# SaaS Metrics - The BEST Guide to Software as a Service KPIs

Channel: Rob Walling
Video: https://www.youtube.com/watch?v=PlWhi_slX-k
Duration: 14 min
Language: English
Words: 2969
Transcript page: https://viewrankai.com/tools/youtube-transcript/PlWhi_slX-k

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[0:00] what gets measured gets managed you should know these numbers by heart if you want to grow and optimize your business hi i'm rob walling i'm a startup founder with multiple exits i'm the author of three books on the topic of building launching and growing startups and i'm an investor in almost 80 companies today i'm going to be talking about sas metrics giving you the best guide to software as a service kpis let's dive in in a sas app like any company we do need to know numbers some folks get overwhelmed to the point where they're trying to track 30 different numbers too many things can be too

[0:33] distracting key performance indicators are the things that we are going to monitor i have the three high three low framework of the six sas metrics you should be covering the first one the cost to acquire a customer it's often pronounced cac this number you want to be low what are some ways that you can essentially lower it and i don't just mean little tactics but like if you're deciding which app to build or what industry to build in that can have a major impact on your cost require a customer one way to have a low cac is to enter a large market with a large incumbent where

[1:08] people are looking to switch away from that incumbent maybe that incumbent has raised their prices so much over time that people don't feel like they're getting the value and they it just feels outrageously expensive for what they're getting maybe that incumbent is not innovating anymore and their product is lagging maybe the product is really buggy maybe the sales process is annoying and people just have a bad taste in their mouth you can imagine examples with a big incumbent like salesforce right it's a big company started 20 years ago i think now and so the product is obviously kind of kind of tough to work with it's very

[1:41] expensive the sales process is onerous it's all the things that make people dislike a company and not want to use their software so you can imagine pipedrive and close.com which are salesforce competitors they probably have a pretty easy time picking away their sales force refugees who really want to get out and they are looking to switch actively because when people are not looking to switch it's harder to find them with drip which was an esp that i built and sold in 2016 we looked at infusionsoft and ontraport which were these marketing automation platforms and people did not like them the software was awful it was buggy the sales process

[2:15] was rough they were expensive it's all the things that you wanted and we found it very easy to pull refugees from them you can imagine intercom these days i think the intercom's product offering is still really good but word on the street is that their pricing feels a little high the person feels a lot high to a lot of sas numbers and they're looking to switch away and figure out intercom replacements and so a company like user list who does part of what intercom does is is reaping the benefit of that right so this is one way to have a low cost to acquire customer another way is to

[2:45] really double down on content and organic search organic search and ranking in whether it's google whether you rank in amazon whether you're making wordpress plugin repo whether you rank in youtube organic search is a way to get free traffic and i put free in quotes because really it's free except for your time you know i'm assuming you're founder early stage you're going to be doing a lot of this yourself organic search is actually quite expensive if you have to hire a team to do it but there are companies um in tiny seed the startup accelerator that i run who have really mastered the art of seo and are ranking

[3:20] very high for terms that apply to their business and one example of that is and they've been very public about this is scraping b they are now a seven figure business again they're public about this and they have done a tremendous amount of that through content and seo and they have a low cost to acquire a customer because of it when you get into things like pay-per-click ads you know adwords and such um that is where things get expensive i'm not saying you shouldn't do them but i am saying your costs require uh will go up in a lot of spaces having a high cost to acquire is a necessity right if

[3:54] you're marketing into construction firms or marketing into government or education you know there's a lot of things where the cost of query is going to be really high another way to keep your cost to acquire low is to enter a space with lots of online chatter there's a lot of forums there's a lot of facebook groups etc that are already talking about them if people are already online they can tend to be easier to reach if you hang out in those groups and you have conversations and the fourth way that i was as i was brainstorming this to have low cost acquire is if there are people with audiences

[4:23] talking about the problem that your tool solves so there are a lot of people already with podcast audiences youtube audiences you know blog followings that are talking about marketing entrepreneurship startups and so if you have a tool for one of those audiences you can get in front of their audience that is a way to kick start or quickly get a lot of customers at low cost you know that there are many fewer big audiences podcasts and such with audiences of like ceos of large construction firms or heads of government agencies i'm sure they exist but you know that it's not going to be as easy to reach

[4:57] those folks and therefore the cost acquires going to be higher what you'll notice is that a lot of these kpis are in opposition to each other their intention so right now i'm going to say cost acquire customers should be low or you want it to be as low as possible and then when we talk about things that we want to be high i'll talk about you know annual contract value needing to be high and oftentimes the higher that is the higher it is to acquire a customer because they're worth more so you will see that these things are in tension but again in a perfect world the three high three

[5:27] low framework has three of these you you're trying to push up you want them as high as possible and three that you're trying to move you move lower that's our first one second one is sales effort this is when we want to keep low so i'm defining sales effort as both like how many calls how many touch points you have to make in order to make a sale and how long the sales cycle is so it's duration plus number of touch points and i'm calling that sales effort how can we keep this low what are ways to keep it low so the first one is to enter a space where you can have

[5:58] self-service sign up and onboarding i have to call this low touch or no touch sales process and so examples of this are low-cost tools like snappa.com which does social media images and i've interviewed the founder chris gimmer and he said yeah our churn is higher than we'd like it to be but it's really easy to get new customers it's not expensive they going back to the low cost to acquire they're really good at seo and they have a self-serve sign up and onboarding process and so snappa has taken advantage of really low sales cost squad squadcast.fm which is where i record all three of my podcasts it's

[6:37] podcast recording software and while they do have big enterprises coming for you know multi-thousand dollar deals they also have nine dollar a month 14 a month plans and so they've built out self-service sign up and onboarding there's spaces where you just can't do self-serve sign up and onboarding it's just not going to work but a lot of spaces um and a lot of industries and a lot of customer types you can do a one call close and trying to get to the point where the the decision is not made by committee maybe it's made by founder or a developer or a single developer manager that's when you can do a one call close

[7:14] if the decision is made by multiple people and they can't all be on one call then it's always going to be a call and a back and forth and you you needing to provide more sales material usually a second call and that's when sales effort increases so again i'm not saying that you can't succeed if you don't have a one call close because there are many companies that i'm intimately familiar with that do but they spend a lot of their time trying to shrink that sales effort because it's expensive and it's time consuming all right the third metric third kpi in our three low category is churn churn is the

[7:51] percentage of people that are canceling each month churn is the achilles heel of sass it is what kills sas apps how do you get your churn low that's a huge goal if you can get your churn low you can grow infinitely just incredible you can get your turn low by having product market fit which i know is not helpful because that feels like more jargon but product market fit is that you've built something that people really want and are willing to pay for and once you hit that point and then you're finding the right people and you're turning away the wrong people oftentimes with positioning or with

[8:23] raising your prices or with even a qualification process a demo only and i've seen companies do all kinds of things you can uh drive your churn down overall but there's some other ways to do it too like having exceptional onboarding that gets people to that aha moment quickly so if you go to useronboard.com you can see samuel hulick reviewing a bunch of uh big you know onboarding flows and you can get some best practices from there i call it the minimum path to awesome mpa and it's what's the minimum path to where that customer is basically getting value out of your product because if people don't onboard

[8:59] they're going to churn product market fit will give you low churn over the long term it means people won't leave in 6 months 12 months 18 months you have a very long lifetime value of that customer if they're not getting onboarded in the first place product market fit doesn't help you very much it helps you a little because people will be motivated to try but if your onboarding isn't good you're still going to have churn so having things like easy setup couple clicks to import from their old tool they don't need a consultant to get set up these are ways that you can cut that first 60 or 90 day

[9:29] churn and then having you know product market fit really gets you that post 60 to 90 days so there's two different factors in there last one i thought of for keeping churn low is having product innovation so that you don't become that stodgy incumbent that i mentioned above as much as you know we want to raise prices over time with sas i mean that's like a great secret you also don't want to become the company or the app who's raising prices and not innovating and now we're going to look at the three metrics kpis that we want to increase the first is annual contract value way to keep your acv high

[10:01] is to sell to businesses and usually it's the larger the better so this is one of those that i was talking about is intention with cost to acquire a customer because usually selling to larger customers requires more sales effort and you know has uh requires more um a higher cost to acquire but selling to businesses not consumers um and then you know the larger the businesses are usually the the more they're able to afford um to to pay more there's a balance here because if you do want to go self-serve and you know you want that one call close well you can't you can't sell the

[10:37] massive fortune 500 companies right because they're not gonna not gonna be doing it another way to keep your acv high is to price based on value metrics and that of course is the more value the customer gets out of your product the more they should pay you and usually with let's say an esp an email service provider this is based on the number of subscribers they have or if you're using crm software it's based on the number of seats number of sales people because the more sales people you have you're likely getting more value from the software so pricing based on value pricing based on value metric

[11:11] is another way another way to raise acv and as every microconf ever has told you and hopefully i've told you this enough over the years you should raise your prices over time that's just the natural progression of sas it's a natural progression of the economy right that money becomes less valuable over time so even you know the dollar store is going to raise their prices to a buck 25 for everything because because you just have to because even small amounts of inflation will do that not only that but sas is evolving and getting better over time you are providing more value and therefore you should raise prices expansion

[11:43] revenue so every business wants subscription revenue because it is the business cheat code this is my quote i've been saying this on all my pricing talks every business wants subscription revenue because it's the business cheat code but we get that for free with sas because we have subscription revenue built in in sas expansion revenue is the cheat code the way to get expansion revenue is that as customers get more value out of your product that automatically they pop up into a higher tier or they pay you a little more right so this comes back to the value metric i talked about earlier but you can do it

[12:18] with a value metric you can do it with feature gating or you can use both you want to charge more to your customers but you want to charge more to your right customers and you have different segments of customers that are willing to pay more and for those folks you got to figure out what is that value metric or the feature gate to get them there and lastly the sixth kpi it's the third and the three high is referrals you want there to be a lot of referrals because that natural flywheel of virality or of of constant referrals is a huge it can have huge conversion rates and in

[12:52] fact word of mouth over time can become one of your biggest drivers and one of certainly one of your highest converting drivers so with referrals like truly having a viral loop is best so when i send out my savvy cat link to people to book time on my calendar they look at it and they think oh i wonder if i could use savvycal right they're on a page that says powered by savvyco like that is a true built-in virality it's pretty cool same thing with sinewell electronic signature app we send out the link people go to sign it and they say oh this is a really

[13:21] nice app maybe i'll try it right so having that built in is pretty incredible if you can't do that if there's no way for you to get some type of virality you can ask for referrals usually if you see people converting and being really happy with your product getting onboarded at 60 to 90 day range then within a few weeks of that i would have an automated email that goes out and says hey we were you know so much of our business and it is based on referrals if you're really enjoying it could you please refer a customer could you please pass this along could you please make an

[13:48] entry you know you get figure out your ask there so the six sas kpis you should be tracking there's the three low which are cost to acquire customer sales effort and churn and then the three high is annual contract value expansion revenue and referrals thanks so much for joining me today if you enjoyed this video hit the like button below and subscribe to the channel we have so much good content coming out on this channel every week and we have a couple additional videos that i can recommend you can click on these they should be right on the screen here so you can dig in further to sas metrics

[14:21] and learn more and go deeper on this topic i'll see you next time

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