Want to know what SaaS metrics to use to be successful at Software-as-a-Service (SaaS)? I highly recommend this presentation by venture capitalist firm Bessemer Partners. From last fall… but still just as valid. Maybe more so as customer adoption of SaaS is really heating up compared to other software industry segments.
Here are the ten laws for SaaS metrics of success:
- The key monthly SaaS metrics are CMRR (Customer Monthly Recurring Revenue), Churn and Cash flow. Bookings are not a valid metric.
- The best indicators of long-term business health are Customer Acquisition Cost (CAC) and Customer LifeTime Value (CLTV).
- Tune the business before scaling it. Make sure you’re tracking to the SaaS metrics first. Keep sales team small and focus on each making >$100K CMRR.
- Pay sales people on CMRR not bookings.
- The most important channels are business service ones, not the traditional IT channels.
- Focus your marketing online, which is where your customers are and costs are lower.
- Keep your business local first.
- Focus: keep a single code version in production, support multi-tenant, and don’t do on-premise software also.
- “Service” is the most important element of SaaS.
- SaaS companies will need capital to last them 4 years – invest upfront in R&D and sales.
I think these are all really important points… ones to fully take to heart if you are trying to build a SaaS company.
The most critical mindset shift is #9: you are running a service business, not a software one. That means a fundamental change in culture and focus throughout the business.
#8 is important too – and one that needs planning out up-front before you sign up your first customers. The more profitable services long-term may be add-on services built on the value you can provide through aggregated data analysis. So think that through as you design your architecture, finalize customer contracts, and plan implementations.
If you need a SaaS business plan template that includes these SaaS metrics then take a look at our recently updated SaaS business planning package here.