Success Metrics for SaaS Startup Models
Software as a Service as a technology appeared in 1997-1999, and SaaS became a nominative acronym in 2001. Since then, SaaS technologies have survived all the growth challenges and have become a reliable business model over the past five years. The effectiveness of SaaS models can be measured using appropriate formulas, metrics, and calculation approaches.
Based on the experience of our partners from Dworkz, a UI design company in San Francisco, and competitors, below we answer the questions: how to attract new customers to SaaS products and, most importantly, how to keep them? Spoiler: A SaaS product must have a wow factor (a reality test can be postponed, but no marketer can prevent it), and it’s also a matter of prioritization and constant search for new growth areas.
What is wrong with attracting new customers?
The usual business logic dictates that the more new subscribers, the better the business. But in the case of SaaS solutions, this logic does not work. The problem occurs at the stage of renewal of the subscription. Initial – SaaS purchase is carried out on a subscription basis. To try the product, newly attracted customers either use the product during the trial period or sign up for a short-term subscription. If the customer does not experience the wow effect of using the product, he will not subscribe after the trial period or renew the subscription. Moreover, every unsubscribe lowers the search engine rankings of the product.
The issue with SaaS products is that the growth process must constantly improve to reach a plateau. This is such an indicator that it doesn’t matter how many customers you attract per month because you will gain a plateau and stop growing sooner or later. The reason is that each product has a finite number of consumers, and SaaS solutions are no exception. How do you know if your product has reached a plateau? To gain this, it would help if you calculated the outflow (churn rate). Here is an example:
- On January 1, you hit 100 subscribers.
- On February 1, out of 100 subscribers, 70 renewed their subscriptions.
- According to the formula (100-70)/(100), your monthly churn is 30%.
Maximum size SaaS business – calculation formula
Having decided on the outflow of customers, you can calculate the maximum possible number of them. For example, if the inflow is 100 customers, multiplying this number by the outflow value, we get the maximum business size value.
- Inflow * (100/outflow%) = maximum size of your business.
Benchmarks in the SaaS business industry show an average number of new subscribers – 300. Churn – 30%. With these figures, the maximum size of your SaaS business can be 300 X (100/30%) = 100,000. As soon as your customer base approaches this number, a plateau will come – this is when the outflow compares to the inflow. The value of this formula changes depending on many factors, but it allows you to make predictions and values to strive for.
How to break through the plateau?
On the Surface are SaaS solutions to increase the influx of customers and reduce their outflow. First, you must increase the budget and optimize the marketing sales funnel. The second is offering a long-term subscription at a discount and reducing the number of non-payments (it is the competence of the support service.) If the influx of customers depends on many external circumstances, then the outflow depends solely on the product and the promotion team.
If the above does not change the situation with the outflow, then it remains to change the strategy (channels) for attracting other, more significant, and more stable customers.
The meaning of metrics for SaaS startups
The potential for significant increases in streaming and data transfer, the globalization of the economy, and the pandemic are all factors driving the demand for SaaS products. Applications range from document management and communication to urban infrastructure and the Internet of Things. For developers and marketers, it remains important to use metrics as control points when entering the market for SaaS solutions. The project’s fate depends on choosing the right starting points – setting up the mechanics of attracting and retaining customers.
1) AARRR is the most effective marketing funnel model. Checkpoints – Acquisition, Activation, Retention, Referral, and Revenue.
This metric allows you to measure the effectiveness of a marketing campaign and optimize it at every point of control. In the first stage, you need to pay attention to the quality of attracted customers. Attraction tools – contextual advertising, targeting in social networks, organic traffic, podcasts, webinars, and mailing lists – form an expert’s image.
2) At the Activation stage, the emphasis is on the value of the SaaS product.
There are three such values:
- Your SaaS increases profitability.
- Reduces costs. For example, your SaaS solution saves customer time and money.
- Increases performance. For example, your software involves fewer meetings, gives employees a better understanding of the logic of the business, produces better recruitment, and ensures risks.
3) At the Retention stage, the client should develop the skill of interacting with your SaaS toolkit. Efficiency depends on the product type: for cloud organizers – 30 minutes daily. For accounting services – once a month, the efficiency for SaaS products is once per week.
4) Distribution – at this stage, the number of invites and these conversions into a subscription are eliminated. Bonus opportunities are used as motivation. For example, our partners from Dworkz offer discounts under the referral program (need to clarify the details).
5) Profit is a key metric that measures the success of a SaaS project.
Ideally, your SaaS customer visits the site, registers, and signs up for a trial version of your SaaS solution for their business needs. Further, he creates the first project and visits the admin of his project at least four times a month. The impression of indispensability that your SaaS solution makes on the client makes him recommend it to his three partners to communicate with them in the same SaaS language. And finally – consider the income: the cost of attracting all customers should be 20% lower than all registered users, bringing in profits.
Whatever the tools for promoting your SaaS product and the metrics for its success, the most important thing is the quality of the product itself – the wow effect. This is when the clients experience a delight they want to share with the world. Checkpoint – do you want to buy your SaaS solution? If the answer is no, you are out of your league or must turn to specialists (developers and marketers) before you entirely spoil your SaaS idea’s implementation.