Leadership Kpis Saas Companies

Leadership KPIs For SaaS Companies

Since ClicData works with a wide variety of businesses, in a wide range of sectors, we get to see how many business owners and managers monitor and manage their company’s financial health. We learn a lot about their priorities and how they think, and the insights have challenged me to take a fresh look at the way we report financials at ClicData, both within our organization and with our shareholders.

At ClicData, our key performance metrics are designed to fit our subscription-based software business model. We offer a trial-based introduction to our platform and convert inbound website visitors to customers.

On top of all the operational and infrastructure metrics we monitor, we also track application usage to make sure our service is running smoothly. While no two companies are exactly alike, management-level data and key performance metrics are usually profoundly similar.

Even in a business as simple as ours, the quantity of data points and metrics is staggering. In larger and more complex businesses, there’s even more complexity—not only in the number of metrics that owners or teams want to stay on top of—but in the built-in complexity of acquiring and displaying the metrics coherently. It’s critically important that they can be consumed quickly and actions and decisions can be taken in a timely manner.

Depending on the maturity and size of their company, a CEO might not want their primary daily or weekly dashboard to display metrics concerning every aspect of their business. They might just want to see metrics that are more likely to fluctuate on a daily or weekly basis or those that have actions that can be taken to correct negative trends.

Here are my personal top seven KPIs that I use to run my SaaS company:

  • Income statement (P&L) and Balance Sheet
  • Cash Position and Flow
  • Expenses
  • Sales & Customer Acquisition
  • Monthly/Annual Recurring Revenue
  • Employee Satisfaction
  • Product Development

In this article I will expand on these KPIs with descriptions of what the next level of analysis would be for each one. Keep in mind that if you have multiple locations, business units, product lines, and so forth, you might want to drill down further and analyze them once more along the same categories.

#1: Income statement (P&L) and Balance Sheet

The Income Statement, also known as Profit and Loss, and the Balance Sheet are pure financial documents.

I don’t normally access these documents on a day-to-day basis unless I am in the middle of discussing them with shareholders, investors, or other financial partners. As accounting documents, they aren’t needed for day-to-day decision-making. Plus, due to many factors, including depreciation, amortization, cost of goods definition, EBITDA, and more, they can actually blur the true financial state of the company if referenced on a daily basis.

Of course, they are of great value strategically. They help CEOs define their overarching financial objectives, which impact the remaining actions and subsequently help define further metrics. In truth, however, due to the effort involved in producing and validating these financial statements—especially if you have audits and external partners looking into them—they are probably only needed on a quarterly or semi-annual basis.

Instead of trying to cover too many bases, it might be more useful and effective to have one dashboard (or report) with just these two items:

  • Income Statement—with sales revenue, cost of goods, gross profit, earnings before taxes, and net income, and
  • Balance Sheet—with current and long-term assets and current and long-term liabilities and equity.

These two are similar, but they require different groups of data. This article from FreshBooks has a great explanation of the differences and might be very helpful.

#2: Cash Position and Flow

This data is my number one financial metric to run my SaaS business.

The only way I get to sleep at night is to make sure that the team gets paid and that we are generating money to grow and support our financial backers.

After all, being crystal clear about whether we are burning cash or accumulating it is the foundation for so many decisions we make. Without money, there is no point in spending time hiring, considering raises, getting better equipment, or even investing in time to research a new feature. Instead, it’s time to sell more!

Having a monthly or even a weekly breakdown of where the money is going (i.e., expense categories) and where it is coming from—by product, region, or customer—is critical in managing financials, so the next metrics to discuss are expenses and sales.

#3: Expenses

A necessary part of good financial reporting is the ability to quickly identify areas of expense waste and optimization.

Over time, even small companies purchase subscriptions or licenses that require frequent renewals; unfortunately, it’s easy to forget about them. Sometimes we discover that our remote teams have been purchasing the same things as other teams, and realize we’ve been paying twice as much (or more) than we need to. Other times, we think we can get a better price elsewhere.

All of these details need to be caught somewhere, which is why having a report on expenses by category in your dashboard portfolio is so valuable. With it, you can compare the performance of current and past time periods and review cost-per-employee metrics to keep on top of important aspects of your expenses.

#4: Sales and Customer Acquisition

I find it essential to monitor the following sales and customer acquisition metrics on a daily basis.

Keep in mind that ClicData is in effect an inbound-only business; just about all of our business comes through our website. As a result, our top-of-funnel key metric is Visitors.

I also keep an eye on other metrics on a monthly a basis, looking for trends. This allows me to have weekly discussions with Sales and Marketing on our progress and effort:

  • Trials by Region
  • Trials by Channel—ads, direct, organic, and referrals
  • Trials by Source—Bing ads, Google search, Other, Specific referral websites, etc.

Next, I look at our Cost of Acquisition (CAC) per customer to get a rough metric on return. For CAC, I want to keep return ratios at a maximum of 3 times the monthly billing cycle and 1/3 of the yearly billing cycle.

These four metrics help me understand how our business is acquiring customers. I then have a dashboard that tells me about retention and churn. Retention values need to be as high as possible, and churn values need to be as low as possible.

Retention metrics:

  •  Customer Lifetime Value (CLV) a.k.a. CLTV, LCV, LTV
  • Average Revenue Per Customer (ARP) a.k.a. ARPU, ARPC

Churn metrics:

  • Monthly Recurring Revenue (MRR)
  • Customer Count Churn %

Read also: 7 Sales KPIs for SaaS companies

It’s important to break down these metrics by segments of customers, such as subscription tiers, levels, or whatever labels categorize customers by value brackets, otherwise you’ll end up with incomprehensible metrics.

For example, your cost of acquisition will be distorted by higher-end customers that pay more but that also cost more to acquire, and vice versa.

#5: Monthly/Annual Recurring Revenue (MRR/ARR)

If you have a term subscription agreement with your customer, then the MRR or ARR is an important metric.

MRR is the sum of all committed revenue from customers that have renewed for that month. This definition is very important because it depends on when you charge the customer—Do you charge before they use the service or after?—and it also matters when in the month they churn.

If you don’t offer subscriptions for less than a year, then MRR won’t be as useful. ARR has the added advantage of being in-line with the GAAP (Generally Accepted Accounting Principles or GAAP) such as the Balance Sheet, Cash Flow, Expenses, etc, that we previously mentioned. ARR in essence is the multiplication of MRR by 12 months.

ClicData’s dashboards also include NEW MRR, CHURN MRR, and NET MRR, both by total and by region and/or account manager. I typically wait until the end of the month, when I’m reviewing our net growth, to look at these point-in-time metrics.

Mrr Churn Kpi Monitoring
Via The Angel VC

#6: Employee Satisfaction

It is so easy to forget about the people that make it all happen.

It’s easy because, as leaders, our focus is on ensuring growth by looking after our customers, investors, and fire-fighters. Most of us are not good at repetitive and on-going, maintenance-oriented tasks; we are always looking ahead, innovating, and trying to find out how we can do things differently and make an impact.

But, to me, if there is one metric that is more important than any other, it is employee satisfaction. Now, satisfaction can be hard to measure; it’s not the same thing for everyone. But there are things you can do on a regular basis to improve it.

You can do annual salary reviews or schedule recurring one-on-ones with individuals to find out how they feel at work, what are their pain points of obstacles, and even what they enjoy doing.

Setting goals and objectives and discussing them can often be enough for both the team member and the manager to feel good about the next steps, or, at least, to take the necessary steps to remedy the situation.

I keep on top of several things concerning employees, including monthly salary reports, date of the most recent team raises, and the date of the last time I had scheduled meetings with them. I use a simple report that tells me the team member’s name, the date of their last performance review, the date of their last salary review, and their current salary amount. I also review my notes from my previous meeting with them.

#7: Product development

The final key metric is one I think is vitally important for leadership to keep a strong handle on. Of course, since ClicData makes a software product, we have certain specific concerns.

But, regardless of whether you’re in retail, production, services, or something else, you can put together similar metrics. We measure our output production, which helps us expand our features and improve our software. We monitor issues, categorize them according to priority, and monitor who is doing what, when.

Since our chief objective is to ensure that we deliver high-quality software, we include quality assurance (QA) metrics that we review upon each release cycle.

Saas Product Development Kpis

What about NPS, Generic Cohorts, or Customer Count Churn?

Something missing? If there are metrics that you’ve been told are critical for managing your business but you don’t see them here, then do continue to use them if they make sense and if they are actionable or insightful. But keep your focus on practical, lower-level metrics—not on composite metrics such as NPS, Generic Cohorts or Customer Count Churn.

Let me explain.

Net Promoter Score (NPS)

The NPS—a rating of the likelihood that a customer would recommend your product or service to a friend—has its limitations, depending on what you are selling and how.

For example, just because you found a great affordable car with good mileage and low maintenance costs, you might easily recommend it, but only to like-minded people. The capability, resources, and needs of the target recipient of your recommendation might have very different criteria. NPS might only be useful in B2C environments; in B2B, it’s only relevant if the audience is similar and the market is niche or narrow.

There are other reasons I don’t think NPS useful, but it’s mostly because it is an overworked metric that is subjective to questions. The scale—minus 100 to 100—largely ignores passive customers who might easily become a critical portion of your customer base.

In essence, NPS is an interesting but non-critical metric for business leadership.

Generic Cohorts

I hate cohorts. I know that the SaaS world loves them and the VCs decide by them, but I still can’t get a meaningful, actionable outcome from reading them.

I don’t understand why a cohort of customers signing up one month churns faster or upgrades more than the customer cohort of the next month. The color gradients are great, but you can color them any way you want, and a delta of +/- 1% can be enough to show a lot of green or a lot of red.

So although I do use some cohort tables, I use them as much as I use balance sheets—only as purely financial metrics that are destined for investors. I also limit it to customer retention.

As a metric, cohorts don’t come close to providing useful and immediate action, so care must be taken to only use it for deeper analysis.

Customer Count Churn

Do not confuse this with the Customer Value Churn. I personally don’t mind losing 5% of lower-tiered customers, since they are my entry tier points. The reason why we have lowered entry points is to give our customers a chance to see if ClicData fits their needs and their business.

It is absolutely natural for them to sign up after a 15-day trial and continue with a real account and more real data. It can be the time that is needed for a business to get their team to use your product. So it’s natural that, at some point, the team might say, “this is not for us,” for whatever reason, and so they churn.

Also, some of the lower-tier customers started to pay because they understood that the investment was minimal. They weren’t risking a huge amount, so it was okay if it wasn’t a fit in the end.

But if one larger-tier customer churns, it could equate to 10 or more lower-tier customers—and that is an issue. If a larger-tier customer churns, there is something wrong since they invested a larger amount of money and time. Their skin is in the game, you could say. Their decision to stop their subscription signifies a much larger issue.

In summary, counting customer churn depends on your pricing model, customer count turnover, and whether you are a volume business or not.

Executive Summary

My business might be different than yours, and if you are dealing in retail, logistics, or other areas, you will very likely have many other metrics that are important to you, too. My hope is that my own experience with these business metrics is of value to you and your business success.

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