Lace up your đ's for the SaaS Metric Marathon
Bienvenidos to the SaaS Playbook! If you tuned in last week you know a hot topic was freemium, so itâs only fair we spotlight some of the difficulties of the model today.Â
The biggest issue we find with freemium? Balance. If your freemium product isnât sticky and customers donât find value quickly, they will lose interest. On the other hand, if your freemium gives them everything they need, what incentive do they have to upgrade? If youâre struggling to strike that equilibrium, these other creative pricing alternatives might do the trick.
Time to lace up the runners, because this week is a SaaS metric marathon.
đȘ How do you define a user? Do they have to be a paying customer, someone who logged in a couple of times, or maybe even just a sign-up? To take an honest look at whatâs going on in your company, you should modify the calculation to only include those who are engaged, and also isolate your churn calculation to customers who are up for renewal. This might bruise your ego for a bit, but keep your chin up, metrics that donât kill you can only make you stronger.
đșïž Speaking of activation, the crew at product-growth platform Appcues thinks itâs arguably the most critical metric for SaaS businesses, and had some good tips on how you can improve yours. We gravitated towards the bit on drop-off points, because we agree that Google Analytics doesnât tell the full story. A full-blown product analytics platform will make it a whole lot easier to see the biggest points of friction in your user journey (like the example below).
đ We recently dished on why CAC will increase over the life time of your businessâthis week weâre diving into how the metric has evolved the past few years. Buckle up, because in both B2B and B2C markets, cost of acquisition increased roughly 60% from five years ago, and it is a bit more expensive in B2B. If youâre in a nascent market your cost will be a bit lower, but for everyone else in the room, consider giving content and video a shot where CAC is lower.
đ Point Nine Capital Managing Partner Christoph Janz continues to analyze and refine some of the top practices in SaaS metrics, but heâs also seen some of the worst: confusing your MRR with actual revenues, underestimating churn (for the same reasons we highlighted earlier), and blending paid and non-paid CACs. But the worst is assuming exponential growth due to the phantom silver bullet of âviralityâ. In reality, most SaaS businesses grow linearly, so ask yourself, why would you be the lucky one? The numbers say itâs unlikely.
đ When recruiting a group to test your minimal viable product, weâre told to build a big audience then open the floodgates and scramble to grab feedback. And look, the more the merrier, but your goal shouldnât be to unveil the product to that big group at once. Instead, trickle access to a number of different groups, then learn as much as possible from each of these cohorts. More cohorts mean more feedback at different stages of the product and a useful progression.
đ With all this talk of metrics itâs important to understand that not everything that matters is measurable, and not everything thatâs measurable matters. In The Tyranny of Metrics, Jerry Muller warns of the dangers of fixating too much on metrics. Common issues are gaming the metrics and incentivizing other behavior which isnât best for the business. Our main takeawayâbe sure you understand what your metrics actually measure, and donât be afraid to revisit them as your business evolves.