During the preparation for a new Software-as-a-Service (SaaS) business plan, I researched and studied documents written in the last 2 years that described the best practices in understanding, measuring and optimizing the performance of SaaS businesses. The intent of this post is to list the resources that I found most informative and useful.
Prospective SaaS executives need to learn and thoroughly understand the performance indicators of SaaS/subscription-based businesses, as the customer engagement dynamics are quite different from the traditional on-premise/perpetual license ones. In subscription-based businesses, revenue comes in over an extended period of time and vendors experience churn, when unsatisfied customers stop their subscription. The experience of SaaS companies in managing these realities over the last decade has led to the crystallization of few key performance metrics that must be part of any SaaS business plan.
Here are my top 5 picks for learning about SaaS performance metrics:
By David Skok, Matrix Partners.
I found David’s post to be the most comprehensive and practical guide to understanding what SaaS metrics really matter, how to measure them, and how to act on the results. His guide is enriched by well-documented operational insights by the CFO of a public SaaS company (Ron Gill, Netsuite) and the VP of Strategy of a private SaaS company (Brad Coffey, Hubspot).
By Openview Venture Partners staff.
Openview’s operational consulting arm (“the lab”) assembled and continuously updates a SaaS resource guide that includes a nice glossary of SaaS metrics, links to the best of their SaaS-related content as well external resources and posts focused on improving SaaS performance. Some of the introductory content is somehow redundant to David Skok’s guide, while the links allow you to go deeper on specific topics.
By Pacific Crest Securities – SaaS Investment Banking Team.
Pacific Crest surveyed 155 private SaaS companies last year and the results presentation contains very useful operational and financial benchmarking data for SaaS executives and investors. The benchmarking data ranges from revenues, to growth, cost structure, distribution strategy, customer acquisition costs, renewal rates and churn. My CFO and I found the data quite useful as we tried to compare our business plan assumptions to actual data from similar-size businesses.
By Bessemer Venture Partners.
In this latest iteration, the partners of Bessemer distilled the lessons learned in thousands of conversations with cloud/SaaS entrepreneurs into 10 laws that cloud/SaaS businesses shall abide by in order to be successful. What I like the most about this document is the actionable advice and the wisdom that transpires from the operational experience of successful SaaS entrepreneurs.
Totango, a provider of customer success software, does a good job presenting data related to SaaS conversion rates in this report. Their experience working with over 100 SaaS companies and online businesses granted them with insight into trial conversion trends. These include: average and best in class statistics on website to (free trial) signup conversion, free trial to paying user conversion, churn rates during the first 90 days of subscription and average monthly churn rates. Note that you will have to sign in to get the report, as they use it as a tool of their inbound marketing strategy.
Please share other resources on this subject that you found particularly informative in the comments section below, so we can continue to learn from one another.