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SaaS leaders are ambitious and data-driven, so it’s no wonder there’s so much focus on metrics. Data tells your business’s story, and you want to make sure it’s a good one.
That said, the metrics conversation is a little more complicated for companies just starting out.
The data doesn’t always play out the way new founders expect it to, and it often changes too quickly to keep up. If you’re encountering this situation, you might worry about your business’s health and your chances in the market.
But do you really need to worry about the raw numbers in the beginning? If not, what should Seed and Series A companies worry about?
To answer these questions, we sat down with Kristina Shen, General Partner at Andreessen Horowitz. (You can watch the entire interview right here.)
When it comes to SaaS metrics, what do Seed and Series A companies need to consider?
Kristina says that in the early stages, it’s more important to understand trend lines than raw numbers. She explains:
“When you’re at $1M in ARR, all your metrics are made-up numbers because your business is still changing so rapidly. In the early stages, it’s more important to understand your levers than the output”.
How can new companies come to understand these levers? Kristina suggests you use the following 4 questions to guide your assessments of your business’s health.
1) Have you set up the appropriate instrumentation to calculate your metrics as you move forward?
Even though the exact numbers are less crucial in the beginning, you still need to pay attention to a few core SaaS metrics early on. That way, you’ll have a baseline to observe trends over time, which will allow you to make better strategic decisions.
You should take note of:
- ARR and MRR
- Churn Rate
- Net Revenue Retention
- Gross Revenue Retention
- ARPA
- CAC
- A measure of customer satisfaction
This is one of the reasons companies love Subscript - the software is a convenient and accessible means of tracking metrics over time.
If you don’t have Subscript, you’ll have to put in some work setting up a metrics spreadsheet or dashboard early on, and then you’ll need to keep it maintained over time (which gets more and more difficult as you grow).
2) How much is your ARR growing on a month-to-month basis?
ARR growth rate is the most important metric to track in the beginning. Remember, trend lines are more important than raw numbers at this stage. Your actual revenue is far less important than the trajectory of that revenue.
So ask yourself: are you seeing consistent, strong growth? If so, you’re likely on the right track.
3) Do you know your ideal customer profile?
At this stage, you should understand your customers thoroughly. They’re at the core of your business. Of course, your ICP will need to include information about the basics, like who your customers are, what they need from you, and how much they’re willing to pay.
However, a truly in-depth understanding can only come from an ongoing dialogue between you and your customers. Based on the information gathered from this dialogue, you should be able to tell stories about your customers’ experiences with your product. What problems are you truly solving for them, and in what areas are you falling short?
Understanding who your best customers are will help you stay on track to continue servicing them.
4) Have you identified your top-line metric, and do you have a solid understanding of it?
Even among top SaaS companies, no business is exceptional on every single metric. The best companies understand the areas where they excel, and highlight them.
Your areas of strength will vary based on your product and business model. Maybe your business has a high CAC, but you make up for it with a stellar retention rate. Or your ACV is on the lower side, but that’s balanced out by low CAC and massive growth.
Since newer teams are still learning to play to their strengths, they often look to benchmarks in order to gauge their success. Kristina cautions against this - as she points out, benchmarks are, by definition, average.
If you’re meeting benchmarks across the board but not exceeding any of them, there’s still a lot of room for improvement. Ask yourself where you have the potential to excel, and how you can continue to improve in that area.
Subscript can help
At Subscript, we know it’s a challenge to manage data. That’s why we’ve created analytics tools specifically for SaaS companies like yours.
Want a demo? Let us show you around: https://info.subscript.com/demo
Want to watch the entire interview with Kristina?
You can watch the episode right here.
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