Every VP of Growth from fast-growing SaaS companies firmly believe in experimenting and moving fast from A to B. It is the ultimate key to organic growth. Can't disagree with the statement. Although, many people from inbound marketers to founders find the advice very vague and don't understand where to start.

What are those magical key metrics everybody talks about? Somehow the popularity of few of them like CAC and LTV is overvalued and maybe these two metrics won't work for your company at the current business cycle.

The following analogy represents a problem we face on a daily basis:

  • Imagine that you came to see a doctor. And she measured your temperature, took a blood test, sent you to MRI. After all the tests, she then confirmed: "Well, yes, you have a high temperature, let me prescribe pills."
  • After it turned out that the thermometer was broken, and you were absolutely healthy. Moreover, you've just spent a lot of time and money on unnecessary tests.  
  • OR your knee hurts, and you are being treated for high temperature - because it is higher than the average! And in general, they said that everyone's temperature should be measured, which automatically makes it a necessary procedure for everyone.  

These situations sound so absurd in the medicine world, why do you think people in SaaS treat "illnesses" and company "health check-up" differently?

This is an article for teams who want to make intelligent decisions and move from strategies and tactics that don't work and find the ones that would ultimately grow your businesses.

Even if your company is already tracking key metrics, this article will help you to learn whether you need to switch your priorities or confirm that you are on the right track.  

We will talk about the real reasons why you need to track metrics, how to identify those and on what stage of growth you need to reconsider goals. Also, we will share VPs of growth examples from the industry's fastest growing companies such as Slack and Instacart.

What is the true value in tracking metrics?

Traditionally to evaluate a company's performance and calculate its current market value – the company prepares financial statements: Balance of Payment (BoP), Income and Cash Flow statements. These three documents represent a company's financial health and future potential.

Valuation is also simple – Present Value of all future cash flows. Market value is equal to a sum of every penny that the company is going to earn in the future. As simple as it might sound, in reality, the process is extremely complicated. In fact, customer happiness and brand recognition do play a major role and you can see it Goodwill section in Balance of payments, that represent the company’s reputation. In comparison, in SaaS that Goodwill section plays a much bigger role and is the indicator.  

SaaS is a unique phenomenon, and many aren't profitable in the early stages. But potentially can be valued millions and even billions of dollars.

Key metrics give insights about product market fit for venture capitals to understand if a startup worth the investments, whether customers are happily engaging and adopting the product.

On top of that, a SaaS company can use metrics within the team to guide it and put everybody in one direction. In situations where each member does a specific job, focusing on key metrics helps all team members to focus on what is important for a company at that specific stage. So your team won't spread following other goals that don't contribute.

Make sense?

✨ Related article: 3 Unconventional channels to communicate with new clients

Key metrics categories on each growth stage

What helped you to attract the first 500 customers may not be the right strategy in the long run. In marketing what works today might not work tomorrow.

To dig deeper we need to take a moment and look at metrics categories.

Disclaimer: The fewer emphasis will be on the metrics themselves: how to calculate them. As there are many other examples on the web, who do a better job at explaining each one in details.

Here you will discover in-depth, real cases, that will bring clarity to a vague concept.

Essentially all metrics can be divided into 5 distinct categories: happiness, engagement, adoption, retention and task success.

It can be hard to prioritize which one is more important, and where your team's energies should go. The best way to look at these categories is to understand which stage you are as a business.

Everything comes down to what goals your team is going to pursue in the upcoming future. Where are you heading and what are your goals?

Happiness metrics

Customer satisfaction, perceived ease of use, net promoter score.

Every company knows that a happy customer means a profitable business. But only a fraction knows how to calculate it. In fact, sometimes happiness metrics aren't an important indicator of potential growth.

It depends on what your product does. For example, when I use calculator am I a happy customer? Some applications, including the Google itself, exist to get the job done and don't necessarily involve emotional attachments. When we buy the iPhone we are happy. But are you happy when Google generates millions of results in a few seconds?

NPS - is the willingness of a consumer to recommend your product to their folks.

Surveys and interviews can be used to understand how happy your customers are. You can find more information on how to write one down here.

What NPS doesn’t explain is how users feel about each feature separately.

You should try AnnounceKit Emoji reaction feature. It gives users a channel to provide you feedback and tell how they feel about a new update or new feature by simply clicking on emoji. Or they can send a Feedback in a text version.

Engagement metrics

User involvement, frequency, intensity and depth of interactions. How many users do certain actions in a given period of time?

Do people see value in using your product? These metrics will vary from company to company and can be identified after you write down an ideal customer user journey.

Head of growth at Slack Rachel Hepworth for example redefined those engagement metrics from how many people signed up and invited colleagues to the amount of paying customer. Because Slack shifted their priorities and wanted to hit different goals.

Engagement metrics are essential. They represent the journey that users take and how where your team should pay attention to.

Ultimately you need to increase the profit you make from each customer LTV and lower sales and marketing costs to acquire each one CAC.

Monitoring Engagement metrics allow you to understand where customer fall from an ideal journey and fix conversion rates, which directly reduces CAC. Also, it helps you to reduce churn rates and thus LTV.

Analyze users' patterns of behavior. It can be done by implementing heat map software like Hotjar or by simply looking at Google analytics.

Related article: How to boost website engagement and top 4 tools you need

Adoption metrics

New users, the new features adoption level

Bangaly Kaba, Instacart’s VP of Growth calls the realizations of value "Aha" moment.

“When you actually understand that ‘aha’ moment, you really have to understand all of the things that can break along the way because delivering the perfect ‘aha’ moment is really, really critical for truly activating your customers”
“The way you really truly understand that ‘aha’ moment is by rapid conversations with your customers. I remember when I was doing my own startup where anyone who signed up, we send them an email and say, ‘Hey. Thanks for signing up. We’d love to hear more about what you like about the service. What’s the one thing that you love about the service and what’s the one thing that we can improve upon?’ Maybe two out of every 10 people will reply to you, but the people who reply are really, really fervent, really, really passionate and you tend to find, ‘Oh, this is the thing that really, really, truly matters.’ Once you can understand and find that, you really have to double down on making sure that as many people as possible get to that point as efficiently as possible and then you figure out how to continue to retain them over time.”

Tracking adoption metrics explain why some of your features aren't successful. There are plenty of reasons:

  1. People have failed to see perceived value in the new feature
  2. You failed to update customers about new features
  3. Bad or no onboarding  
  4. You failed to understand your customers and what they want and need

If you don’t know how to announce product updates, reading this article will help you to find out the smartest way to keep customers in the loop.

Also, this podcast episode from Inside Intercom from industry experts on onboarding explain in details what are the best practices.

Retention metrics

The rate at which existing users are returning. Customer churn rates, revenue churn rates, existing customers revenue growth rates, repeat purchase rates, product return rates.

For 99% of SaaS, product retention is crucial. In practice, retention + engagement are two main metrics categories that define company survival ability.

High churn rate is a glaring signal that things are doing bad and you need to take actions.

A study by Price Intelligently showed that a 1% increase in acquisition affects your bottom line by about 3.3%. But improving your retention by 1% increases your bottom line by around 7%. That’s right: retention can be twice as powerful as acquisition.

You should check out this Starter kit on customer retention.

Also discover How to improve customer experience with feedback.

Task success metrics

The overall effectiveness of a team and a product

It is usually the developer's and founder's who are responsible for these technical metrics, not product managers.

  • How slow is your product in comparison to competitors?  
  • Does the software has multiple bugs that negatively affect user experience?  
  • What is the mistake rate?  
  • How fast tasks are accomplished in the company?  

✨ Related article: 3 Expert opinions on user-centered product management

Conclusion,

Metrics help the entire company to identify where your teams' attention is needed and help to guide everybody in the right direction.

Many software can be implemented including Google Analytics, AnnounceKit, Hotjar or user surveys tools.

There is no need to track all possible metrics to "get a broader" picture. Your company goals will define key metrics.

Whether you need to improve conversion rates or improve retention rates, your metrics will vary.

Be patient and good luck!