The Wide World of Early-Stage SaaS and Subscription  Metrics
 

6th January 2021

We spend a lot of time at OneValley advising early-stage SaaS companies working to acquire their first customers and set the stage for a strong growth engine. One of the most consistent questions we get is around which metrics (beyond revenue or user count) early-stage SaaS founders should focus on. 

 

Not all SaaS companies are built to provide the same solutions to the same customers. As SaaS companies have evolved in the market, so did their offerings, ranging from HR management for enterprises (Workday) to ecommerce optimization for small businesses (Shopify) to high value consumer experiences (Slack and Spotify). Marketing 101 tells us that segmentation is key to proving the right value to the right customers. The unique dynamics of the  enterprise, SME, and consumer segments  cause us to think a bit differently about the metrics that matter for each audience.

 

It is important to note that no single early-stage metric will indicate the success of a company. Instead, when thinking about your metrics, be sure to consider your customer model and go-to-market strategy. Also, no one metric is all powerful - it is often the combination of various metrics that begin to tell a compelling story.  Now let’s take a quick look at some of the metrics that can be valuable to track and optimize for various SaaS and subscription segments.

Key Segment : Enterprise B2B SaaS 
Enterprise B2B SaaS is inclusive of all SaaS companies that primarily target large-scale enterprises with annual contract values greater than $50K. Enterprise B2B SaaS companies include Box, Salesforce, SAP, Workday and many more. The primary forces that drive decision making in enterprise B2B SaaS are qualified lead velocity, sales cycle, S&M factor, and cashflow. S&M is ever-present in enterprise B2B SaaS due to the hands-on nature of onboarding and retaining enterprise clients. Due to the longevity of enterprise sales cycled, packing the top of the sales funnel and measuring qualified lead velocity becomes critical. Over time, all enterprise B2B should assess opportunities for reducing the sales cycle. Finally, while churn and net revenue retention are key, it is typically difficult to get strong insight into those metrics at the earliest-stages.

Key Segment : SME B2B SaaS 
SME B2B SaaS is inclusive of all SaaS companies that primarily target small to medium sized enterprises with annual contract values between $1K-50K. SME B2B SaaS companies include Dropbox, SurveyMonkey, MixMax and many more. The primary forces that drive decision making in SME B2B SaaS are signups, conversions, and R&D factor–defined by the ROI on R&D. SME B2B SaaS is far more self-serviced on the sales and marketing side than their enterprise counterpart. Self-service is defined by its light touch nature, SME B2B companies must drive signups through mechanisms such as a freemium, then convert accounts into subscribers by providing substantial premium value. Discovering and optimizing premium value requires higher R&D. Measuring the effectiveness of R&D as it relates to new dollars earned is critical in SME B2B SaaS.

Key Segment : B2B SaaS & Subscription
B2C SaaS is inclusive of all SaaS companies that primarily target consumers with their subscription offerings. B2C companies include Spotify, Pandora, Netflix, TurboTax, Rosetta Stone and many more.  The main forces that drive decision making in B2C SaaS are customer delight measured with net promoter score (NPS), engagement, and virality measured through referrals. B2C companies typically have a much lower customer lifetime value (LTV) than their B2B counterpart. With LTV in mind, B2C companies must drive sign ups through increasing focus on their brand, content marketing strategy, user experience, and referral incentives, all of which drive virality

Tracking the correct metrics, evaluating results as a whole, and deriving strategic insights by considering customer segment and product life cycle are the most important macro steps SaaS companies can take to optimize for success. In framing the below key metrics, we looked at prominent SaaS thought leaders, publically available SaaS market surveys, OneValley’s startup network, and private SaaS databases. While we certainly don’t believe this is the definitive perspective on SaaS metrics, the below prioritization can provide some insight as to how the importance of various metrics change as a company matures.

Baseline Metrics For All Customer Groups

But as we mentioned, not all SaaS companies have the same audience and metrics need to be viewed in terms of a company's specific go-to-market model. Below are some of the metrics we think are particularly insightful for SaaS companies based upon their custom audience.

Key Metrics To Track and Benchmarks: B2C SaaS

Key Metrics To Track and Benchmarks: SME B2B SaaS

Key Metrics To Track and Benchmarks: SME B2B SaaS

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Next post, we will take a deep dive into the metrics that matter at the pre-seed and seed level, and discuss some of the early-indicators of momentum that investors look for in emerging SaaS companies.

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