Why is ensuring the success of a SaaS product and achieving a predictable service growth a tall order? It is simply because just changing a software delivery model is not enough to ensure product success? SaaS product success is directly linked with recurring revenues. Given the growing number of offerings in the market, the complexity of the business, and the fact that revenue comes over an extended period of time, it becomes imperative to understand which metrics matter when measuring product success. Amongst the key things that a SaaS business needs to ensure success are:
Which brings us to the question, what are the metrics you need to evaluate to determine if your SaaS product is a success?
The Monthly and Annual Recurring Revenue (MRR and ARR) is one metric that throws light on the overall performance of a SaaS business and, hence, becomes a Key Performance Indicator. This metric measures the predictable revenue stream that stems from subscriptions and other additional services.
Along with this, SaaS businesses need to consider Costs of Customer Acquisition. The customer acquisition cost provides insights needed to understand the costs required to grow the business and the associated payback period. Profitability can be calculated on the basis of the time taken to recover the acquisition cost to the amount of funding needed. Along with this, SaaS companies also need to measure Customer Retention Costs which consist of all costs directed towards customer retention over the number of retained customers. Ideally, the average Customer Retention Cost should be lesser than the Customer Acquisition Cost.
Revenue Renewal Rate is another important metric to consider – this metric measures revenue generated through renewals over a specific time frame.
Evaluating the customer churn rate is an essential metric for SaaS businesses because the number of people renewing their subscriptions has to be very high. Research suggests that SaaS startups should ideally have at least a 90% retention rate. A low churn rate is indicative of how the current version of the product is performing. A churn rate higher than 0% indicates revenue loss. Research conducted by Bain and Co. shows that a “5% increase in customer retention can increase a company’s profitability by 75%”. Measuring the Customer Count Retention helps in measuring and monitoring the overall health of the product.
User onboarding has the potential to make or break a SaaS business. Solid onboarding processes should be able to bring your users up to speed with the product usage in the minimum possible time and with the least possible help. They should be able to access the service, understand what the software intends to accomplish, know the application and compel them to continue working with it. Statistics reveal that almost 40 to 60% of customers who sign up for a free trial of a SaaS application use it once and never come back!
Customer onboarding costs are a subcategory of customer acquisition costs and consist of all the costs associated with the monthly costs of tools, materials, and stakeholders needed along with the number of hours spent on onboarding in comparison to the number of users onboard. Time to Value is the onboarding metric that companies need to keep an eye on – it is time taken by a customer to sign up to the first results leading up to the ‘aha’ moment. Any delay in delivering Time to Value increases the chances of a customer dropping off and never returning to use the product. Optimizing onboarding processes by increasing automation and initiating self-service become necessary to achieve success.
Both Customer Success and Product Management teams need to keep an eye on new feature adoption and user engagement metrics. With rising competition, product innovation is essential for the success of any product. Thus, new feature adoption becomes a mission-critical step towards ensuring customer retention and ensuring that the customers follow the product’s roadmap. It also becomes essential to determine how many customers tested the new feature initially and continued to use it. Organizations, therefore, need to constantly track the depth of adoption, the time for adoption,and the duration of adoption.
Identifying the user engagement and retention metrics that take into account the active users, the number of key actions, and average session duration also help in determining product success levels. Identifying users who do not engage with the product, why they do so, and setting specific triggers connected to the adoption and retention plan, better onboarding and activation processes etc. have a direct impact on conversions.
To determine the levels of engagement and activation, businesses need to evaluate the product metrics. These take into consideration the number of daily and monthly active users and dormant users. Assessing these metrics help businesses identify which customers will be prone to churn and which ones will champion the product to higher adoptions. These numbers also help in determining the product stickiness rateswhich is the measure of the level of engagement users show with the product. A high product stickiness rate also means that the users will be more likely to recommend the product to others.
Evaluating the Net Promoter Score or NPS helps in assessing the aggregate effect of customer success. Some of the most successful SaaS companies show referrals as their primary lead sources. Thus, generating an army of evangelists by accounting the NPS provides a quantitative measure of what the customers feel about your product, what keeps them happy, identify what needs to be fixed and then take measurable steps to make the product more attractive for adoption.
Given that we are living in a world centered on customer experience, every interaction that a customer has with the product directly or indirectly has an impact on the health of the business. The focus of SaaS companies, therefore, has to be to remove silos that divide teams, adopt a strategy that gives a 360-degree view of the customer, and connect all the touchpoints and units that impact the customer journey.
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