Metrics and data

You can’t improve what you don’t measure. Implementing metrics at your startup is a surefire way to bring focus to your entire organization. As David Skok, General Partner at Matrix Partners, puts it, “One of the greatest things about putting in place the right metrics is that showing them to people will automatically change their behavior to try to improve the metrics. Furthermore, the metrics make it clear what levers they can use to change performance.” In addition to helping your team focus and grow. Metrics are often the first thing a potential investor will ask to see during a fundraise. As your company moves further and further through the venture fundraising lifecycle – from Seed to A to Growth rounds – the numbers gain importance in the overall story for the fundraise. How do you know what metrics to track for your startup? We’ve laid out a few basic metrics to get you headed in the right direction. Startup Sales Metrics Metrics are vital to track in every aspect of a startup but are especially important when it comes to sales. Generally speaking sales metrics can be measured on an individual, team, or organization basis. By setting up a strong system to track your sales metrics you will be able to make better informed go-to-market decisions. Revenue Metrics Revenue is the lifeblood of a for profit organization. Revenue can come in many shapes and sizes. There are startups that track monthly recurring revenue, annual recurring revenue, service revenue, and more. There are generally two types of revenue for a SaaS company – the first is Subscription Revenue (called MRR or ARR). This is product focused revenue that is recurring and predictable — especially if you are able to sign customers to longer term agreements. Investors prefer this type of revenue because it signals a high quality product with a path to long-term profitability. The second type of revenue is Services Revenue which often comes in the form on one-off (read: not predictable) consulting engagements or implementation fees. Because of the human-capital intensive nature of providing these services, they are far less profitable and scalable than Subscription Revenue. Related Reading: What is a Startup’s Annual Run Rate? (Definition + Formula) Annual Contract Value (ACV) ACV is “the value of the contract over a 12-month period.” If you are seeing an uptrend in ACV over time (which is generally the goal), then your company is likely doing one or many of the following things: Shifting to customers with a larger budget – more seats, usage, etc. Employing a more effective sales strategy to convince customers to invest more heavily in your product Building a product that continues to improve and provide increasing value Effectively upselling existing customers Increasing your annual contract value will allow your company to increase customer acquisition costs. Pipeline Value The pipeline value is exactly what it sounds like, the value of all active deals in your sales pipeline. For example, if you have 10 deals that are actively be sold but at different stages you can calculate the value of all deals with their likelihood of closing. For those 10 deals, let’s say they are all worth $100 and: 3 are new deals with a 30% chance to close 3 deals have sat a call and are interested in buying with a 50% chance to close 4 deals have received a contract and are ready to sign with a 90% chance to close That would be (3 new deals x $100 x 30%) + (3 calls sat deals x $100 x 50%) + (4 contract deals x $100 x 90%) = $600 in pipeline value. You can also break this number down by different stages. For example, the pipeline value of your new deals from the example above would be $90. Understanding your pipeline value gives you a good understanding of the health of your current pipeline and can help with future forecasts. Activity Sales Metrics Activity sales metrics can be used to track individual reps and teams efforts on a daily or weekly basis. A few examples of activity sales metrics would be number of phone calls made, emails sent, demos sat, etc. Tracking these numbers can be helpful for a few reasons. The first is so you can understand where an individual or team may be lacking if they are struggling to hit quota or numbers. They can also be used to create and build a predictable cadence with your potential customers. This data can be used to understand where and when your customers are buying to improve the likelihood of closing a potential customer. Startup Marketing Metrics Setting up and tracking marketing metrics can be an intimidating endeavor. There are countless metrics to track. From individual campaigns to website traffic metrics there is a lot to cover. However, properly picking and tracking your startup’s marketing metrics will set up your go-to-market team for success down the road. Without getting too bogged down by the countless metrics, we’ve shared a few of our favorites below: Customer Acquisition Costs As we have written in the past, “Customer acquisition cost is the sum total of the amount that it takes your business to acquire a customer, including time from your sales representatives and marketing and advertising expenses. The customer acquisition cost definition: the total cost it takes to bring a customer from first contact to sale.” When you sit down and think about it, a lot goes into acquiring a new customer. You may be running multiple paid campaigns online, have a dedicated marketing team, and are contributing to in-person events. Let’s say that all of your cost dedicated to acquiring customers was $10,000 for the month and you brought on 50 new customers. That would be a customer acquisition cost of $200. In order to be a successful business that means that your CAC needs to be less than the revenue that your customers will bring in the door. CAC can tell you a lot about the sustainability of your business and marketing efforts. Related Reading: Breaking Down the Nuances of Annual Contract Value (ACV) Customer Lifetime Value In order to understand how sustainable your customer acquisitions costs are you need to understand the lifetime value of your customers. Customer lifetime value is the amount that the customer will spend with the business throughout their relationship with the business. Calculating lifetime value can change greatly depending on your business. For example, a SaaS company may have a customer paying a monthly subscription fee for years (their total lifetime value) where a real estate company may only make one transaction with a customer. Constantly tracking your LTV is a great way to keep your CAC in check and make sure you are the path to a profitable and sustainable business. LTV:CAC Ratio The LTV:CAC takes the 2 metrics mentioned above and keeps it to a digestible and easily understandable metric. You simply take your customer lifetime value and divide it by your customer acquisition costs. Ideally you want this number to be greater than 3. In general, a good lifetime value (LTV) to customer acquisition cost (CAC) is 3:1. If a customer is being brought in for $100, their lifetime value should be at least $300. Otherwise, you will be spending too much drawing in your customers; it will become important to fine tune, streamline, and optimize your marketing and your advertising. If your ratio is 1:1 this would mean that you are not making any money on new customers and will eventually run out of cash and go out of business. Related Reading: Unit Economics for Startups: Why It Matters and How To Calculate It Website Traffic No matter the business, essentially every business has a website today. Getting leads to your website is a great way to increase marketing and sales metrics across the board. Having a deep understanding your website traffic is a great way to tweak and improve content, website copy, button copy, paid campaigns, and more. You will want to understand where your website traffic is coming from. This is generally referred to as the source. This can generally be bucketed into organic, paid, social, referral, and direct traffic. Knowing where your traffic is coming from will help inform your decisions for where to spend your time and budget. Example of a startup website traffic breakdown below: Next you will want to understand what pages and content is converting well. For example, if you have a page on your website that converts to your call to action at a higher rate you will want to implement the ideas behind this page across the website. You should always be testing buttons and content copy to improve the likelihood of website users taking a specific call to action. Startup Customer Success Metrics Once you have a customer in the door, the work is not done. Being able to retain and grow your current customer base is the easiest way to grow your business. In order to do so, you need to have the right metrics in place so you can optimize what is working well when it comes to your customer success efforts. Net Promoter Score If you’re not familiar with NPS, it is used to gauge the loyalty of a firm’s relationships. It is used by more than 2/3 of the Fortune 1000 and it can measure a company, employer or another entity. You have likely received an NPS survey yourself. It’s a score of 1 to 10 usually with a question of “How likely are you to recommend X to your friend or colleague?” X could be your company, your customer support experience, an event, etc. If you answer 1 to 6 you are considered a detractor and at risk of customer churn, 7 & 8 are considered passives and 9 & 10 are considered promoters. To get your score take % Promoters – % Detractors. This creates a scale ranging from -100 to 100. 0 to 49 is considered good, 50 to 70 is Excellent and 70+ is World Class. To give you an idea for the 4 Major Airline Carriers in the US the scores are as follows: American: 3 Delta: 36 Southwest: 62 United: 10 On the other hand of the spectrum Apple clocks in at 89. Customer Churn Customer churn is the % of customers (also called “logos”) that you lose over a given period of time. Let’s say that you have 10 customers and lose 2 of them over the past month. That would be a customer churn rate of 20%. Keeping your churn rate in check is an easy way to grow the business. Revenue Churn On the flipside revenue churn is the % of revenue dollars that you lose over a given period of time. Taking the example in the section above, let’s say that the 8 customers who did not churn are paying $100 and the 2 customers that did churn are only paying $10. That would be a churn rate of 2.4% ($20 in churned revenue divided by $820 in total revenue). For world class companies they may actually have negative churn. This means that they are expanding current customers at a greater rate than they are losing customers. Customer Retention Rate As the team at HubSpot put it, “Customer retention refers to the ability of a company to — you guessed it — retain customers. Customer retention is impacted by how many new customers are acquired, and how many existing customers churn — by canceling their subscription, not returning to buy, or closing a contract.” Startup Operations Metrics At the end of the day, every metric impacts how your business operates. If the metrics above are not falling into place, the chances of your business operating for the long run are slim. You need to constantly have a deep understanding of where you company’s financials stand. Burn Rate As Investopedia defines it, “The burn rate is the pace at which a new company is running through its startup capital ahead of it generating any positive cash flow. The burn rate is typically calculated in terms of the amount of cash the company is spending per month.” Burn rate is an essential metric for every early stage startup leader to have their eye on. If your burn rate gets out of hand it is important to bring it in as soon as possible. Potential and current investors will have their eye on your burn rate to make sure you can sustain your current business practices for the future. Months of Runway Months of runway is exactly what it sounds like — the number of months your business can go on until it is out of cash. This is particularly important for early stage companies that have yet to find product market fit or are still in the early stages of developing their product. You can find your months of runway by taking your cash in the bank and dividing it by your net burn rate. Related Resource: How to Calculate Runway & Burn Rate Revenue per Employee While revenue per employee is not the most informative metric for internal purposes it can be a great metric to benchmark against your peers. For example, if you are a seed software company comparing yourself to a publicly traded software company many of your metrics will not be comparable. However, revenue per employee allows you to break it down by the size of your business and have a benchmark to share with internal employees. Related Resource: EBITDA vs Revenue: Understanding the Difference Total Addressable Market Total addressable market (TAM) is the estimated size of the market that your business can attack. As we wrote in our “Total Addressable Market Templated”, “TAM helps paint the picture of how big the opportunity is and if the business deserves to be venture backed.” While TAM is not something that is tracked regularly it is important to have an understanding of your addressable marketing when you set out to fundraise. Related Resource: A Guide to Building Successful OKRs for Startups Startup Metrics Dashboards/Templates Building A Startup Financial Model That Works Check out our blog post and guide for building your first financial model (plus, a template to help you size your potential market). Check it out here. Andreessen Horowitz Startup Metrics Template Andreessen Horowitz (a16z) is one of the most prolific VC investors in the market today. With investments across a number of different stages, sectors, and business models, they have seen first hand the lack of (and the need for) standardization in the way private technology companies track metrics and present those metrics to current and potential stakeholders. While their well known post, called “16 Startup Metrics“, dives deep into a number of great metrics for different business models – Marketplaces and Ecommerce in particular – we focused this video on SaaS metrics and how companies can use Visible templates along with other sources to benchmark themselves against others in the market and set themselves up for fundraising success. Check out a video explaining their metrics below: Rockstart Digital Health Accelerator Startup Metrics Template As with any early-stage company, focus is key. This is why Rockstart puts each company’s Most Valuable Metric front and center on the business dashboard. The primary reason to have a single, understandable metric for your business is to cut out the noise that comes with trying to track (and take action on) every single thing so that you can hone in on the one thing that drives your success. Read any startup post-mortem and you’ll quickly realize the negative impact that lack of focus can have on a company. In the digital health sector, companies don’t all fit within the same bucket from a business model perspective. The first Rockstart Digital Heal Accelerator class has hardware companies (like Med Angel), marketplaces (like Dinst), and SaaS businesses (like Mount) who all likely have different true north metrics.

In case you missed it, our CEO, Mike, wrote about Natural Rate of Growth in his weekly newsletter last week. In short, OpenView Labs recently featured a new SaaS metric they are coining “Natural Rate of Growth.” Read the original blog post form OpenView here. With the emergence of product led growth (PLG) companies there is a need for new metrics. The traditional SaaS metrics and growth rates are becoming out of date. Essentially, Natural Rate of Growth removes paid channels to calculate growth. As OpenView states, “One way to think about it is how fast a company grows without even trying—before layering on incremental investments in sales and marketing. We’re looking to pinpoint the percentage of your recurring revenue that comes from organic channels and starts with your product.” The formula to calculate Natural Rate of Growth is pretty simple. We’ve shared a Google Sheet template you can use to get started below: Natural Rate of Growth is simply 100 (X) Annual Growth Rate (X) % Organic Signups (X) % ARR from Products Annual Growth Rate = Simply your ARR growth from year to year % Organic Signups = From the OpenView blog post, “An organic signup is any signup that you didn’t have to pay for. These new users come from referrals, organic search, organic social and direct to your website.” % ARR from Products = From the OpenView blog post, “We’re looking for how much of your incremental recurring revenue comes from users who started by using the product, whether via a free trial, free product, open source product, freemium version or paid self-service product. Those users who immediately went down a sales-assisted path before getting into the product, for example those who requested a demo, do not count.” Simple enough. OpenView goes on share benchmarks for what a good, better, and best Natural Rate of Growth looks like. To give you an idea, Slack’s Natural Rate of Growth is 55%, Zoom’s is 93%, while HubSpot’s is 14%. Thanks to OpenView labs for creating something new and compelling. We hope the template helps you PLG/SaaS companies. Remember that market defined metrics can be a great proof point when fundraising and benchmarking your company to other SaaS companies.

Publishing this on the weekend…It would be a lie if I said I was A/B testing engagement. I ended up in an all day workshop Friday with some university students — it is always refreshing seeing what the next generation is working on. I digress… I recently came across a great blog post by OpenView called “The New SaaS Metric You Should Be Tracking“. In short, the argument is that current SaaS metrics are dated and as go-to-market models shift to product led growth we should evaluate these businesses with a new set of metrics. The core thesis is that PLG companies don’t have the same immediate growth rates as SaaS companies of yesteryear since they take time to compound. In the post, they introduce a metric called “Natural Rate of Growth”, how to compute it and some associated benchmarks. NRG is essentially a growth metric that removes paid channels such as BDRs, paid ads, events, etc. It primarily accounts for organic, direct and referral customers. We built an easy Google Sheet to calculate your rate here. I felt that this was worth sharing because many companies are adapting their go-to-market motion as the macro environment is changing. Market defined metrics are great proof points in fundraising as well as benchmarking yourself to other SaaS companies. Reminder: Here is the Google Sheet.

A few years back Dave Ambrose, Managing Partner at Steadfast Ventures, shared a template full of KPIs for ecommerce startups and founders. Since Dave’s original template, we’ve surveyed a few of our customers and friends to make some tweaks and add in new metrics. Special thanks to Dave and the team at Italic for allowing us to share their key KPIs. Italic is an ecommerce company that sells “unbranded luxury goods straight from the source.” With $13M in venture funding and customers across the globe it is vital for Italic to keep a tab on their metrics across the funnel. Related Resource: 10+ VCs Investing in E-commerce and Consumer Products Using the E-commerce Metric Template Related Resource: Key Metrics to Track and Measure In the eCommerce World The setup of the template should be simple and ready to use and customize to your own liking out of the box. We’ve set the data to monthly but feel free to change to weekly, quarterly, etc. From here the template is broken down into 4 major metric categories — Customer Breakdown, Acquisition, Behavioral, and Operational. Customer Breakdown Metrics This is a simple breakdown of where your new customers are coming from. For the template, we’ve included the following channels:These channels can vary from business to business to make any changes to the names/sources. Acquisition Metrics Acquisition metrics are particularly important when it comes to monitoring an ecommerce business. Our friends over at Italic like to break down their acquisition costs by paid and blended. This allows them to analyze how their paid channels are performing to the rest of the business. To learn more about customer acquisition costs, check out our guide here. Jeremy Cai, CEO of Italic, explains LTV tracking and benchmarking: “Typically it’s the amount of spend a customer has by a certain point (i.e. 6 month LTV, 12 month LTV, 2 yr LTV, etc) and people hope to see growth in this over time. For most higher ticket items, frequency will be close to 1 so they don’t expect LTV to grow very much but for subscription (toothpaste, razors) or higher replenishment items (consumables, beauty) then LTV growth is critical.” Behavioral Metrics These are the metrics that can help measure how customers are behaving and moving through the funnel once they have started the purchasing process. Put simply, Jeremy explains it as, “Basically it’s Add to Cart > Checkout Started > Checkout Completed, with a general 50% falloff between each step.” Operational Metrics These are the financial and operational metrics that make sure your business is healthy and running as expected. These metrics show how efficient your marketing and go-to-market efforts have been. Dave Ambrose keeps an eye on these metrics as an indicator to what ecommerce companies “are taking off.” Use Template Now Connecting the E-commerce Metric Template with Visible Naturally, the template connects to Visible in a few quick steps. Once you have the template added to your Google account head over to Visible. From here, you’ll want to make your way to the “Metrics” section and select “Add a new data source” –> “Google Sheet.” After you’ve authenticated your Google account you’ll see the ecommerce template. Select the sheet and the correct tab from the sheet. As the sheet is setup with the date in row 1 and metrics in column A there is no need to make any further changes. Click “save” and your new metrics will be brought into Visible. You can easily chart and share these metrics using Dashboards and Updates. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.

This post was written by Justin McLoughlin. Justin is the founder & President of airCFO, a finance & accounting services startup built for startups. He spent the early years of his career in both large and small companies, in a variety of roles, learning how a solid financial team plays a vital part in a company’s overall growth and ability to scale. Related Resource: How to Model Total Addressable Market (Template Included) Launching a startup of your own is one of the most exciting and challenging business ventures you can pursue, but often every thrill and joy comes with a corresponding setback, or worse, a tedious bureaucratic or procedural hurdle. You’d like every moment of your day to be filled with closed deals and big sales, but there’s more to it than that. A lot of running a business, unfortunately, involves the somewhat less exciting work involved in creating budgets, managing spreadsheets, performing data entry, etcetera, and analyzing financial statements probably doesn’t rank highly on your list of anticipated startup activities. For a lot of founders and entrepreneurs, financial statements are and remain a mystery, since most of them didn’t launch their own business to pore over financial data, but even if you don’t have a finance background and aren’t familiar with startup accounting, it’s worth your time to learn some of the basics of the statements you’re likely to encounter. Below are the four types of financial statements that are relevant to your startup or small business and explanations of how they can be used to understand the financial health of your business and how they might be used to achieve your goals: Related Resource: How to Create a Startup Funding Proposal: 8 Samples and Templates to Guide You Income Statement This is a straightforward statement, but an essential one, and very valuable to your startup. It shows your business’ performance over a period of time — monthly, by quarter, yearly, or over a longer period. Income statements usually include a detailed section on revenues (sales of goods and services) from which expenses (operational costs like salaries, utilities, transportation, etc.) are subtracted, to achieve a net income figure at the bottom of the statement. An income statement is a great way to get a handle on the overall health of your startup, and a good starting point for any examination of you business’s financial health. It’s a good place to get into the nitty-gritty of your business by breaking down expenses to get a handle on your profitability or fine-tune your margins. It’s also important to keep in mind that this is one of the first things a potential investor or lender wants to see, so having an accurate, detailed income statement is a critical part of any raising or investment round. Balance Sheet A balance sheet, sometimes called a statement of financial position, unlike an income statement or statement of cash flows, isn’t meant to show performance over time, but is a snapshot of your startup or small business at a specific moment. It shows your company’s assets, liabilities, and equity. This is another document that stakeholders like investors, lenders, and shareholders will want to see, so it’s important to keep an accurate one on hand. The balance sheet is named such because the two sides of the sheet are always equal to each other. Simply put, your assets are equal to your liabilities plus your equity — sometimes these values are broken down further into current (short-term) and noncurrent (long-term) values. This is a good way to get a handle on the value of your company at any given moment. Statement of Cash Flows This is a relatively simple financial statement, but a critical part of your financial planning. A statement of cash flows shows your expected input and output of funds over a projected period of time (most commonly over the course of a financial quarter, or for the month). This is not the same as an income statement, it’s meant to show the course of the cash that enters and exits your business. Generally, this statement has three sections: cash flow from operations, cash flow from investing, and cash flow from financing. As you probably know, cash flow is a major problem for a lot of startups, including slick, well-funded ones, and no one wants to get caught in a cash crunch at a critical time. Keeping a statement of cash flows updated and on hand is a critical part of predicting cash flow issues and allowing your startup to plan for the future. Statement of Changes in Equity This is a somewhat more specific financial statement, and is usually not relevant until your company has shareholders, but it’s worth understanding ahead of time, and if you have investors, it’s something your business will want to be prepared to produce. The statement of changes in equity shows shareholder contribution, movement in equity, and equity balance at the end of the accounting period in question. This might record financial events like shares issued or dividends paid out. Note that since these changes will be reflected on your income statement and balance sheet, so that if they’re correctly prepared, the statement of changes in equity will be correct as well. Accounting for startups can get a lot more complicated, but if you have a handle on these basic financial statements, you’ll be on strong footing to get started and answer any critical questions about the financial health of your company. If you need further help or have questions, you can contact us here to find out more. Related Reading: How to Secure Financing With a Bulletproof Startup Fundraising Strategy Related Resource: A User-Friendly Guide to Startup Accounting

Operating a business across many countries and dealing with multiple currencies presents plenty of unique challenges. Converting and consolidating financial data from QuickBooks, Xero and other sources should not find itself in the “challenges” category; however, it often does. No reason to fret, the Visible team has you covered with this guide. We’ve helped many customers handle their currency conversion needs with our formula builder and Google Sheets integration but wanted to kick things up a notch with a comprehensive guide. Transparently, we’d love for you to trial Visible & be a hopefully become a customer, but anyone will be able to find value in our currency and consolidation guide, especially for those of you using QuickBooks, Xero and/or Google Sheets! This guide will be broken down into 3 parts: Automatically creating currency exchange rates with our Google Sheet Template Combining your QuickBooks or Xero data with our formula builder to consolidate financials to one currency Charting & sharing consolidated data using Visible Currency Exchange Rates with Google Sheets Our first stop on our journey of currency conversion and consolidation takes us to Google Sheets. Google Sheets is great because their =googlefinance formula is able to grab exchange rates (and historical rates) for any currency. Rather than make you work for it and end up with something like “=GOOGLEFINANCE(“Currency:”&‘Currency Conversion’!$C$3&‘Currency Conversion’!$C$4,“price”,‘Currency Conversion’!F1,‘Currency Conversion’!Q1,“Daily”)” we decided to play nice and do the work for you. In the Google Sheet you’ll find 3 tabs. For you #lazyweb people, you can skip to the next section. For those who want to learn about the 3 tabs, keep reading. You can download the Google Sheet Template and follow along using the form below: The first tab lets you make your selections of base currencies & the converted currencies. We’ve set it up to automate up to 5 different conversions. This is the tab you’ll be able to connect to Visible as well. The second tab is just a simple list of countries, their currency, currency code & number. Thanks to IBAN for providing this list to us. This is the list that powers the dropdown in Column C on the first tab. The final tab is the actual Conversion Data. This is where Google Sheets and the =googlefiance formula does its magic. This tab references your inputs from the first tab and will spit out all of the daily exchange rates for the given currencies year-to-date. Funnily enough, Google sends us a date/timestamp that does not play nice with the =vlookup we need on the first tab, so we added a Format Date column. This Sheet will update each day with the latest rates. Note: For the purpose of this project, we are taking the exchange rate on the final day of the month and assigning that as the exchange rate for the month. You are welcome to change the formula to be an average or a rate that you personally observed with your own bank. p.s. if you don’t want to use Google Sheets, you can always enter in your own exchange rate data using our User Provided Metrics. Consolidating with QuickBooks, Xero & the formula builder The first thing we will want to do is get your financial data into Visible from QuickBooks and/or Xero. You can also upload data through Google Sheets or Excel (User Provided Data). Head over to our knowledge base if you need any help integrating with QuickBooks or Xero. If you need any additional help you are always welcome to contact support as well. The next thing we will want to do is get automated exchange rates from the Google Sheet we setup. Assuming the template was not changed, the dates will be in row 1 and metrics in column E. If you made your own changes, then enter the respective column/row here. In my example, I am going to Consolidate Revenue to USD from QuickBooks (AUD), Xero (EUR) and User Provided Data (USD). This means I’ll have 2 exchange rates created for me looking like this: Now it is formula time. Head over to “New data source” and create formula. Your formula will look something like: Consolidate Value = Metric (in base currency) + (Metric 2 & Exchange Rate) + (Metric 3 * Exchange Rate) etc etc. For my example it looks like this: Hit “Save” and now we have our consolidated metric! Charting Consolidated Financial Data with Visible This part is the easiest and happens to be the most fun. Once you have your consolidated metrics created, you can use them in charts, tables and Updates. These charts will always be up to date with your data syncing from Sheets, QuickBooks and Xero every night. If you want to level up your Consolidation Reports, check out our Variance Reporting module to generate your Month-to-Date and Year-to-Date variance reports. We hope you found some value with this guide and our Google Sheet template. If you need any additional Visible help or have any questions, you can contact us here. Up & to the right, -Mike & The Visible Team

MRR: What is it? What is MRR? Monthly Recurring Revenue is how much money your company can be expected to bring in every month. Generally, this has to do with subscription costs, retainers, and other predictable purchasing habits. The rationale behind MRR is simple: you need to be able to project out your company’s future revenue. The calculations behind it can be more complex. Going beyond the simple MRR meaning, MRR is a functional metric through which you can gauge your company’s income and success. If your MRR is growing over time, your business is growing; if your MRR is shrinking, then your company may experience lean times in the future. MRR trends are incredibly important to subscription-based businesses, because they compound over time. Once MRR begins shrinking, it can be difficult to control. A company must calculate its MRR not only based on its active subscriptions, but also whether these active subscriptions are trending upwards or downwards. In the case of subscriptions or contracts that are ending, the company must also track which customers are ending their subscriptions, and which new subscriptions are coming on board. Every recurring revenue-based business needs to have an MRR calculator that can project out the future performance of the business, based on the active contracts it will have in the following months. Ideally, a business will be able to use its MRR calculations to project out a year at a time, so the company can review and analyze its future finances. An MRR calculator will be unique to a business. Some businesses have predictable recurring revenue: they have year long contracts with customers. Other companies have less predictable recurring revenue: their customers can sign up and cancel at any time, so they need to pay more attention to general trends. Over time, a company will develop a firmer understanding of its MRR. Most advanced accounting and customer relationship management suites can be used to produce reports related to MRR. This is especially true for accounting solutions and point-of-sale systems which are specifically designed for handling subscription fees. In addition to MRR itself, a company needs to pay attention to its churn: the amount of customers coming and going. All these stats, together, are going to form the basis of the company’s strategies, informing the company on how the business is doing, how customers are responding to it, and whether the company is currently growing or shrinking. Revenue vs Recurring Revenue Recurring revenue is a core tenant of a SaaS (software as a service) company. As defined by Investopedia, “Recurring revenue is the portion of a company’s revenue that is expected to continue in the future. Unlike one-off sales, these revenues are predictable, stable and can be counted on to occur at regular intervals going forward with a relatively high degree of certainty.” For example, if you had a customer paying you $10 a month for a subscription or service that would be $10 in MRR (monthly recurring revenue) or $120 in ARR (annual recurring revenue). Different Types of MRR New MRR New MRR (monthly recurring revenue) is exactly what it sounds like. Any new MRR from customers. Net New MRR Net new MRR takes into account different MRR metrics to calculate what your new MRR is after expansion/upsells, churned customers, reactivated customers, and contracted customers (more on these below). Expansion/Upsell MRR Expansion monthly recurring revenue is MRR from gained from existing customers when they upgrade their subscriptions Churned MRR MRR lost from existing customers when they downgrade or cancel their subscriptions Reactivated MRR Reactivated MRR is when a customer that had previously churned comes back as a paying customer. Contracted MRR Contracted MRR is when a customer downgrades their account to one that is less expensive. For example, going from a $20/month plan to $10/month plan. Why is accurate MRR tracking so important? Having an accurate approach to tracking MRR is vital to your startup’s success. At the end of the day, you need revenue to survive and having the correct number accessible at all times is important to understanding how your business is performing. While it can be easy to inflate your MRR to attract investors and customers, it is important to have an accurate number for a few reasons: Avoid Misleading Metrics Be honest with the size of monthly recurring revenue (MRR) numbers and your month over month growth (MoM) percentage. Your investors are likely assessing revenue figures from a number of portfolio companies, which means they know where to find weak spots. Don’t look unprepared. Don’t pass off big growth rates on small numbers If you’re still gaining traction as a startup, your month over month numbers may be tiny. So boasting mega percentages in MoM growth will be laughable to seasoned investors if you’re passing the rate off as sustainable growth at scale. Don’t hide MoM fluctuation Your numbers can fluctuate. That’s perfectly normal. Especially over the course of quarter, a SaaS company can often begin their first two months hitting only 50 percent of its mark, but rally for more than 50 percent in the final month on the back of the groundwork down in the beginning. Make sure your founders now how your numbers may fluctuate from month-to-month. How to Calculate MRR Consolidate content from How to Calculate Net MRR into this section -> Use all content below the internal linking navigation and restructure accordingly to flow with the “Different Types of MRR” section. MRR Formulas New MRR Formula New MRR does not offer a formula but rather a list of things to avoid. Like: Full value of multi-month contracts: If you have quarterly, semi-annual, or annual contracts, normalize them to a monthly rate. Take the full subscription amount paid and divide it by the number of months in the contract. For example, your customer pays you $1,200 for an annual subscription. Dividing that by 12 gives you a monthly rate of $100 which you should use in your MRR calculation instead of $1,200. One-time payments: One-time payments are not recurring, so you shouldn’t include them in your MRR calculation. One-time payments are not the same as multi-month payments. Even though a customer is paying a lump sum payment for those months, you expect the customer to make another lump sum payment at the end of the subscription period. With one-time payments, you don’t expect the customer to make another subscription payment. Trialers: Until trial customers convert to being regular customers, don’t include their expected subscription values in your MRR calculation. Net New MRR Formula Net MRR gives your company a holistic overview of revenue gained from new subscriptions and upsells/upgrades and revenue lost from downgrades and cancellations. The formula looks like this: Expansion/Upsell MRR Formula Expansion and upsell MRR do not require their own formulas but rather definitions within your company. Generally speaking, expansion and upsell MRR are simply current customers that expand their account to pay more the next. E.g. upgrading from $10 a month to $30 a month is $20 in expansion MRR. Churned MRR Formula Simply take the revenue lost through non-renewal or cancellation and divide that number by the revenue you had at the beginning of the given period. If, for example, you started the quarter with $10,000 in revenue, but lost $480 through that quarter, your churn rate is 4.8% quarterly. Reactivated MRR Formula Reactivated MRR is when a customer who churned in the past becomes a customer again. For example, if an old, churned customer comes back at $100/mo that would be $100 in reactivation MRR. Contracted MRR Formula Just like expansion MRR, contracted MRR does not require a formula but rather a definition. Contracted MRR is generally when a current customer downgrades their account but stays a customer. E.g. downgrading from a $30/mo plan to $10/mo plan would be $20 in MRR contraction. Related Resource: EBITDA vs Revenue: Understanding the Difference How to Grow MRR There are hundreds of different strategies and models intended to help SaaS companies grow their MRR. From sales development representatives to product-led growth there are many shapes and sizes that work. At Visible, we have a few that we find to be most interesting and successful. Product-Led Growth From our post, “How SaaS Companies Can Best Leverage a Product-Led Growth Strategy,” we state PLG as: “A successful PLG strategy gets your product in the hands of your customers as fast as possible and starts solving their problems right away. “Growth in [PLG] companies has a significant viral component.” Jon Falker of GLIDR writes, “Users can get unique value from the product or service right away and can benefit from helping to attract other new users.” This is why freemium models are remarkably effective in a PLG environment. By providing the user with a valuable experience upfront, you can inspire more frequent use, greater shareability, and focus on the premium aspects of your product that will drive purchasing decisions and ultimately retain these customers.” Retain Current Customers The easiest way to grow your business is to keep your current customers. Just about everyone preaches the old adage that, “it is cheaper to retain a current customer than buy a new one.” You can read more about reducing churn and retaining customers below. Invest in What Works While it is not a specific strategy, we find the most successful companies invest in what works to grow MRR. If your business has an incredible organic strategy, awesome! You can double down there to increase MRR with predictability. If you have a strong sales team, put more resources there. While experimenting has it benefits, investing in what works is an integral part of successful, early-stage companies. Related Reading: What is a Startup’s Annual Run Rate? (Definition + Formula) Why MRR Churn Rate is So Important To Monitor Most companies spend a great deal of time and financial resources on customer acquisition. This is particularly true in those early months and years of a startup. Acquiring new customers never gets old and watching your sales grow is a good indicator that you have a product that sells. But having a product or service that sells is not the only metric in determining the success of your company. Customer churn is another key metric to be concerned about. How to Calculate Churn Rate for Your SaaS Startup While determining an accurate churn rate for some products and services can be challenging, calculating the churn rate for a SaaS is relatively easy. Simply take the number of customers lost through non-renewal or cancellation and divide that number by the number of total customers you had at the beginning of the given period. If, for example, you started the quarter with 10,000 customers, but lost 480 of them through that quarter, your churn rate is 4.8% quarterly. Churn Rate Impact Startups can often overlook churn rate in the early days of building their business. As we said, during this period it is all about the sales. But if you will be looking for investors, you can be sure they will be looking at churn. Churn rate is a huge indicator of customer satisfaction and can foretell the future of your company. If you have a churn rate of 4% a month, that may make you feel pretty good. You could view that as a 96% retention rate. But if you are churning 4% of your customers each month, you are turning over almost half of your customers each year. As your business grows, the number of customers lost will increase, placing even more pressure on creating new sales. Monthly SaaS Churn Rate If you are doing it right, your customer churn rate should trend like this over time…one of the few times that “up and to the right” is the opposite of what you want. You can determine the actual cost in dollars of churn by multiplying the number of customers lost by your average customer worth. It can really get your attention when expressed in actual dollars. How to Minimize Your Churn Rate If you are uncomfortable with your churn rate, it is time to start talking to your customers and your recently lost customers. Determine what you are doing right, and the reasons churn is happening at the rate it is. It could be something easily fixed like better communication or small product improvements. But you can’t address it if you don’t have a churn rate to track. It is especially critical for new and growing companies. MRR churn is the percentage of revenue lost every month due to cancellations. Naturally, every business wants to reduce this churn. Tracking this churn is especially important for marketing strategies: if churn percentage is rising, that means that more customers are unsatisfied, even if MRR and subscriptions may be going up. The company may need to improve upon its customer retention strategies. A large percentage of churn is never good: it costs more to acquire a new customer than it does to retain an old one. Because of this, companies that want to reduce their overhead and scale upwards need to concentrate on keeping the customers they have. If MRR churn is consistently increasing, then the company may risk a revenue drought. Churn is fundamental to an SaaS company’s growth, and luckily the churn calculation is fairly simple: a company need only find the percentage of revenue lost via cancellations. As long as the company knows its current MRR and its churn percentage, it can also project out how much revenue it will lose to churn every month. MRR and MRR churn for a company may look like this: The company currently has $50,000 in recurring subscription fees. In the prior month, the company lost $5,000 in cancellations, but gained $10,000 in new accounts. In the next month, it can be anticipated the company will lose $5,000 but gain $10,000. The company’s projected recurring subscription fees for the next month will be $55,000. The company’s current MRR churn rate is 10%. Apart from this, the company’s growth is at around 10%, and trends over time will tell the company whether its MRR churn rate and its new account subscription rate are going up or down. As with MRR, a company can use a spreadsheet or another calculator system to determine its churn metrics. MRR and churn should be a part of the company’s financial statements, and should be regularly reviewed for core insights into how the company is doing and whether any changes need to be made in its retention policies. Churn rate vs. retention rate: churn rate differs slightly because it is the rate of revenue that is being churned away from the company, rather than the amount of customers retained. A company could have a high churn rate alongside a high retention rate if they are frequently losing high value customers but retaining large volumes of low value customers. In general, companies are able to reduce their churn rates by improving upon customer satisfaction. Regular surveys regarding customer satisfaction and improved customer service are usually key to reducing churn rates and improving overall customer retention. Companies may also need to identify any gaps in their current product and service offerings if they find that customers are frequently leaving, or are leaving to competing companies. Other SaaS Metrics MRR and churn rate are only two of the SaaS metrics that your company should be tracking. As an SaaS company, your metrics are going to be of exceeding importance. Most SaaS companies need to scale fairly aggressively, and must constantly be moving. Sales and sticky revenue are more important for SaaS companies than others, as widespread adoption is a key to success. Here are a few of the most important SaaS metrics, in addition to SaaS churn and MRR: Customer lifetime value This is the total amount that a customer is expected to spend on the platform throughout their entire relationship with it. For SaaS startups, it may be difficult to gauge customer lifetime value, but it’s important when determining how much to spend to acquire and retain customers. Customer acquisition cost This is the total amount it costs to acquire a customer, which will often be compared to the customer lifetime value. Ideally, a company should be able to reduce customer acquisition cost to at least a third of the customer’s value. Customer retention rates Poor customer retention isn’t just bad for finances; it’s an indicator that there could be a core issue with the solution itself. Customer retention rates are always a major feature of revenue development. Customer acquisition rates Customer acquisition relates directly to how fast your company is growing. Your customer acquisition needs to be continuously outpacing your customer churn; otherwise, your platform is going to experience shrinkage. Over time, customer churn tends to grow. Customer acquisition must grow as well. Number of active users Your number of active users is one of the most direct metrics that you can use to determine your success. Your revenue may be shrinking, but your active users are growing: that means that you have a product that can be monetized, you just need to work on your monetization and your commitment strategies. A SaaS metrics spreadsheet can make it easier for you to track all the important metrics for your financial statements. Likewise, there are a number of software platforms that are designed to keep track of your financials for you. These products can be used to produce reports for your financial meetings, and to give you a better handle on how your company is growing and developing within the SaaS space. Changes within the SaaS market can happen quickly. Your growth trends are going to mean everything in terms of your company’s performance, especially within highly competitive spaces. Being able to accurately predict your growth into the future comes from a thorough understanding of your numbers right now.

The Importance of Your Quick Ratio Some investors refer to the quick ratio as a company’s acid test. Basically, the quick ratio indicates a company’s short-term liquidity and ability to pay current bills. The nickname and the quick ratio’s ability to demonstrate how well a company can operate in the near future should give you an idea of its importance. You can easily calculate your quick ratio by adding up cash, short-term investments, immediate receivables, and cash equivalents. For the quick ratio, consider assets that you could transform into cash without losing value within 90 days. Then you divide this number by your current liabilities. You can see this calculation’s formula below: Cash + Short-Term Investments + Current Receivables + Cash Equivalents / Current Liabilities For example, you might have $12,000 in cash and $8,000 in receivables. If you have $20,000 in debt, you would divide $20,000 by $20,000 to get a quick ratio of one. What's a Good Quick Ratio? If you have at least enough cash to meet your short-term obligations, that’s considered a positive sign for a new company. In other words, a good quick ratio would be at least one. A number over one might be even better, but any number less than one demonstrates that you could have to struggle to pay your immediate bills. On the other hand, too high of a value may mean that a company isn’t using their short-term assets to fund growth as well as they could. SaaS Quick Ratio Alternatively, there is a SaaS Quick Ratio. A SaaS Quick Ratio is similar to the standard quick ratio above but gives a SaaS company an overview of how efficiently their company can grow. The higher the SaaS quick ratio, the more efficiently a company can grow. In short, the formula divides any new MRR by any lost MRR. An example of a SaaS quick ratio can be found below: SaaS Quick Ratio= (New MRR + Expansion MRR)/(Churned MRR + Contraction MRR) While a higher new MRR growth rate can help fuel a good quick ratio, the best-in-class SaaS companies often have a lower churn rate which allow for a significantly higher quick ratio. With a lower churn rate, companies will have a much more reliable source for predicting future revenue and growth. Your Quick Ratio in Visible Tracking your quick ratio in Visible in incredibly easy thanks to our formula builder. To get started you’ll want to make sure you have all of your revenue metrics in Visible. We suggest creating a user provided metric or connecting Google Sheets, HubSpot, Salesforce, or ChartMogul to get started. From here, you’ll be able to create the quick ratio formula (as shown above) in the formula builder. Once the quick ratio formula is created in Visible it will automatically update as your data sources refresh. We suggest sharing your quick ratio with management and executives so they have a quick view of how the company is performing and growing. Generally, we do not see founders share their quick ratio with their investors and rather share the underlying metrics. Current Ratio The current ratio refers to a number that indicates how well companies can pay bills that might crop up over the next year. To calculate the current ratio, you simply divide current assets by current liabilities like this: Current Assets / Current Liabilities If you company has $100,000 in current assets and $100,000 of debt, your current ratio would equal one. What is a Good Current Ratio? A good current ratio may need interpretation in light of averages for a specific industry or business. As with the quick ratio, a value of at least one indicates that a company has at least as many assets as liabilities. Some companies may consider using excess assets more productively as well. For instance, you can count inventory as an asset; however, you bring in revenue when you move inventory. Quick Ratio Vs. Current Ratio Quick ratio and current ratio sound similar but mean different things. To make sure you understand the difference, browse these comparisons of quick vs. current ratio: Quick ratio: This formula only uses short-term debt and liquid assets that you can turn into cash within 120 days. Current ratio: In contrast, the formula for the current ratio uses all assets and liabilities. To understand the difference between the quick and current ratio, consider a simple example of a company with $100,000 in current liabilities: Cash and cash equivalents: $10,000 Short-term marketable securities: $20,000 Accounts receivable: $50,000 Inventory: $112,000 Prepaid expense: $8,000 You get a current ratio of 2 by dividing total assets of $200,000 by liabilities of $100,000. In contrast, you would have a quick ratio of .8 when you divide $80,000 by $100,000. This difference between the numbers could mean that you should consider freeing up a bit more liquidity for short-term obligations. Again, you have to interpret the metrics in light of the unique situation. That’s why you might include prepaid expenses in your current ratio. You can weigh prepaid expenses against your current liabilities; however, you might not include them in the quick ratio. For instance, you may have to purchase plane tickets for travel. In one sense, those could count as an asset, but they may not be easy to convert back into cash to satisfy an obligation. Liquidity Ratios Sometimes people use liquidity ratio to mean the same thing as the quick ratio. They may also refer to the quick ratio as the quick liquidity ratio. In a broader sense, liquidity ratios refer to various metrics that help investors and owners understand how well companies can meet their current debt obligations. Related Resource: From IPOs to M&A: Navigating the Different Types of Liquidity Events Besides the quick and current ratio, liquidity ratios could also include the operating cash flow ratio. You simply calculate this number by dividing liabilities by cash flow, but you don’t take other assets that you can quickly convert into cash into account. That means that this number will probably be a little lower than your quick ratio calculation. This number tells you how well a company can meet their obligations with the cash they have on hand and without having to collect receipts or liquidate cash equivalents or short-term investments. Why are Liquidity Ratios Important? Quick, current, and all liquidity ratios are important. Obviously, companies need to pay their typical operating expenses. They may also need funds for unexpected expenses and to take advantage of growth opportunities. All of these metrics give investors a quick way to judge the solvency of a company. That’s why they’re the kind of numbers that investors want to see. In addition, they are helpful guides for company owners and managers. Related resource: Dry Powder: What is it, Types of Dry Powder, Impact it has in Trading

QuickBooks Chart of Accounts & More Getting your key metrics, custom financials and business data out of QuickBooks Online just got a whole lot easier. Our product team (special thanks to Eugene) just released a stellar improvement to our existing QuickBooks integration. Our improved integration will pull data from your Profit & Loss Statement, Balance Sheet and Statement of Cash Flows. We will sync any headers, sub-headers and specific accounts that are unique to your business. Once connected, the headers will unfurl and you’ll be able to customize which metrics you’d like to pull in along with the headers themselves. If you’re already using our QuickBooks integration, simply edit your current connection and we’ll display all of the new metrics that you can sync. For new users, just connect to QuickBooks as a new integration. We find that most customers love using our formula builder and variance reporting to mash up their QuickBooks data alongside forecasts, budgets, and data from other sources. We hope you love our new QuickBooks functionality. If you have any questions, make sure to contact us or check out our knowledge base for any support-related items. Up & to the right, Mike & The Visible Team

The importance of executing on the product side of the business has long been a primary focus for countless successful founders and notable startup advisers. So it may come as little surprise that one of the fastest growing trends in SaaS is a renewed focus on product—this time as the primary engine for growth. What is product-led growth? Our friends at OpenView have been leading the charge in championing product-led growth as a go-to-market strategy. As defined in this helpful presentation, PLG occurs in “instances when product usage serves as the primary driver of user acquisition, expansion, and retention.” Growth becomes tied to the value of your company’s product. Like most great startup trends, PLG has its massive success stories that have inspired its wider adoption. The rapid growth of Slack, Calendly and Dropbox have all been at least partially attributed to a product-led strategy to scale. In each case, a product has been offered that is easy-to-use, easy-to-share, and immediately valuable – so much so that it drives user acquisition at remarkable rates, slashes customer acquisition costs (CAC), and surges customer lifetime value (CLV). One of the most valuable upsides of a successful PLG strategy is the overwhelming strong unit economics that can accompany the user growth. As OpenView often discusses, PLG often impacts every aspect of a SaaS business. Product Led Growth Impact on Product Considering PLG is based off of a company’s ability to distribute their product there is obviously a huge impact on the product. Everyone and every department in your business needs to have an intense focus on product. “It’s about product being the core DNA of your company,” Hiten Shah writes. “So much so that the default mode for solving problems—including growth challenges—is to figure out how to use the product to address whatever issue is at hand.” So what exactly does this mean for your product? It needs to be simple and focused. You need to deeply understand your user pain points, strip out any unnecessary features, and have a product that delivers value in a quick and efficient manner. This is to enable other core tenants of product-led growth; freemium, self serve, product qualified leads, etc. Product Led Growth Impact on Marketing Product-led growth also has a major impact on your marketing efforts. In order to best leverage a PLG strategy, your product needs to act as its own marketing channel. The product needs to be inherently viral and allow for easy adaptation for other users. The user experience should be the core of what a PLG marketing team does. The marketing team needs to be able to onboard new users, create a stellar experience, and use product data to improve marketing communication and nurturing later in the process. As the team at User Pilot writes, “Typically, this means that your product model includes a freemium or offers a free trial. This is a disruptive, bottom-up sales model…where employees of an organization can choose what products they want to use instead of being forced to use certain tools by IT or operations departments in a traditional top-down approach.” Product Led Growth Impact on Sales With an intense focus on product across a product led growth organization the way the sales team works and sells the product will also change. In the past, most software sales teams embraced a top down approach. A sales representative or account executive would find an executive (or executives) at an organization and do their best to sell a set number of seats for the organization. The traditional B2B sales funnel oftentimes looks like this: With a product led growth strategy, sales teams almost act more like a customer success and inbound sales representative. For example, let’s assume a PLG company uses a free trial. The product and UI/UX need to be able to show the trialing user value as soon as possible. PLG sales goal here is to unlock and show the product’s value to the user on trial. Whereas a top-down approach would have required a sales member to tell a new user about the value now they are directly showing the value of the product. As the team at ChartMogul put it, “The ultimate goal of PLG sales is to motivate your users to use your product, unleash the value as soon as possible, and convert your users to power-users.” Product Led Growth Impact on Pricing Product led growth has a drastic impact on the pricing of a product. PLG allows companies to land and expand their customer base. This often means a free or reduced price plan that scales with a company as they add usage, seats, etc. The 2 most common pricing strategies that have come out of PLG are freemium and free trials. https://website-staging.visible.vc/wp-content/uploads/2019/05/mike-on-plg.mp4 Freemium Pricing As Investopedia defines it, “Under a freemium model, a business gives away a service at no cost to the consumer as a way to establish the foundation for future transactions. By offering basic-level services for free, companies build relationships with customers, eventually offering them advanced services, add-ons, enhanced storage or usage limits, or an ad-free user experience for an extra cost.” The team at OpenView Labs goes on to explain a freemium model further by stating, “A freemium product, by contrast, gives users access to a limited set of features, functionalities, and use cases indefinitely and without charge. There is no time limit, but parts of the product remain off-limits to free users.” This generally works best for a company that has a lower customer acquisition cost and a longer lifetime value (AKA a product led growth company). A freemium strategy opens up the top of funnel for a PLG company. This means that there may be more users coming into the product to give it a try but this generally means users are less likely to get activated (use the product) and may cause issues later in the sales and marketing funnel. Running parallel, and just as popular, is the free trial model. Free Trial Another common pricing and acquisition model is the free trial. As the team at OpenView Labs explains it, “Free trials typically allow users to experience a complete or nearly complete product for a limited time. This means granting free users access to all features, functionality, and use cases for the duration of their trial.” This means that there may be more friction at the top of the funnel. A user inevitably knows that they will have to pay down the road and this may detract them from wanting to give your product a try. However, this means that when a user starts a free trial there is intent behind their decision and they are likely more qualified. The main pro of a free trial method is the sense of urgency it creates. By having a “shot clock” on their trial time a user will inevitably have to make a decision to use the product. Why is product led growth becoming so important? OpenView Labs has coined product leg growth as “SaaS 2.0” and for very good reason. With recent failures of cash intensive/burning business there has been more focus than ever before on building a sustainable and profitable business. One of the most efficient ways to build a profitable business? You guessed it — product led growth. In addition to the lean business becoming more attractive to venture capitalists and the public markets the ways people buy software is changing as well. In the past, software was traditionally a top-down purchase. A leader or executive at a company found a piece of software they liked, implemented it across their team or organization, and expected everyone to use it. Fast forward to today and more companies are embracing a bottoms-up approach. As the team at Origin Ventures wrote, “As an influx of capital has increased competition amongst B2B SaaS companies, bottoms-up sales has become the low-cost, scalable method that provides a quick way for SaaS companies to engage users quickly. By selling directly to ground-floor product users (rather than executive teams), bottoms-up works best when the software is inexpensive or free to start, doesn’t need to be tailored to each customer, and has clear value propositions for small groups of employees.” Benefits of a product led growth strategy A product led growth strategy offers countless benefits. Lower Acquisition Costs One of the most attractive benefits of a PLG strategy is the decreased customer acquisition costs. While it is assuming that you’ll need to invest more in product development the cost of acquiring new customers will continue to lower. This is because the product should do the heavy lifting for your business. By having a product that offers a free trial or freemium experience the top of your funnel will flourish and the product should enable users to upgrade and scale in turn lowering acquisition costs. Upsells & Expansion PLG enables your pricing and contract sizes to scale with your companies. While a set of users may be using a freemium version or are on a free trial, PLG should allow companies to slowly upgrade their plans. In turn this generates more upsell revenue and reduces the likelihood of churn as the price is created to scale and grow with a given customer and business. Better User Experience Ultimately a PLG strategy is a better experience for the end user. First off, in order to properly execute a PLG strategy the product needs to be best-in-class which is already a bonus for a user. On top of that the onboarding, resources, and UI/UX are built to be easy-to-understand and require minimal setup and intervention from a sales or customer success representative. How to become a product led growth company In order to become a product led growth company you need to have an extreme focus and buy in from everyone in the organization. While the benefits are clear there are a few things a SaaS company needs to do before they can fully embrace being a PLG company. Customer Empathy First order of business to become a product led growth company is to deeply understand your customer and the job they are trying to accomplish. A great product is best informed by deeply understanding your customers. You also need to have empathy when it comes to how a customer buys your product. On one hand you may have customers that enjoy speaking to someone when making a decision. On the other hand you may have customers that want to be left along and make a buying decision on their own. Both customers in this instance are correct. It is a PLG companies duty to be able to empathize with and sell to both customer sets. Great Product It probably goes without saying that a PLG company needs a great product. If your product is clunky and requires a hands on setup it is probably not a great option for PLG. If it is intuitive and easy to get started a PLG strategy may sound like a better idea. It is the namesake of the strategy so having your product dialed in a 100% must. Intuitive Onboarding In part of having a great product is having great onboarding. If users are coming to your product via free trial or a freemium experience they need to be able to get setup and understand the product on their own. There is likely an overlap of the product doing the work, resources to help, and a customer success team to help accomplish this. It is imperative that the product is easy to get started. For a freemium experience, it will not scale well to have customer success or support team members helping users in the product. The goal is to allow users uncover the value on their own. Company Culture & Team Focus If you’ve built a great product, chances are your culture—knowingly or not—is centered around putting the product first. As Liz Cain of OpenView puts it, “You live to serve your customer, to make a product that delights and excites… You don’t want your company aligned around a boiler room, ‘always be closing’ sales culture.” While product-led growth might not be for every business, there are learnings that can translate across all businesses. Key product led growth metrics you must know Product Qualified Leads When a potential customer is already using a version of your product—whether that be a trial participant or user in a freemium model—they can qualify as a PQL. With a PQL, the customer has hit a designated trigger that lets the sales team know they are ready for a follow up call. As Christopher O’Donnell notes, by using the product to educate the customer first, you’ve given your sales team a huge advantage. “If we flip the traditional model 180 degrees and start instead with product adoption, we find ourselves selling the product to folks who understand the offering and are potentially already happy with it, before they even pay,” O’Donnell writes. PQLs rely on the product selling itself. With this approach, you’re providing the best possible introduction to demonstrate how the product can be a long-term solution. That’s an easy process to replicate too. “[PQLs] are scalable because they require no human touch and they are high-quality leads,” Tomasz Tunguz writes. “When the sales team calls PQLs, customers typically convert at about 25 to 30%.” If you have a freemium offering of your product, you can gain the benefits of the potential velocity of incoming leads while also earning the financial rewards of an inside sales price point. Furthermore, a focus on PQLs can improve your product roadmap as well. Tunguz notes that PQLs actually serve as a management tool as well because the focus on customer action gets everyone onboard with revenue as the key performance indicator. are a “Typically, the product and engineering teams don’t have goals tied to revenue which bisects a team into revenue generating components (sales and marketing) and cost centers (eng and product).” That can create a lack of effectiveness when it comes to creating a product that sells itself and providing the best ammo for a sales team to finish the job if needed. Of course, your product and engineering teams will have longer-term features that will not be revenue significant in the short-run. However, a mix of both can help get everyone on the same page and quickly end potential arguments. That’s a great addition to any company culture. “PQLs provide a rigorous framework for prioritizing development,” Tunguz writes. “Each feature can be benchmarked to determine the net impact to PQL which is ultimately funnel optimization.” Churn Churn is important in every SaaS business but especially important in a product led growth business. As we wrote in our SaaS Metrics Guide, there are 2 core types of churn that a PLG/SaaS business need to track: “Customer churn rate: This simply refers to customers lost within specific time periods. Hopefully, you can also enhance these SaaS metrics with information about why the churn rate may have either spiked or declined under various circumstances. Revenue churn rate: A SaaS business model may include various prices, based upon the number of unique accounts or levels of features or services. Hopefully, customers upgrade over time; however, if they’re not, SaaS companies should find out why.” Keeping your churn low will not only allow for efficient growth but allow for a greater customer lifetime value so you can bump customer acquisition costs when needed. Customer Lifetime Value Another metric to keep tabs on when evaluating a PLG strategy is customer lifetime value. Simply put, customer lifetime value is the estimated amount that a customer will bring in over the course of their relationship with your business. As we wrote in our SaaS Metrics Guide: “You can estimate the lifetime value of your customers by following these steps: Estimate your customer lifetime rate with this formula: 1/average churn rate. With an average churn rate of one percent, for example, your CLR would be 100. Divide monthly revenue by the number of customers to calculate your average revenue per account, or ARPA. For example, 100 customers and a monthly revenue of $100,000 would work out to an ARPA of $1,000. Finally, calculate the customer lifetime value, or CLV, by multiplying the ARPA by the CLR. In the example above, your CLV would be 1,000 X 100 = $100,000. You can use the CLV to help you estimate the lifetime value of each customer. Companies can also use this handy metric to illustrate their value to investors.” A PLG company should allow for a higher customer lifetime value as the model and pricing is built to scale with a business. For example, a company bringing in $0 in revenue should be paying $0 for their subscription. As they continue to grow their revenue so will their contract size. In theory this should decrease the likelihood of them churning and increase their likelihood of staying on board and increasing their contract/lifetime value. Time to value One of the key aspects to selling a PLG subscription is the amount of time it takes a new user to get to value. If you can measure and continue to improve your time to value, the likelihood of a new customer closing or an existing customer upgrading their plan will greatly increase. Users have essentially limitless options in today’s SaaS world and need to be able to quickly evaluate and make a decision on your product. If a long setup or manual work is required you’ll likely lose the attention of a new user and they will look elsewhere. The team at OpenView labs shares how HubSpot uses TTV with their website grader: “Trials are good to do, but trials are often too long. At HubSpot we had a tool called Website Grader… Its entire existence was about creating time to value. It’s free. You put in a URL – your site or your competitor’s – and we analyze the site using our marketing methodology.“ Upsells/Expansion As we mentioned earlier the likelihood of a customer upselling or expanding their account is a major plus of product led growth. As we described in our Monthly Recurring Revenue Guide, “Expansion monthly recurring revenue is MRR from gained from existing customers when they upgrade their subscriptions” Because users will have the option of a free trial or freemium plan the ability for them to quickly upgrade plans is very likely. While it may only be small jumps from plan-to-plan in you enable a customer to achieve their job, they will continue to upgrade plans as their team and business continues to scale. Examples of businesses with a product led growth strategy While there are countless businesses that run a product led growth strategy, the three below are some of our favorites. Slack Slack is one of our all time favorite examples of product led growth at Visible. Slack has had a freemium plan since day 1 and has become the poster child of freemium. Slack pricing is built to scale with usage and a user’s growth. WIth the Slack PLG strategy, new users get to use the full Slack product for free up until they hit 10,000 messages. This means that once you’ve hit the limit, you fully understand the value of Slack and probably can’t function as a business without it. Tools like Slackbot and their suite of integrations make onboarding and getting setup on Slack easier than ever. The pricing as Slack is built to grow with a business as well. With per seat pricing of around $7/mo it is often times a no-brainer to add on more licenses when needed. Dropbox Another one of our favorite examples of a proper product leg growth strategy is from Dropbox. Dropbox fully supports the bottoms up approach and has mastered it on their march to over $1B in revenue. The Dropbox product is remarkably easy to use. It has a very friendly and simple UI that makes usage an ease. Oftentimes it is considered the best tool for sharing files. On top of that it is inherently viral. There are shared files that make other people intrigued by Dropbox and may sign up for their own use. They also have a powerful referral program that gives free data to new users and the referring user. Dropbox has truly nailed the bottoms up approach and have been a SaaS case study for companies looking to embrace a product led growth strategy. What’s a good product-led growth strategy? In his review of Blake Bartlett’s PLG talk at SaaStr 2017, Drew Beechler outlines the five traits of PLG success: virality, easy sign-up, quick to demonstrate value, slow to hit users with paywalls, and “a focus on making all customers successful across the sales-to-support continuum.” A successful PLG strategy gets your product in the hands of your customers as fast as possible and starts solving their problems right away. “Growth in [PLG] companies has a significant viral component.” Jon Falker of GLIDR writes, “Users can get unique value from the product or service right away and can benefit from helping to attract other new users.” This is why freemium models are remarkably effective in a PLG environment. By providing the user with a valuable experience upfront, you can inspire more frequent use, greater shareability, and focus on the premium aspects of your product that will drive purchasing decisions and ultimately retain these customers. Is product-led growth the right strategy for your company? Your company’s unique financial, growth, and talent considerations will need to be assessed before you can determine the right investment to make into a PLG strategy. As the OpenView PLG Market Map shows, this strategy continues to be adopted across the globe and among an increasingly wide swath of product categories. Still in order to succeed at the five traits of strong PLG companies listed above, you actually have to be a business positioned to offer these benefits. If a freemium model isn’t on the table at the moment or if your product doesn’t currently offer clear network effects, a more gradual approach to achieving PLG success may be the right course of action. For instance, as Shah notes, a company might hire or retain sales talent to attract large customers early on while product-led growth continues to develop at scale. A focus on product can occur simultaneously in an organization that still needs to execute more traditional SaaS sales to achieve a healthy growth rate. On the marketing side, a gradual approach to PLG may include an increased focus on conversion rates on core landing pages to drive faster user acquisition across all customer types. But even in a more incremental approach to PLG, you will refocus your entire team on what matters most. “Everyone in the company should be focused on growth. Everyone should be responsible for revenue,” Shah writes. “Exactly what this looks like will vary from company to company based on which teams have the most say on what ends up getting built and shipped.” Successful PLG companies develop cross-functional teams, demonstrate effective information sharing within their organization, and attach greater significance to shared KPIs to accomplish to inspire a greater focus on growth and accountability to revenue. To learn more about product led growth and best practices for growing and scaling your company, check out the Visible Weekly. Curated resources and insights delivered every Thursday.

What is a Cohort Analysis? A cohort analysis is a study of activities for a certain segment of customers or users. In this template, we are looking at the customer cohorts for the quarter or month they were acquired, and what % of those customers were retained for subsequent quarters/months. As summarized in Lean Analytics (via Wikipedia), “Cohort analysis is a kind of behavioral analytics that breaks the data in a data set into related groups before analysis. These groups, or cohorts, usually share common characteristics or experiences within a defined time span. Cohort analysis allows a company to “see patterns clearly across the life-cycle of a customer (or user), rather than slicing across all customers blindly without accounting for the natural cycle that a customer undergoes.” Why Cohorts are Effective for Analyzing Data With cohort analysis, you can start to correlate initiatives in your own business to see how they may affect the customer lifecycle. As your company scales, iterates, innovates and creates processes, you would hope to not only acquire customers at a faster pace but also retain them longer, correct? One would assume as product/market fit is found, domain experts are hired and new campaigns are launched that customer retention gets better… but how do you know? New Product Features In order to best understand how new product features are impacting customer retention and other metrics you will want to look at a certain cohort of customers/users. Perhaps cohort retention improved as you started to introduce features in your product to engage customers through a daily digest. By understanding how customers interacted with the new daily digest you’ll be able to use data to determine where development time and resources should be placed in the future. New Marketing Campaigns Startups are constantly testing new marketing channels and go-to-market efforts. Without the proper data behind a new campaign, it can be difficult to determine what cohorts and campaigns are performing best. For example, maybe you introduce paid search as a marketing strategy, then realize retention drops because customers acquired through paid were not the ideal customer type. This should be a clear indicator that you either need to (1) improve different aspects of your paid funnel or (2) focus the time and energy on paid channels on different channels. New Customer Onboarding For SaaS companies and service providers, onboarding new customers is vital to their retention and growth with the product and your organization. Onboarding flows are constantly being tested and tweaked to convert your customers as best as possible. For example, let’s say you add 3 questions during the signup process to better tailor a new user/customers onboarding experience and it is shown in the data that this cohort is 2x as likely to take a key action in your application, you will want to implement and improve this even further. The 2 Types of Cohort Analysis Cohort analysis can be a powerful tool to interpret and understand your user data. While you can slice and dice your cohort data in a wide variety of ways, it ultimately comes down to 2 main types of cohort analysis: Related Resource: Startup Metrics You Need to Monitor Acquisition Cohorts One of the main types of cohort analysis is by acquisition type. As we mentioned in the previous section, cohorts can be valuable when analyzing marketing campaigns and efforts. By breaking down cohorts by acquisition channels, you’ll be able to better understand the specific channels that are performing best or campaigns that need to be tweaked. Behavioral Cohorts The other main type of cohort analysis is by behavior. This can generally be used in regard to steps taken in a product. For example, you can create a cohort of users that have taken a specific action in your product. This can be used to inform and dictate product development and strategy. How to Build a Cohort Analysis in 4 Steps Building a cohort analysis can be time-consuming and tricky. That is why we created a template with just a few steps to help get you started (more on using our template later). At the end of the day, if you are creating a cohort analysis from scratch or plan on using our template there are a few steps you’ll need to take before you can get started 1) Start with a Goal and Questions When building a cohort analysis you first need to figure out what the goal of the analysis is. At the end of the day the goal of a cohort analysis is to better inform your team to make decisions around product, marketing, customer experience, etc. If you’re not setting expectations and questions you want to answer, you can miss the point and impact of a cohort analysis. 2) Define the Metrics & Data Needed Once you’ve determined the goal and questions you’d like to answer you need to understand what data and metrics you will need to measure and compile to execute your analysis. If you are measuring customer retention, you will want to start with clean data around your customer base. For example, you will want to have a grasp on contract size, sign up dates, churn dates, etc. Depending on what you are tracking, it may require a deeper layer of data. For example, if you are looking at a specific marketing channel, you will likely want to include this data as well. Having cleaning and correct data is essential to making sure your analysis is effective as possible. 3) Perform the Analysis There are countless tools and resources available to help performt the actual analysis. For example, Google Analytics has a builtin tool to perform cohort analysis but that requires your Google Analytics data to be 100% clean. To help we’ve created a tool to help automatically perform the analysis in a few quick steps. 4) Study the Data The most important part of a cohort analysis is finding actionable insights to help better inform your business and product decisions. When studying your data, it is important to keep in mind the original goal and questions you set out with. See how different cohorts can help answer these questions and make better business and product decisions in the future. Check out more about specific things you should analyze and look for in the next section: Applications of Customer Cohort Analysis Cohort analysis can be applied to all business models. Depending on your model, acquisition strategy, and product or service will determine how to apply a cohort analysis. Customer Cohort Analysis in Ecommerce In order to best understand your eCommerce efforts, you need to understand how customers are engaging with your brand, website, and product. For example, you can use a cohort analysis to see if customers from certain marketing campaigns are making repeat purchases. Related Resource: Key Metrics to Track and Measure In the eCommerce World Customer Cohort Analysis in Mobile App Development In order to best develop mobile apps, you need to understand what marketing strategy and product are impacting your key usage metrics. For example, you can use a cohort analysis to see how customers going through a certain onboarding flow are engaging with your mobile app. Customer Cohort Analysis in Digital Marketing In order to best build a digital marketing business, you need to understand what campaigns are performing best. For example, you can use a cohort analysis to see how customers are engaging through different marketing channels and campaigns. Customer Cohort Analysis in Online Gaming In order to best build an online gaming business, you need to understand what strategies are getting gamers to engage with your product the most. For example, you can use a cohort analysis to see how customers who play in specific tournaments engage with your game at later dates. Related Resource: 10 Gaming and Esports Investors You Should Know Customer Cohort Analysis in Cybersecurity In order to best build a cybersecurity business, you need to understand what strategies are working best to retain customers. For example, you can use a cohort analysis to see how likely it is for customers to renew and expand their contracts that come from certain campaigns. Related Resource: 10 Cybersecurity VCs You Should Know About How to Build a Cohort Analysis for Customer Success As we mentioned above a cohort analysis can be extremely useful for making better business and product decisions. One of the key aspects of this is how it can impact customer success and your retention efforts. Our template has a deep focus on customer retention and allows you to look back at different cohorts to see how you can improve retention efforts. Revenue Retention In our SaaS Metrics Guide we discuss the importance of retention. As we put it, “Poor customer retention isn’t just bad for finances; it’s an indicator that there could be a core issue with the solution itself. Customer retention rates are always a major feature of revenue development.” At its core, a cohort analysis is best for measuring customer and revenue retention. While it could be an array of factors, understanding what cohorts are most likely to stay customers and have the highest lifetime value is essential. This may start with a top of funnel problem or may it is a product problem. By taking aim at improving your net and gross revenue retention, a cohort analysis can be a valuable tool. Customer Lifetime Value As defined in our Customer Acquisition Costs Guide, “Customer lifetime value quantifies the value of what the customer acquisition actually brought into the business. Without customer lifetime value, you know how much every customer cost to bring in, but you don’t know how much those customers were worth.” This idea goes hand-in-hand with gross and net revenue retention. If a cohort of customers has a higher customer lifetime value, why is that? Was there a particular onboarding process or channel that was prevalent that led to a higher LTV? If a cohort of customers has a lower lifetime value, why is that? Was a certain channel performing poorly? Did you remove a step from onboarding that may have reduced activation and in turn forced customers to churn sooner? Measuring customer lifetime value is an incredibly valuable aspect of a cohort analysis. By finding the customers that are more likely to stick around, you can focus on what is working and apply it across your customer base and product moving forward. Onboarding and Engagement When analyzing different cohorts of customers you can look at things like onboarding and engagement campaigns during their lifecycle. Whether a software company or service provider, customer onboarding is constantly always changing. It could be a new questionnaire during onboarding or more touch points from a customer success representative. Oftentimes onboarding can be an integral part of how quickly a customer finds value and sets the tone moving forward. If there is a radical change to onboarding and customer engagement, it has the opportunity to impact their lifetime value and likelihood of churn. New Products and Services Startups are constantly testing different product and service offerings. Use a customer cohort analysis to determine how they impacted your revenue retention months later. If customers that activated a new feature or product are more likely to stay onboard, see how you can fit this into your customer success messaging and onboarding. Discounts and Promotions What good is offering a discount if you cannot see how it ultimately affects your revenue. If you offer customers a discount at the end of a quarter or month, see how likely they are to stay onboard once the promotion or discount expires. If you find customers that activated a promotion or discount ultimately churn sooner, it may be worth putting that time and energy into cohorts of customers who you know have a higher lifetime value. What are the Benefits of Customer Cohort Analysis? As we’ve alluded to throughout this post, there are countless benefits to building and analyzing different customer cohorts. Learn more about a few key benefits below: Inform Product Development Cohort analysis can be used to break down segments of customers based on their product usage. Because of this, you can understand what product features lead to your best customers. This can be used to inform product development and strategy down the road. Related Resource: How SaaS Companies Can Best Leverage a Product-led Growth Strategy Focus on Acquisition Channels Another major benefit of analyzing different customer cohorts is by breaking down different acquisition channels and strategies. By evaluating cohorts based on their source channel, you’ll be able to better understand what strategies and channels you should be investing in further. Improve Customer Success & Onboarding Looking at the bottom of your funnel, you can analyze your customers by the customer success and onboarding strategies used. For example, if you are testing a dedicated customer success representative for a certain set of customers you’ll be able to determine if it is worth rolling out this strategy across all of your customers. Our Customer Retention Cohort Analysis Google Sheet Template Building a customer retention cohort analysis can be a time suck which is why we are open sourcing our template with you today. Our template provides entry of customer data in two different ways, in addition to supporting tracking over quarters and months. Everything you need can be found in the instructions tab of the template. This template will allow you to get data from the previous eight quarters and is completely automated. A quick explainer: Decide if you want to enter row level data of your customers, simply head to the “Customer Data” tab, remove all of the fake data we’ve entered, and enter in your own data. This will automatically fuel the other tabs and be the start of your cohort analysis. If you’d prefer to enter simple counts of your customers at the start and end of different time periods, head to the “Customers Retained Count” tab. From here, you can enter the total customers acquired and churned during a period. Get The Ultimate Customer Retention Cohort Analysis Template for SaaS Use our template to correlate key business decisions to your customer acquisition and retention efforts. As your company scales, iterates, innovates and creates processes, you would hope to not only acquire customers at a faster pace, but also retain them longer, correct? One would assume as product/market fit is found, domain experts are hired and new campaigns are launched that customer retention gets better… but how do you know? With our free template you’ll be able to: Easily enter customer lifetime information in a pre-formatted section. Generate a monthly and quarterly cohort analysis of your customer retention efforts. Compare your cohort analysis against company milestones to understand what is generating the highest-quality customers for your business. Download our template below:

Contact and Account Objects in Salesforce The Visible product team just updated our Salesforce Integration. We now support the Contacts and Accounts objects in addition to the already existing Leads and Opportunities objects. If you need a refresher on Salesforce, you can read more in our knowledge base. Contact us to send us any feedback or questions. Up & to the right, -Mike & The Visible Team.

Why Product-Led Growth? According to OpenView Labs, Product-Led Growth is “a go-to-market strategy where the product is central to how these companies acquire, convert, expand and retain users. This allows companies to forgo spending large sums on traditional marketing and sales activities. Instead, they rely on the products themselves to supply a pipeline of satisfied users to convert to paying customers.” Implementing a Product-Led Growth strategy offers companies unique financial and operating advantages that allow quick scalability, economic efficiency, and ultimately more efficient growth. Dropbox is a great example of a company that does this well. They generate double the revenue of their closest competitor, but spend a lower share of that revenue on sales and marketing. This can largely be attributed to their product-led growth strategy. At Visible, we’ve centered our growth around our product for a few years now and were able to implement the strategy on our business side by using Product Qualified Leads. What are Product Qualified Leads? If you’ve built a great product, chances are your culture—knowingly or not—is centered around putting the product first. As Liz Cain of OpenView puts it, “You live to serve your customer, to make a product that delights and excites… You don’t want your company aligned around a boiler room, ‘always be closing’ sales culture.” At Visible, we started to implement a product-led approach with our sales and marketing efforts by using Product Qualified Leads. Product Qualified Leads are prospects using some version of your current product who take some sort of qualifying action. Typically this happens during a trial or freemium experience. The exact definition of a PQL will vary greatly from product to product. For example, Slack knows a customer is more likely to close when they hit 2,000+ messages. We have our own product actions we keep our eye on. Outside of standard demographic and sales information, we use a point system to weigh the following product actions: Connect a data source Create a chart Invite other users Create an Update We know once someone on a trial sends an Update, they are more likely to become a paying customer, so we weigh that above all other actions. This leads us to take an “Update-centered” approach to our product and messaging during a user trial. Once someone on a trial has reached a point threshold based on our product criteria, we’ll change their status and try to move them toward conversion. For example, if they’ve connected a data source and created a chart, how do we get them to distribute that chart using Updates? The PQL framework has continued to be fluid for us since we implemented it roughly 2 years ago. Testing and iterating the approach is crucial and something we continue to do. Not only has a PQL approach led to more efficient growth, but also to improvements in the product, sales, marketing, and customer success aspects of our business. While product-led growth might not be for every business, there are learnings that can translate across all businesses. Using PQLs is a great way to start and evaluate what your users and customers truly value about your product. Ready to learn more about product-led growth? Check out the 2018 SaaS Expansion Benchmarks report we created in partnership with OpenView Labs.

The SaaS industry has experienced rapid growth in recent years. With industry expansion comes expansion in all facets of the market. More data, resources, blog posts, thought leaders, ideas, than ever before. While there are great resources being shared on a daily basis there are also equally poor resources being shared on a daily basis. So do how you filter the signal from the noise? Why do SaaS Metrics matter and what should you be tracking? SaaS companies are inherently driven by data and metrics so common SaaS metrics benchmarks and metrics are starting to become more common across the industry. With hundreds of venture firms focusing in SaaS, many have started to share their findings to continue to spur growth in the industry and increase the quality of early stage SaaS companies. SaaS Metrics Benchmarks Comparing your company to the others around you is one of the best ways to ensure that you are on the right track with your SaaS metrics. Being a SaaS startup founder can often feel like you’re alone in the journey so being able to stack up against other using SaaS metrics benchmarks is a must. One of our favorite SaaS metrics benchmarks is the annual metrics benchmark from the team at OpenView ventures. We’ve partnered with OpenView to send their survey to 400+ SaaS companies on an annual basis. From here, the team takes a look at the data and uncovers underlying trends and directions in the market. We specifically love this SaaS benchmark because it shows vital SaaS metrics broken down by company size. It can be intimidating comparing your data to powerhouses like Slack or Salesforce so the OpenView SaaS metrics benchmarks allows you to compare yourself to companies at a similar stage. Another great SaaS metrics benchmark is from Christoph Janz of Point Nine Capital. Every year, Christoph puts together a SaaS funding napkin. The napkin is a breakdown of SaaS metrics and benchmarks the data a company needs to hit to raise a seed, series A, series B, etc. Generally, Chrisoph uses revenue, team, product/market, sales/marketing, and the companies’ moat to benchmark what it takes to raise at different stages of a company lifecycle. No matter what source you use, finding a quality SaaS metric benchmark will greatly help in your journey to scale the company. While no company or founder is the exact same, having a benchmark to turn to will help shine a light at the end of the tunnel.

The job of a marketer is to assist a sales team in generating new leads and in turn generating new customers. In order to measure the effectiveness in closing new customers teams have to implement marketing scores across the organization to measure and iterate on their efforts. Marketing scores can be used across your sales and marketing funnel to improve conversions across the board and spur growth with small tweaks. Especially for a SaaS business, measuring your SaaS metrics and marketing scores can be easily replicated across the funnel and shared throughout your organization. You can check out the 3 marketing scores we suggest starting to track below: Qualified Marketing Traffic In its simplest form marketing traffic is anyone who has visited your website. The greater number of people who visit your website and are aware of your business the greater number of opportunities you have to produce customers. However, not all marketing traffic is created equal. Depending on where your traffic is coming from it may have a varying level of qualification. Qualified Marketing Traffic is anyone that would be considered qualified to buy your product or service. For example, if you’re selling grass seed, someone who is googling where to buy grass seed would be more qualified than someone that found your site googling what kind of grass is used at a golf course. Qualified Marketing & Sales Leads The next step in the sales funnel is generating qualified leads. Once we have found what qualified marketing traffic looks like it is time to qualify them a step further and turn them into a lead that can be turned over to sales. The more qualified the marketing traffic the easier it is to turn them into a lead. Depending on what your product or service offers, generating leads may be a varying degree of importance. If you have a longer sales cycle with more touch points it may be more important to create a lead and establish a relationship than a company with a shorter sales cycle that is a quick and easy purchase. Lead-to-Customer Rate The last of the marketing scores that we have is the lead-to-customer rate. Simply, this is the rate at which you turn leads into customers. This marketing score is touched by both sales and marketing teams. If marketing is turning over low quality leads the lead-to-customer rate will likely be low. If sales is not speaking to the same message that the marketing team is using this could also lead to a low lead-to-customer rate. The good news, while many aspects have an impact on the LTC it is easy to make small tweaks to increase the rate.