KPI ( key performance indicator ) is a value that demonstrates company’s performance and success at reaching key business objectives and long-term goals. In other words, numbers that show how well perform your business, specific products and features. For example month over month revenue growth or landing page conversion rate.
SaaS KPIs examples.
Monthly Recurring Revenue ( MRR )
MRR measures the revenue a company generates from subscription accounts on a monthly basis.
Net Promoter Score ( NPS )
NPS measure customers willingness to promote a product to friends via direct messages, social media or as advice.
Net Burn Rate
It measures how quickly a startup is using up its venture capital, considering the revenue the business is generating.
Customer Lifetime Value ( CLV )
CLV measures the gross profit generated from a customer over the entire time they use a product.
Customer Acquisition Cost ( CAC )
CAC measures the company costs of acquiring new customers.
Customer Retention Rate ( CRR )
Measures the rate at which a SaaS companies holds on to its customers.
Not every metrics is a KPI.
The word “Key” is crucial here. We do not want to measure something that isn’t necessary for achieving our current business goals.
Each company has its own performance indicators. Moreover, each company team may have different metrics and measurements. For example, product team may work on onboarding optimisation and conversion rates while marketing team is trying to improve cost per acquisition. For the product team, cost-effectiveness is not a key performance indicator. The marketing team is not interested in measuring a particular feature usage.
Company KPIs will usually change from time to time, from stage to stage. For example, for early-stage SaaS startups, week-over-week ( WoW ) growth rates are more important than month-over-month ( MoM ) growth rates. However, for round A startup, measuring WoW is less important. Round D and public company will put more attention on YoY ( year-over-year ) growth rates.
Most teams concentrate their attention on 3 to 5 KPIs and review them continuously.
How to define a KPI.
Defining a KPI can be tricky business. The problem is that there are thousands of KPIs to choose from and companies find it hard to pick the right ones. That is why many managers collect and report a vast amount of everything that is easy to measure or have little or no KPIs to understand their performance levels.
When we are working on defining KPIs, we should ask ourselves a couple of questions — what are our current and long-term goals, what is the success, how can we measure progress to the success point. The progress metrics are usually the KPIs.
SMART goals are very helpful for setting effective KPIs. The letters are typically taken to stand for specific, measurable, attainable, relevant, time-bound. In other words:
- Is your objective Specific?
- Can you Measure progress towards that goal?
- Is the goal realistically Attainable?
- How Relevant is the goal to your organisation?
- What is the Time-frame for achieving this goal?
You can read more about SMART goals in my post Smart Product Management.
Let’s take for example a landing page for a new product. The goal of that landing page is to collect emails of potential customers.
What should we measure? The amount of collected emails? Nope. Our business goal is to collect as much as we can. We should measure the performance of the landing page. How many people visited the page and what is the registration ( conversion ) rate. Did it increase after a particular design change or some marketing activities?
We have to remember that KPIs are only as valuable and helpful as we make them. They require time and effort. Defining a KPI can be tricky, but crucial for teams to achieve both short-term and long-term business goals.