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Why you need to track these KPIs more than ever
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Why you need to track these KPIs more than ever

Why you need to track these KPIs more than ever

Tracking Business Performance
July 21, 2021
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10 Jogs
Why it matters?

In an ever-changing world, KPIs are still necessary to measure organizational and product performance. But with changing customer preferences and new technologies that impact the way we work, it's important to know which KPIs you need to track in order to have a better sense for your organization's health. Are you running your SaaS company and not tracking any KPIs? You may be surprised to find out that this is a recipe for disaster. It's important to know which KPI metrics are most relevant to your business in order to make better decisions with data-driven insights about what needs improvement or tweaking.

It is also critical that companies keep track of how satisfied customers are with their product or service. Whether it's customer experience, conversion rates, churn, or net dollar retention, these KPIs are essential for tracking if your company is on the right path towards success or not.

Here is the greatest content available on how to measure success in software-as-a-service as well as insights into which KPIs are most important. So whether it's time-to-payback, customer acquisition cost or lifetime value, this is the place to start.

The Content

Each link contains a summary produced by one of Joggo's geniuses so you can decide where to spend your time learning more

June 14, 2021
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Nir Eyal
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Nir and Far

What Is Motivation? You’ve Probably Been Thinking About It All Wrong

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The Summary

Discomfort and motivation are related

We think of motivation as the wind - it comes and it goes, and if it's not blowing you're stuck - Understand biology of motivation to do better - Brains are meant to facilitate motion - Snails have two brain cells - one to sense food and one to tell hunger - if hungry find food - Complex brains used to escape uncomfortable things and maintain homeostasis

Motivation is the desire to escape discomfort

The need for homeostasis spurs action - When something's off, the brain generates emotions to make us fix the problem - Eg. hours of focus in video games is driven by need to escape schoolwork, social pressure, parents - quick easy way to escape discomfort - Humans take the path of least resistance

Feeling bad isn't bad - we can manage motivation and distraction

  1. Discomfort is not a bad thing
  2. Don't look for the easiest path away from pain
  3. Find what drives our desire to escape how we feel
  4. You don't need to feel like writing to write - a "real" writer won't constantly write effortlessly
  5. Prepare yourself for uncomfortable emotional states
  6. Lots of techniques to avoid inevitable urges (eg. ten-minute rule)
  7. Understand why you got distracted, then try to avoid them
November 12, 2013
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Eric Paley
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Founder Collective

Why Margin Matters Now in Startupland

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The Summary

Venture capitalists are sellers of capital

  • They often give off signals that are inconsistent with the real probabilities of their actually making an investment.
  • Don't get excited about meeting a VC, they're paid to listen to your pitch.
  • Being invited back is common after a great first meeting and not a strong signal.
  • Being invited to a partner meeting is forward momentum but still around half of all deals vaporize at this stage as partners lose enthusiasm.
  • Don't take closing for granted when a term sheet is offered. ~10% of deals fail at this stage and it's often the biggest disconnect between founders and VCs. Celebrate once a deal is closed, not before.
June 18, 2019
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Tomasz Tunguz
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Tomasz Tunguz

Redpoint SaaS Startup Key Metrics Template

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The Summary

Metrics to summarize a SaaS business

  • People - employee sat, headcount, recruiting
  • Bookings & Revenue - closing new business & recurring revenue
  • Cash - balance, burn, operational months
  • Sales - total AEs, ramping AEs, bookings capacity, quota attainment
  • Marketing - lead gen and conversion metrics
  • Customer Success - net dollar & logo retention
June 25, 2019
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Sean Fanning
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OpenView

CAC Payback Basics: What It Is, How to Calculate It and Why It Matters

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The Summary

Customer Acquisition Costs (CAC) are expenses to acquire customers. CAC payback is how long it takes to recoup the CAC, but it's a complex metric with no universal framework.

Calculating CAC Payback

This is the single best measure of efficiency of your go-to-market engine. The recommended formula is: - CAC Payback = (Sales & Marketing Expenses in Period) / (Net New MRR Acquired in Period * Gross Margin) - MRR figure should include net new MRR - Measure & make improvements.

Benchmarking CAC Payback Goals

  • Faster is better, but focus on peer benchmarks instead.
  • Look at it in the context of logo retention & net dollar retention.
  • Long term trends are key.

Tips for Reducing CAC Payback

Continually experiment to optimize by: - Leveraging PLG best practices - Nailing product / market fit - Driving funnel efficiencies - Optimizing conversion rates Retention is also powerful: - Take advantage of upsell & cross-sell - Avoid the lifetime value trap - Finally, don't forget about your margins! Bottom Line: Faster Payback = Stronger Company

October 5, 2014
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Christoph Janz
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The Angel VC

Five ways to build a $100 million business

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The Summary

Hunting Flies

  • Fly Companies: 10 million active consumers who you monetize at $10+ per year each by selling ads
  • Two ways: (1) Create a product that is inherently social and has a high viral coefficient (2) create a product with a ton of user generated content

Hunting Mice

  • Mice Companies: 1 million consumers or "prosumers" paying you $100+ per year each
  • Need some level of virality
  • Might be able to acquire one million customers using paid marketing

Hunting Rabbits

  • Rabbit Companies: 100,000 small businesses paying you $1k+ per year each
  • Key is inbound marketing
  • Have to have a product with a high NPS and focused on funnel optimization

Hunting Deers

  • Deer Companies: 10,000 medium-sized companies paying you $10k+ per year each
  • Like a rabbit but main difference is that when you're hunting deers you can use an inside sales force
  • Key is strong VP of sales

Hunting Elephants

  • Elephant Companies: 1,000 enterprise customers paying you $100k+ per year each
  • Difficulty is high barrier to entry to determine product market fit and fund enterprise sales
  • Founder team with enterprise sales DNA
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Geoff Byron
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Benchmark HQ

Determining LTV:CAC in the age of land & expand

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The Summary

Bottom Line

  • Original LTV:CAC formula doesn’t hold up for companies with land & expand motions
  • Calculate it at the $1 of ARR unit economic level and tack on one-time gross profit / loss from professional services.

Traditional LTV:CAC in SaaS

  • LTV = ARR per customer X subscription gross margin % / annualized customer gross churn %
  • Determine LTV:CAC ratio and if you're over 3x that indicates a successful ready to scale business, below 3x means you're paying too much to win customers
  • Formula breaks down because the ARR per customer can transform throughout their lifetime with additional services (land and expand)

Alternative LTV:CAC in SaaS

  • Shift the view of unit economics from the customer to $1 of ARR
  • Will need to use CAC:ARR ratio to determine CAC
  • CAC:ARR Ratio = sales & marketing expense / ARR acquired
  • LTV will also need to include any professional services included which is typical with SaaS
  • LTV = ($1 of ARR X subscription gross margin % / annualized customer gross churn %) + (PS gross profit / loss / ARR acquired)
December 27, 2016
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Dave Kellogg
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Kellblog

A Fresh Look at How to Measure SaaS Churn Rates

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The Summary

Details matter in calculating SaaS metrics because rates compound over time.

Sales pours Annual Recurring Revenue (ARR) into the company, while the Customer Success organization tries to prevent revenue from being wasted. - A basic equation for any SaaS company’s financial statements is: - Starting ARR + new ARR - churn ARR = ending ARR It is more efficient to use churn rates rather than renewal rates as it is more consistent and directly applicable.

Key Terminology:

  • Shrinkage: anything that makes ARR decrease
  • Expansion: anything that makes ARR increase

Key Questions:

  • What should be counted for both the numerator and denominator, and when?
  • Should we think at the product or account level?
  • To what extent should we offset shrinkage with expansion?
  • Should we use original or current Available to Renew (ATR) values?

What should be counted:

  • Logos - provides gross indication of customer satisfaction
  • ARR - provides indication on value of SaaS annuity

Guidelines for calculating SaaS Metrics:

  • How you calculate your churn affects them and reported upsell
  • Offsetting shrinkage is OK within accounts, and account-level churn rates should be reported over net or gross
  • Renewals bookings should always be taken in the period in which it is received
  • To handle ARR expansion along the way, base everything on the ATR entering the period and use retention rates

Rate Calculations:

  • Simple churn rate = net shrinkage / starting period ARR * 4
  • Logo churn rate = number of discontinuing logos / number of ATR + logos
  • Retention rate = current ARR / time-ago ARR
  • Gross churn rate = gross shrinkage / ATR+
  • Account-level churn rate = account-level churn / ATR+
  • Net churn rate = net shrinkage / ATR+
March 9, 2020
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Sam Baker
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Scale Venture Partners

A Quick Primer on the Rule of 40

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The Summary

Rule of 40

  • Better used for mature SaaS companies
  • Can be used to compare viability of two different SaaS companies
  • A company's revenue growth rate plus profitability margin should be equal to or greater than 40%
  • Measure of the balance between growth and profitability, and by extension, the sustainability of the business more broadly

Key Driver: Growth Rate

  • Year-over-year growth % based on GAAP revenue
  • Can use top line growth but makes it hard to compare companies

Key Driver: Profitability Margin

  • You can use multiple metrics for profitability (e.g., unlevered cash flow, cash from ops, net change in cash)
  • EBITDA excluding stock-based compensation (SBC) costs will be used to compare companies
  • Depending on which profitability margin metric you use, your analysis will change. What is most important is understanding how.

Rule of 40 and the Market

  • The market over the past 10 years has a median of 41% so this proves to be a good proxy for growth vs. profitability
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Ben Kwon, Iain Hassall
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Zuora

PADRE: New Operating Metrics for the New Subscription Business Model

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The Summary

In a subscription business model, relationship with your customer – not the product – is key to success.

Customer Health

  • Customer health is captured through your Annual Recurring Revenue (ARR).
  • PADRE (Pipeline, Acquire, Deploy, Run and Expand) is an internal reporting framework which serves as a lens into the customer’s subscription journey.

Pipeline Generation and Development

  • Two high level components of pipeline health measured to determine whether they will support the revenue targets
    • Pipeline creation multiple
    • Pipeline coverage ratio

Acquire

  • Customer acquisition is an indicator of the effectiveness of your sales organization
  • Internal tools and data management will be heavily influenced by the organizational structure
  • Key leading indicators that are relevant across the board
    • Sales cycle velocity
    • Sales ramp time
    • Predictive forecast
    • Incentivizing metrics

Deploy

  • Deployment can be a critical function of your subscription business model
  • Deployment targets:
    • Rapid fulfillment
    • Cash preservation

Run and Expand

  • Think about how you retain and grow your existing customer base
  • Churn - you might spend a significant amount of money to acquire your customers
  • How to measure churn
    • Net retention
    • Renewals
    • Upsells

Feeding into ARR Growth

  • You should maintain focus on the customer relationship and focus your operating metrics around growth and preservation of ARR
December 1, 2013
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Dave Kellogg
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Kellblog

The Customer Acquisition Cost (CAC) Ratio: Another Subtle SaaS Metric

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The Summary

Examining the CAC Ratio

  • The first rule of metrics is to understand them before making decisions
  • One metric should measure one item. To measure the business, create metrics that work together 
  • CAC ratio determines the cost associated with acquiring a customer in a subscription business.

Consider 6 key issues when calculating CAC:

  1. Months vs. years
    1. Is MRR or ARR more relevant?
  2. Customers vs. dollars
    1. A SaaS company may run 3 business models in parallel - velocity, enterprise, freemium 
    2. CAC analysis should be segmented with no averages lumping together categories 
    3. Optimal CAC: an average cost to acquire 1 dollar of ARR
  3. Revenue on top vs. bottom
    1. Does revenue make more sense in the numerator or the denominator?
    2. Bottom line: the CAC should be the amount of S&M spent to acquire a dollar of ARR
  4. Revenue vs. gross margin
    1. Do not blend SaaS operating efficiency with customer acquisition efficiency into 1 metric - they are driven by different levers
  5. The cost of customer success
    1. The mission of customer success is to maximize renewals, handle upsell/cross-sell 
    2. The question with respect to CAC is what to do with customer success costs
    3. Recommended solution: exclude customer success from CAC
  6. Time periods of S&M
    1. Many SAAS companies’ CAC definitions assume a 90-day sales cycle for 2 reasons:
      1. Offsetting errors 
      2. Comparability