Metrics for a Software as a Service (SaaS) Company

Metrics for a Software as a Service (SaaS) Company

This is the first of a series of posts in which I’ll suggest recommended metrics depending on the business segment and corporate strategy. To land it better this post is based on a real case and the metrics that were defined for the business involved.

As mentioned in the earlier post, Introduction to Metrics, before heading straight to the key performance indicators the company must start with the most subjective concepts such as values and cascade all the way down to the KPIs using each preceding level as the guide.

The subject of this post was a SaaS company whose offering was a software to optimize the sale of food and beverages consumer products sold to small grocery stores in Latin America, powered by prescriptive analysis. This meant the company valued innovation, partnerships, and integrity.

Through innovation, partnerships, and integrity the business had the vision of being the best software solution to boost sales from manufacturers and distribution companies to small retailers. The mission…being able to provide a stable technological tool powered by machine learning models in more than one Latin American country within five years, so that manufacturers and distributors sell more efficiently.

So what objectives had to be set up to support that mission? The answer: sales, maintaining client loyalty, cost-efficient marketing initiatives, a dependable technical solution, and control over costs.

Sales
The key metrics for sales were lead conversion by reseller, reseller margin, monthly new clients, and sales revenue.

We found out that one of the measures to gain market share faster was the use of resellers. The software was to be sold by them at a minimum fixed price to avoid them dumping as a strategy to sell other products that they also handled. It also became important to evaluate the effectiveness of each reseller, the number of new clients and the revenue per sale (these last two serve to measure if goals were being reached).

Client Loyalty
Formula for client retention which consists of ((# of clients at the end of the period-# of acquired clients throughout the period)/total clients)*100

Partnership was right on top of the pyramid and it sounds cliché but it’s true, clients can be partners; especially, in a business where they are making the solution stronger with the data they provide, not only for them but for other clients as well. Having a happy client is simply good for business, acquiring new clients can prove costly while revenue from existing ones has lower costs. With this in mind the metric to measure the objective was the percentage of client retention.

Marketing
Two formulas for metrics one to measure which marketing effort draws the most leads and another for the ROI

Since the company was small and bootstrapping, it was important that it was efficient with its expenses. It would be disastrous in this business segment for innovation to be paused due to a lack of funds. To see where funds had a better use one of the metrics was how many leads for each marketing channel and of course the ROI of each initiative.

Valuable and Prompt Technical Solution

Since the business was based on a single solution reliability was important and if there was a bug or issue for it to be fixed as soon as possible. To ensure a good experience, the company placed on emphasis on finding bugs first and one way to see if work was being done to minimize errors was how many bugs were found during testing vs. those found by the client. Given the nature of the solution where it was constantly being updated either by request or by the company it was important that this didn’t hinder the client’s readiness to visit clients, so the time it took to implement a change in the tool from the time it was requested until it was used was another measure. The mean time between failures, mean time to repair, and measuring the percentage of clients lost to malfunctions as the main reason all provided information that could help maintain a strong client retention.

Costs
cost table showing formula to calculate savings from expected costs and the ROI

Finally, to tie in to the idea of having an efficient business the metrics chosen for costs revolved around the savings of each month and keeping an eye on the mayor source of costs.

Stay tuned for the second part with a list of more metrics that can be used for a SaaS business.

Miguel Morales

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