Growth Metrics

What is the best way to evaluate business metrics for SaaS products

There are two types of entrepreneurs:

  • Those who do not look at their business metrics, and
  • Those who are unhappy with their business metrics

I am yet to come across an entrepreneur who keeps a close eye on how the business has been performing, constantly looking at data from different sources, and who can claim with a straight face that he is happy with their metrics.

No matter which metric you are talking about, they seem to always be accompanied by some bad news. In early days of SaaS businesses, the problem is even more exacerbated and those numbers are ever so terrible.

Whether you look at rate of free-trial activations, the percentage of free trials converting to paying customers, net revenue retention, or how frequently your users are using the pivotal features of your product. On the face of it, it presents quite a gloomy picture. If you think your business metrics aren’t bad, you are probably comparing your metrics to that of a competitor’s, and the fact is, and no surprise there, even their metrics are performing terribly. So, by association. You get the drift.

Bottomline, we are all in this same shitty situation together. All SaaS businesses and entrepreneurs. All of us.

So why is it so? What makes our business metrics bad?

Nir Eyal would call it the philosophy behind habit forming products.

Psychology would agree with him. According to some studies:

It can take anywhere from 18 to 254 days for a person to form a new habit and an average of 66 days for a new behavior to become automatic.

When was the last time you stuck with something for 66 days?

As we all know, consumers are impatient, and always looking for instant gratification. As they should. Sure, there are outlier examples, but most of the times, irrespective of how much value you think your product adds to your customers’ life, unless you are able to make that value seem apparent and absolutely outshine, your target audience is disinterested in your product.

That is why we see such a huge dip at each stage. Out of all the visitors to our blogs and websites, only a very small percentage of them sign up for the newsletter, or the product (even if you are offering a no-credit-card-required free trial). Out of those that do, a small percentage actually take the time out to go through the product, see what it is capable of, explore the value it adds to their lives and workflows. And out of all those who do explore the product, a small percentage of them would come back to use it more often. And out of those who do, and end up paying for the product to use it on a continual basis, not all of them stick around to continue using it. Leaks. There are leaks everywhere.

So, how does it affect your business?

Enough with the bad news and the gloomy picture. The good news is, as I said before, you are not alone in this scenario. It is fairly normal.

You probably already know of Convertkit. They have a monthly organic traffic of almost 125k, and do almost $2.4 million in monthly revenue. This is how Semrush shows their performance.

business metrics 1

Now, if you look at how this traffic is translating to revenue for them, this is what you get at:

business metrics 2

Now, Convertkit is a relatively well known email marketing platform, as is quite apparent from their revenue numbers, so they have a fairly decent trial → customer conversion rate. Most SaaS products, however would be slightly below that mark - even with a great product.

What’s noteworthy here though is how many new customers Convertkit acquired during the month vs how many cancellations it had.

As I said, bad metrics are fairly normal. They do affect your business, but it all part of the game you decided to get into. And that is not to say you should be outright dismissive about poor engagement rates or retention when it comes to your SaaS product. Of course you want to keep it on the up and up, but to prevent from drowning yourself in a sea of misery and dejection, it helps to know what the ground reality is, and what most companies are seeing in the market.

If you are so inclined, numbers for more open startups can be found at: https://baremetrics.com/open-startups

So, let us talk about some of these topics. What it is, why is it so, and what would that mean for your business.

What would it mean for “your” business

That “what would that mean for your business” was an important part.

Different businesses behave differently. Different customers behave differently. Customers have different expectations and different experiences with different products.

Just look at the example of Convertkit again. It is an email marketing product. So, there is a possibility of delivering instant gratification for my users as soon as they sign up for the product. The more they use the product, the more likely they are to see the value in it, and the more likely they are to stick around.

Suffice to say, you must not draw one-on-one comparisons with the intent to establish a performance baseline for your business. The focus, instead, should be on understanding the underlying issues and causes behind a particular behavior, and then extrapolate that understanding to apply in context of your business, product and customers.

So, let’s get going.

Low conversion rates. How low? Depends on the kind of page.

At Benne Analytics, we treat the traffic to our blog differently from the traffic to our main website, and we treat both of them differently from the traffic to our landing pages.

Why? Because they will all have extremely different conversion rates. If I were to club all of them together, the blended signup rate would be dependent on which of these three buckets I am getting most traffic on.

Ideally, you optimise your landing pages to cater to specific niche, precise usecases, and a certain type of consumers. As a result, the conversion rates would be higher. You would be generating more leads, driving more signups etc.

Your main website or your homepage. It would always be playing catch up to the performance of your landing pages, but it can be close - depending on how well your marketing initiatives are going, how wide a net you are able to cast in the relevant circles, and how well presented your website is. Still. Since people coming onto your website have some sense of what your product does, a decent percentage of them would be inclined to sign up. The reason is simple. All the people who would be landing on your website have at least some purchase intent, howsoever low. They are curious about the product and the solution, and they want to know more details about it.

And then, there is your blog. Blogs tend to have a relatively lower conversion rates when it comes to them driving signups for your product, or even subscribing for blog updates. Much lower than what you would expect out of your website, and even lower than what you would have on your landing pages.

When it comes to your blog, you are planning for a future where traffic primarily comes in via search, and due to your SEO efforts. Let us assume a visitor landed on an article on Benne Analytics blog (i.e. here) from Google. They were looking for “How to use Quora as a marketing channel”, and they landed on this story I wrote a few days ago.

Motivation. We need to understand the motivation of this visitor to the page he has landed on. It is quite crucial. Anyone coming to a piece of content on the blog via search engine is primarily interested in the actual content. They are looking for the answer to their search queries. The product that I have, Benne Analytics, is of little importance to them.

Naturally, the conversion rate in this case would be on the lower side. The visitor would simply consume the content and forget signing up for the content, he may not even be interested in checking out additional content on the website.

Depending on his motivations, intent and stage of the discovery/research phase he is at, you may find him engaging with other content. But as far as the primary motivation of this segment of users, and therefore this section of our web presence (the blog) goes, it starts and ends with finding answer to the query the journey began with.

Can you do something here to improve the conversion rate? Sure. You can hide your content behind a registration wall (something similar to how paywall blocks premium content for free users). And you would not be the first one to do so. Countless publications follow this practice. Even platforms like Medium and Quora used to follow this practice. They would show partial content, but to unlock the full content, you would have needed to register. But there is a cost to it.

What you need to understand is that with every additional roadblock you put up, you would end up losing your audience to leaks. Not to mention you are hiding your content behind registration walls at the expense of user experience. As I mentioned, Medium and Quora used to do this as well. They have since discontinued this practice. Oh, and hiding your content behind a wall will also impact how Google favors your content. So, all in all, it is indeed a double edged sword. One that I would not recommend putting into practice.

There is a perfect example of searchable content yielding bad conversion rates. One you would be able to relate to much better if you are a developer. You would have had countless experiences with websites like stackoverflow and stackexchange. How long had you been consuming their content for before you decided to sign on to the platform. It is exactly that behavior with the content on the blog for your SaaS product as well.

The ratio of users actually signing up to users who would use your blog to find answers to their questions is always going to be extremely low.

Bottom line? If you are looking at signups and registrations as a measure of success, you would end up feeling disappointed. Other examples of businesses where you can expect similar trend holding true would be websites like Hubspot, Buffer. If you look at their blogs, it is not difficult to come to the conclusion that they would be getting quite a lot of traffic from organic searches. But very little of this traffic would be ultimately translating to paying customers, or even signed up users.

It becomes important for us to look at it objectively instead of blindly assuming conversion rates as the yardstick to measure success equally across all channels. You need to look at it in the context of user intent.

On any given day, a significant percentage of your users would be inactive

No matter how much we would want to, our users are not going to engage with our platform on a day-to-day basis. And most users would come onto your platform with more and more timelags between subsequent visits or usage.

SaaS products that are able to crack this code, and make their users use their product more frequently witness a high level of user engagement and enjoy good user retention. As Nir Eyal would note in his book Hooked, the more the user is engaged with the platform, the easier it would get for you to retain them.

The trend that you would find with your product as you map out the users’ product usage with time since sign up is that a bulk of your free users would either churn out within the first few weeks of signing up for the product, or are active only a few days every month. This behavior is exceedingly prominent in early days of a user engaging with your product.

You can improve this performance for the users’ early days by deploying a great onboarding experience. This includes engaging with your newly signed up users via emails, on his dashboard as well as guides and tutorials to guide them through the product on how to get the most value out of it.

This is an industry wide trend, and expecting anything different would be simply unrealistic. If you were to plot product usage against time since user signed up for any SaaS product out there, you would find a sharp and steep decline in the early days and then the graph eventually stabilising at a low percentage figure of the overall userbase.

Essentially you are going to lose a bulk of your users in the process while you wait for the graph to stabilize. The only thing SaaS businesses can do here is to reduce the percentage of users they would invariably lose during this process. And that is where an effective onboarding experience becomes critical.

Not all businesses should expect a high level of engagement

Having an engaged userbase is not always feasible, and depends quite a lot on the nature of your product.

For example, if you are a social media management tool, or any similar product like buffer wherein you allow users to use the product to post to their social media handles, you can enable and facilitate frequent usage.

However. If you are a product like Convertkit, you shouldn’t expect your users to engage with your product on a frequent basis. After all you cannot expect them to send emails to their base every single day. They would send a campaign today, and then maybe the next one after a few days, or even a week. If they actually set up automation rules to send emails, then they may not check out your platform for weeks at a time.

On the other hand, a social media management product, as we saw earlier, can very well empower the users to a stage where they engage with it multiple times a day.

Most of the users would be using your product in isolation

Multiple researches have found that the more users use the product in collaboration with each other, the more likely they are to stick around. This is why SaaS businesses that offer team plans (with multiple seats) see the most retention from those plans, and as a result eventually move to such plans. Take the example of Qwilr. They started with focusing on independent contractors, but have since then completely phased it out. Now their pricing page just showcases team plans.

business metrics 3

And yet, for most SaaS businesses, specially in early stages, you would primarily be used by individuals in isolation, not collaboration.

Take the example of our product itself. We eventually expect teams to start using our product to streamline, monitor and improve their marketing initiatives, but to begin with we are not sure if that would always be the case. And if the primary user isn’t going to use multiple stakeholders to the dashboards of their websites, then it doesn’t make sense to give the impression of the product charging for multiple users. So, our entry plans are for single users only helping our customers get the most out of the product without inflating their monthly tab.

The same logic can be extended to your referral programs as well. Not every user would be referring your products to his network irrespective of what the benefits on offer might be. This is a primary reason why referral programs don’t work because we often assume that just because a referral program exists a user is going to end up making use of it. A delighted customer may recommend your SaaS product to his network, even without incentives and bonuses. Someone who is indifferent would remain indifferent.

Wrappin’ up

The point today was to help you think more objectively when you are formulating strategies for your SaaS product. To help you choose the right business metrics to look at, have realistic expectations out of them, and put them in the right context. But as I mentioned early on, don’t fall into the trap of justifying weak performance or mediocre performance. Be realistic, but cautious as well as ambitious.

There is a lot of factors at play at any time, and on any front. So, you need to persevere, and put your best foot forward. At scale, improving performance by even a single percentage point can add a lot to your bottom line, and while you work on scaling your business, it is important not to get pulled down by sucky business metrics.

What business metrics do you look at when analysing performance of your SaaS business? What context do you present the data in? I would love to chat more about it, drop me a line.

That’s it for today, see you tomorrow.

Cheers,

Abhishek

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