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Are SaaS companies really data-driven?

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As an employee of a SaaS company that develops Status Board software I was interested to read “SaaS Business Metrics” produced by Totango. Totango are a full service Customer Engagement Management platform. Their software is designed to allow SaaS companies to make data-driven decisions, designed to drive engagement, usage and ultimately revenue. I’ve not used Totango but at Geckoboard we totally subscribe to the concepts that Totango preach.

For the report, Totango interviewed 522 SaaS company executives - their objective was simple, to answer the question - “Do this cutting edge group of companies actually practice what many of them preach?” - Do they really use data to drive decision making?

 

Who’s tracking what?

It was no surprise that the ‘top of funnel’ metrics (Website Unique Visitors, SignUps and Conversion Rate) were the most commonly monitored, but what staggered me was that only 54% of SaaS company executives monitor Website Unique Visitors!! Does this really mean that 46% of SaaS companies interviewed have no idea how many potential customers their company has? Now I do appreciate that many early stage start-ups do not focus on what some call ‘vanity metrics’, but I would argue that having a general ‘directional understanding’ of website visitors is somewhat important!

 


Extracted from ‘Saas Business Metrics’ A report by Totango - You can get a copy here


I was similarly surprised that only an average of 57% of these executives monitor new signups and conversion rates. It may be marginally harder to monitor these metrics (when compared to simply to logging into Google Analytics), but even so, over 43% of these companies have absolutely no idea how many potential customers they have and at what rate they are acquiring them! Are these companies really flying blind or have they made conscious decisions to not track these metrics?

 

Churn really is the most important metric

I was less surprised to see a smaller percentage of companies monitoring Life Time Value (LTV) - It is undoubtedly more complicated to measure, however it was re-assuring that the report highlighted how important monitoring churn* actually is. David Skok (ForEntrepreneurs) argues that ‘the importance of a low churn rate can not be overstated’ as it’s a clear measure of customer satisfaction - and in the early stages of a Startup it is perhaps the single most important metric to track.

* Churn = [(Number of cancellations in a given period, normally 1 month) / (number of customers at the start of the period + new customers during that period)].

e.g On 1st Jan a company has 1,000 clients. During January the company acquires 100 new customers and loses 40. Churn = [(40) / (1,000 + 100)] = 3.63%


In an article on For Entrepreneurs called ‘Why churn is so critical to success in SaaS’, David Skok goes into detail about the impacts different churn rates have on Revenues. He also presents a concept he calls ‘negative churn’ (when cross sells/upsells to existing clients exceed clients who cancel). The graph on the left shows a staggering difference in MRR across the 3 different churn rates. As you can see (over a 5 year period) a company churning at -2.5% has grown over 3 times as quickly as one churning at 5%! You start to understand exactly why churn is argued to be the single most important SaaS KPI.

 

Over half are not happy

I was not surprised to learn that over half (54%) of those interviewed were ‘Not satisfied’ with the state of metrics in their organisation (see below).



 Extracted from ‘Saas Business Metrics’ A report by Totango - You can get a copy here


Early stage Startups are quite rightly focused on product development - much has been discussed around the concept of a Minimum Viable Product (MVP), and once the product ships the focus often intensifies as issue resolution and upgrades take priority. As a non-product executive it can quickly become frustrating that you can start to see all these things you would like to measure and yet there is often no easy way of doing it. It’s not uncommon to find yourself with multiple silo'ed customer datastores (static and engagement data in one, transactional data in another, support information in yet another and customer communications in a fourth!). Just pulling together a 360 Degree view of your clients can be very challenging and often involves a suite of bespoke SQL queries and XLS spreadsheets. This problem is not going unnoticed, companies like Totango, Hubspot, Marketo and Infusionsoft are helping to solve various parts of this problem by offering solutions that merge together various parts of the customer dataset, however it’s important that ‘instrumenting the machine’ is considered as part of the early company strategy as making changes to an existing inefficient infrastructure can be many times more expensive than ensuring the building blocks are put in place as early as possible.

 

An example Geckoboard Status Board

At Geckoboard we monitor various metrics, some are more automated than others. However using a Geckoboard Status board we are able to present pretty much everything that we need to (if the widget has been built, like for example Google Analytics it is really simple to add this to your status board and if the widget does not exist we can use Custom Widgets to display that data)

Click here to see a live example of the above dashboard


The example above is a status board than I’m creating that will help us to understand some of the Pirate Metrics that Dave McClure of 500 Startups talks about. I describe below what we are measuring and why;

    • Website Unique Visitors - Shows monthly visitors, I am more interested in the Sparkline which shows the trend over 30 days than the actual number of vistors.

    • Time on site - This is a general measure of engagement and again I’m more interested in the sparkline which shows whether people are more or less engaged than before.

    • The Daily Funnel widget - This widget shows me how ‘effective’ our signup process currently is, in time I’d like to see this compared to a previous period.

    • Current Users in Trial - I’ll admit, this is probably more of a vanity metric than anything else, but it does provide motivation to see this increasing over time.

    • Customers at Risk of Churn - This is a widget I’m currently in the process of developing. The concept behind this widget is to identify behaviours that have historically lead to churn. We can then plan a course of action in an attempt to reduce our churn rate.

    • Trial User Engagement Score - Another widget in development and similar in concept to Hubspots CHI Score which measures a customers ‘Happiness’. For Geckoboard this score is likely to be determined based on certain behaviours within the application that we believe are ‘signs’ of a happy customer.

    • Traffic Source - Taken from Google Analytics via Highcharts, this widget gives indication as to the success of various customer acquisition strategies that we are experimenting with at Geckoboard.

    • Financials - This bullet shows actual revenue vs forecasted and budgeted.

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