SaaS Metrics and KPIs

For decades, it has been a mantra of virtually every business domain – from sales to engineering and everything in between – that you can’t optimize what you can’t measure.

That sentiment remains as true today as ever. Hence why SaaS businesses continue to collect and analyze a wide variety of metrics and KPIs as a way of understanding how they’re doing and how to improve.

What has changed in recent years, however, is the types of metrics that businesses collect. Forward-thinking organizations are no longer settling for simplistic data that provide broad and vague insights. With the help of new technology, they’re analyzing more precise and meaningful metrics.

Allow me to explain by assessing how metrics and KPI strategies have evolved. I’ll focus on the domain I know best – sales and customer engagement – but as I’ll explain, this shift has major implications across the entire business.

The “old” approach to metrics and KPIs

To recognize how metrics strategies are evolving, you must first understand how organizations traditionally approached metrics and KPIs.

Their focus was typically on data points that essentially reflected the state of their internal operations. In other words, they analyzed data that was a measure of what the company was doing, rather than how successfully it was doing it.

As examples, consider the following conventional KPIs and their role in various domains:

• Product development: Product managers typically counted new feature implementations. They might also have looked at customer adoption of features. This data provided a window into how rapidly their products were evolving. But the metrics were not necessarily tied to revenue growth or product profitability. Just because customers use a new feature doesn’t mean they’ll be willing to pay more for a product, or that they’ll be more likely to renew their contract.
• Customer success: For customer success teams, net promoter score (NPS), which tracks how likely customers are to recommend a product or business, has traditionally been the gold standard. Here again, though, customer impressions of a product or brand don’t always map neatly onto business outcomes. A client could like your company while spending less on your product.
• Revenue: Monthly recurring revenue (MRR) was key for measuring revenue health. This makes sense in the respect that MRR reflects how much money a business brings in regularly. But it’s not always a clear indicator of long-term revenue trends or opportunities to optimize.
• Cybersecurity: Cybersecurity engineers have tracked metrics like total incident count and total vulnerabilities patched. While these KPIs provide some visibility into the effectiveness of cyber operations, a key limitation is that they can reflect the volume of attacks more than how well a team is doing: If you experience more incidents, it could be because the frequency of attacks has increased, not because your cybersecurity team is performing less well.

Metrics like these are certainly valuable – but on their own, they often tell only part of the story, or provide only partial insight into what a business can do to optimize efficiency, revenue and profitability.

It’s worth noting as well that traditional metrics tend to be easier to collect, especially for organizations that haven’t integrated digital KPI tooling into all aspects of their operations. This does much to explain why the typical organization settled for metrics that resulted in limited visibility: They simply lacked the technology to collect and analyze more sophisticated KPIs.

Toward outcome-based KPIs

Thanks to technological advancements, however, new metrics strategies have become possible – and, indeed, essential for businesses committed to true optimization.

At a high level, this shift can be summed up as a movement toward outcome-based KPIs – meaning those that reflect business outcomes, as opposed to business operations. Using tools that integrate deeply into a business’s operations, companies can now map data onto outcomes in an automated, scalable way.

Here’s what this change means in practice for different domains:

• Product development: Rather than looking just at feature engagement, SaaS product developers and managers can assess how customers are integrating features into workflow automations – a reflection of how deeply and durably they are leveraging features.
• Customer success: Customer success teams are analyzing how much revenue their products generate for their customers, and/or how much money they save clients. These metrics reflect the value that customers are deriving – a much more direct measurement of how likely it is that they’ll remain happy customers.
• Revenue: Instead of MRR, revenue professionals can assess net revenue retention (NRR) and usage growth. Together, these metrics provide a long-term window into revenue trends, instead of simple data about how much revenue the company generates monthly. They also make it possible to track revenue outcomes on a granular, customer-by-customer basis.
• Cybersecurity: Forward-thinking cybersecurity teams look at their companies’ compliance records and revenue lost to breaches – metrics that, like the others on this list, reflect outcomes, rather than the state of operations.

A shift in thinking – and sales strategy

Pivoting toward outcome-based metrics is valuable not just because it provides greater visibility into what a business can do to achieve greater rates of success. It also (and this is why this topic is especially relevant for sales, revenue and marketing professionals) opens up important new opportunities in the way SaaS companies engage customers.

After all, traditional metrics usually matter little to customers. To be blunt, your clients don’t really care how many features you’ve released in the last year, or how much your MMR increased.

What they do care about is how new features impact them, and how they translate to revenue increases or operational efficiency gains on their end.

Hence why collecting outcome-based KPIs, and integrating them into conversations with customers across all stages of the sales cycle, is such a powerful capability. When you can show your customers exactly how you create value for them – rather than simply making vague promises about how great your product is – you are in a much stronger position to close sales, renew customers and grow revenue.

A business’s ability to do this hinges, of course, not just on collecting and analyzing the right KPIs, but also on being able to communicate effectively about them with customers. But collecting outcome-centered metrics is the first step in this process – and it’s one that SaaS businesses of all stripes should be taking if they want to thrive in today’s hyper-competitive, highly fluid customer landscape.

By Jackie Steger is the VP of Customer Success at Mediafly.