Metrics that matter: A SaaS perspective

Most SaaS companies collect tons of data, but translating these metrics into actionable KPI’s to make data-driven decision is the key.

A good metric should have the following key attributes

Comparative- This will help you benchmark the KPI with respect to your cohort across time period. For example, According to Mixpanel’s product benchmark report, the average DAU:MAU Ratio benchmark for SaaS B2B and B2C apps is 13%.

Simple- Metrics only make a difference if they can drive change, to get people on board and drive adoption simplicity is the key.

Ratio or Percentage- Metrics in the form of ratios and rates have the power to provide perspective and show Product Managers if the changes they’re making are driving the product in the right direction, and if they’re doing so fast enough.

Should we celebrate if we have 10000 daily active users?

In this case a ratio of DAU (daily active users)/ MAU (monthly active user) would tell a better story a ratio of below 15% for B2B companies implies your product is not sticky enough.

Actionable- If you notice one of your KPI’s going down, you should know how to course correct. Example-

  • Customer Lifetime Value (LTV) has fallen by 30% in the last 12 months

With this in mind, as a Product Manager, you could take actions such as:

  • Talk to customers that recently churned to understand if there’s something in common that’s causing them to leave
  • Provide a retention offer when users try to cancel their subscription
  • Analyze competitors and their offering

SaaS Business Metrics

These give you insight into marketing, sales, revenue, and growth. These are very useful for indicating the health of your business and measuring progress towards the end goal.

Conversions

These measure movement of marketing and BD generated leads through the funnel (i.e. % of interest or leads who became paying customers for your product) for a B2B company this should be in a region of 5 to 10% where a conversion rate of 8% is considered good.

Monthly Recurring Revenue (MRR)

This is the one key metric you should focus on as it is considered as the holy grail of SaaS metrics for a granular view this can be broken into new business MRR, geography MRR, new product MMR and churned MRR.

Churn

To simply put it, churn measures people or revenue leaving. It’s a measurement of the percentage of accounts that cancel or choose not to renew their subscriptions with you.

Customer Churn Rate (%) is the percentage of users that leave within a time period (usually calculated on a monthly or annual basis). Measured by Total Number of Churned Customers / Total Number of Customers

Gross MRR Churn Rate (%) is the percentage of revenue that is lost due to users leaving or downgrading within a given time period (usually calculated on a monthly or annual basis). Measured by Total MRR Churn over the month ($) / Total MRR at the start of the month ($)

Solutions like Clevertap, Amplitue, Mix Panel can be useful in calculating churn in a B2B company a churn of 5–8% is considered acceptable.

SaaS Product Metrics

Product metrics help gauge your users, how they interact with your product and what actions do they take while using your product.

Activation

Activation is defined as average number of key actions per user per month, a key action is essentially what a user does within your software that shows they are getting significant value. For example, for Jira a key action could be every time a user creates a story or a confluence page.

Average number of key actions per user per month = Total number of key actions taken by all users per month / Total number of users

one you have the metric defined you should check the trend over a period of time

Average user monthly session duration

‍The average amount of time your users spend every month using your software.

Average user monthly session duration = Total monthly session duration of all users (minutes) / Total number of users

this can be measured across cohorts and time period to gauge all hotspots.

Average number of logins per user per month

This metric gives an idea of average number of time the user logs into your product over a month.

Average number of logins per user per month = Total number of logins across all users per month / Total number of users

Stickiness

‍This is a ratio of daily active user/monthly active user as a percentage. Active users are users who have spent certain amount of time using your product, if they’ve logged in or if they’ve taken specific key actions

Stickness = Daily Active Users (DAU) / Monthly Active Users (MAU)

For B2B SaaS companies this should be in the range of 10 to 20%

Product Metric Pyramid

Combining metrics for a unified business objective can be a tricky task PM’s can use the product metric pyramid to take key decisions and meet product objectives

  • North Star This is the guiding light that drives all product decisions if you get lost you can always look at this metric for guidance.
  • Influencers these are metrics whose actions influence your North Star.
  • Levers data bits that can help you troubleshoot problems and inform decisions for the initiatives on which you’re focused.
SaaS Metrics Pyramid

Credits

https://www.productplan.com/learn/saas-product-metrics-pyramid/

https://www.fullstory.com/blog/product-management-metrics-and-kpis/

https://www.prodcamp.com/blog/the-best-metrics-and-kpis-to-drive-excellence-in-b2b-saas-product-management

https://andrewchen.com/dau-mau-is-an-important-metric-but-heres-where-it-fails/

Product Owner- SaaS & Mobile, Value Investor & Market Researcher, helping large tech. companies build visionary products.