, we had a similar story, this time in China. We found out that Kilometer had been featured on the Chinese Product Hunt (don t ask me how) and we even got 44 upvotes. This is why the world map is an excellent tool for seeing real-time local trends. It is important to focus on actual users and not on website visitors. This way you can eliminate the noise coming from spammers, hackers and non-useful traffic to your site that does not convert. 19

20 RETENTION DASHBOARD Nowadays, it is relatively easy to get a bunch of first users and make your acquisition dashboard look promising. You can use social networks, websites like BetaList and Product Hunt, paid advertisements and more in order to bring in users to try out your solution. As more users sign up you ll start to get that sweet feeling that will make you believe that you are on the right track. Unfortunately, there s an evil factor that you can t avoid, it s called retention, or in fact, lack of retention. 20

21 If your users are not retained, by which I mean that they do not come back and use your product after their initial sign up, your product is leaking. There s no sense in bringing in more users unless you fix the leak. Otherwise all the users you do bring in will sign up; and eventually stop using your service. We will go over the 8 charts and metrics you should track when measuring retention. 21

22 Growth and Churn How fast your company is growing is the first question every investor will ask you. When talking about growth, people tend to consider only the new user signups, and sometimes forget about user churn. What is Growth? Growth is the number of new users that joined in a period of time compared to the total number of users you have. If you had 100 users at the beginning of the week and 5 new users joined during the week, your weekly growth rate is 5%. 22

23 What is Churn? Churn, is the complete opposite, the number of users who canceled compared to the total number of users. If you had 100 users at the beginning of the week and 5 users canceled during the week, your weekly churn rate is 5%. If you combine both those metrics, you can estimate the future growth of your customer base. It s important to note that it is much simpler to maintain a high growth rate when you re just starting out. If you have 100 users, you need just 5 new users in order to achieve 5% growth. If you have 100,000 users, you need 5,000 new users in order to achieve 5% growth. The only way to maintain a high growth rate over time, is to have a viral-loop built into your product, this means having your existing users bring in more new users. If your viral-loop is working, the more users you have the more users they will bring. Another important note: The churn metric is as important as the growth metric, this means that bringing in a new user is exactly the same as preventing an old user from cancelling. It s usually easier and cheaper to prevent a user from canceling than to acquire a new user. 23

24 Active Users Let s face it, if you provide a free plan a significant number of your users won t even remember who you are and will probably never login to your dashboard again. Users don t cancel free products or free plans, at least, a large majority of them don t. This means that non active users are making your acquisition charts look better; but they don t bring any value to your business. If your non active users are subscribed to a paid plan, they are very likely to cancel it after the next charge and ask for a refund due to lack of use. 24

25 It s so important to measure your active users rate and work on increasing those rates. Daily active users These are the users who login every day to your product. This metric can be very difficult to calculate, but calculating the rate of users who logged in during the last 24 hours will be an accurate estimation. Weekly active users Users who login once a week. It is calculated based on the number of users who logged in during the last week. It really depends on your product, but a low daily active user rate can be acceptable, but if your weekly rate is also low, you have a problem. Monthly active users Users who login once a month. Many companies consider users who weren t active for a month to be canceled users, since the chance that they will become active again is extremely low. 25

26 How can you improve usage metrics? It s highly important that you constantly work on increasing your number of active users and be creative in doing that. Work on your onboarding process: Very often users don t come back because they don t get what the product does exactly. Your onboarding process is a big deal and there are a lot of usefull resources and ideas on the web on how to improve it. We re currently working on finding out how to make Kilometer s onboarding process the best that it can be, check out the discussion about it in our community forum. Use s to remind users you exist: Many companies send out a regular digest, or notifications motivating users to log in and check for more info. Not active = Cancelled : What are you doing after a user cancels? Do you reach out and ask him why he left? Are you doing anything else? No matter what you do in this case, you should also do the same when a user has not been active for a long time, treat non-active users as cancelled users. 26

27 Unique Logins This chart is another way of investigating how active your users are. The advantage of this chart over the metric is the ability to look for spikes and patterns. What should you look for? Do you see a higher number of logins during weekends? Do you see login spikes after actions like campaigns, social networks activity etc? Find out what s working for you and do more of that. Make the chart look better by using s, digests and notifications that will urge your users to login. 27

28 User Retention There are several ways to display retention, complicated tables are commonly used to do that, but we would like to keep things simple. The idea is to use a pie chart to show how many of your users are active during different time frames. What to look for? Users are considered active as long as they login into your system, non-active users are those who forgot about you and are unlikely to come back. Use this chart to find out when users are most frequently forgetting about you, in which time-frame does the big drop happen. 28

29 For example, most companies will see a big drop in users not long after signup. This makes sense as new users want to try your product and so they sign up, if the product doesn t meet their expectations they never come back. Use this chart to discover when the big drop in activity happens in your company, then work on fixing that. 29

30 Customer Lifetime This is a very important metric and many companies live and die based on this metric. Basically it tells you how long the average customer stays. Combining this metric with the average revenue per customer (we ll explain more about that when we get to the finance dashboard) can tell you how much money you are making per customer, or how much you are likely to earn from the next user who signs up. Once you know how much money a customer is worth, you can make much better decisions relating to your acquisition channels. If you re making $100 per user, you can spend up to $99 on paid channels in order to acquire the user and still be in profit. However, don t forget to add operational costs such as server costs, customer support etc. to these calculations. 30

31 Users by Lifetime This is a great chart to analyze the loyalty of your users. It can answer important questions such as when did the oldest active customer join? What to look for? In this chart it can also be very useful to look for big drops. If you are adding important features it might be very useful to see how many users joined before the changes and may be unaware of the improvements you have made. 31

32 FINANCE DASHBOARD If you have a paid plan or charge users in any other way then you must have a finance dashboard. A good understanding of finance metrics will tell you how much money you are making on average per user; and as a result, how much money you can spend on acquiring new users. For a SaaS business, revenue is oxygen, revenue metrics are a great indicator of your company s success, and should be taken into consideration before making any important decision. Let s go over the metrics you should have in your finance dashboard. 32

33 Monthly Revenue Chart The goal of most real businesses is to generate revenue. SaaS businesses are usually subscription based and most of the payments come from monthly subscription plans, making things more stable and predictable. If you can maintain a high growth rate and a low churn rate, your monthly revenue will continue growing at a rapid speed. 33

34 Your actual revenue is an important metric since it can help you answer questions like: Do we have enough income to bring in another developer? Can we afford a bigger office? However, what is even more important is the trend of your revenue chart. Is your revenue growing? Declining? Why? What can you do about it? Building a plan to make this chart look better can be very valuable to your company and can help you focus on doing things that will influence the bottom line. 34

35 Current Month Revenue This metric is not only showing the revenue that was collected during the current month, but also predicts how much will be collected before the of the current month. The prediction is based on the previous month s revenue. Use the prediction value to see if you are going to earn more than during the previous month, if your revenue is not growing that s always a bad sign, so you can build a plan to fix this metric. And the powerful thing about this metric is that you can see where you stand before the month is over. 35

36 Lifetime Value / Revenue Per User User Lifetime Value is calculated by using the User Lifetime metric displayed in the retention dashboard, then it s multiplied by the Average Monthly Revenue Per User metric. The result will show you how much money you make from the average user. 36

37 What to look for? The maximum lifetime of a customer is the lifetime of your business. As time passes your business gets older and users might have a longer lifetime value. That is why User Lifetime Value should be constantly growing, if it is not growing something is wrong. It s very important that you look at user groups sharing common properties and compare the metric values between those groups. For example: Users who came from Facebook can have a longer/shorter lifetime value compared to those that came from organic search or paid ads. Users who live in the US might pay more/less than users from Europe. Once you find the user groups that are generating more revenue, it makes sense to increase efforts to bring in more of those users. 37

38 Revenue By Referral Revenue by referral is not a metric you ll see frequently and it s difficult to calculate using traditional tools, which is why most people don t understand the importance of dividing users into groups by their initial referral. What to look for? This is an extremely powerful metric and you should definitely analyze it using different time frames. Sticking with channels that bring in most of the revenue will help you spend your time and money more efficiently. 38

39 Payments By Size If you have different subscription plans, like almost every SaaS company, this chart will show you which of those plans are more popular. What to look for? While pricing psychology is beyond the scope of this ebook, this chart can help you figure out if your pricing tests are effective. Also, it might be useful to see if you have subscription plans with a lot of users but with little revenue. If that is the case what can you do to move those users to a higher plan? 39

40 Average Payment One way to increase revenue is by bringing in new customers, the other way is to sell more to your existing customers. Since SaaS companies are dealing mainly with monthly payments, their way to sell more to customers is to make them move to a higher payment plan. A growing average payment value usually means that more users are moving to higher payment plans. What to look for? It s a nice number to look at, but it doesn t really tell you something interesting. As I already mentioned, trends are always more important than the current number, that s why we included a comparison to the previous period in the metric. Make sure your average payment is growing every month; it will influence your monthly revenue as well. 40

41 Paying / Non Paying If you have a free plan, you should look at these metrics daily. Since the purpose of free plans is to eventually convert users to a paid plan. Free users cost money - they are never really free, they re using your servers, customer support and other resources. In a Freemium model, converting free users into paying should be the company s top priority and the bold non paying users metric should not be overlooked. Every time you see this metric, you should think about what you can do to move users into the paying section. This basically concludes our list of the most important SaaS metrics and charts as we defined them after long and extensive research. All those metrics will be included in the Kilometer dashboards and will be calculated automatically. 41

42 About the author Alex Alex Flom the CEO & Founder of Kilometer.io is sharing everything about the process of building this startup at the: Kilometer transparent startup Copyright. All Rights Reserved. Created by