How to measure a Software as a Service (SAAS) business

A couple of days ago I had the pleasure to talk to David Skok. David is a venture capitalist at Matrix Partners, a 5 time serial entrepreneur and a strong believer in the metrics driven organization. He wrote an excellent article on how to measure and manage a SAAS business: http://www.forentrepreneurs.com/saas-metrics/

David’s article points out the core metrics that any SaaS business should track and sums it up in 2 great indicators:

1. The time to recover customer acquisition cost < 12 months
SaaS businesses that can recover the customer acquisition cost in 12 months are capital efficient.

2. The live time value of a customer should be 3 times its acquisition costs
At a factor 3 you really have what it takes to become a money machine and profitable SaaS business.

As the CEO of Mirror42 I have a double interest in Davids article:
1: Mirror42 is a SaaS business
2: Mirror42 can help other SaaS businesses to track these very metrics with our KPI Dashboard product.

We “eat our own dogfood” and use our own KPI Dashboard tool to measure our company rigorously. I am happy to tell you that what we have been measuring so far has a large overlap with Davids article.

At Mirror42 we measure the following 4 key area’s of our business:

Acquisition:

• How many new KPI Library members have joined in the past 30 days?
• How much money did we spend on online advertising to attract these new members?
• What is the cost of a new member?

Conversion:

• What percentage of KPI Library members have started trying out our premium services (KPI Benchmark, KPI Dashboard) in the past 30 days?
• What is the customer acquisition cost (CAC)?

3. Retention:

• What percentage of new customers are retained after the 30 day free trial
• What percentage of paying customers have continued to use our products months by month?
• What is the average live time of a customer?

4. Customer growth:

• What is the total number of customers?
• How fast are we growing?

These 4 area’s are our leading key indicators. The important MRR (Monthly Recurring Revenue) is our lagging indicators and is a result of these 4 area’s.

We measure everything on a daily basis. We measure our indicators over the last 30 days to prevent “day-trading” and to ensure we can identify trends and abnormalities.

Again you can find the full article here: http://www.forentrepreneurs.com/saas-metrics/