The world of product management is rapidly changing. It is more data-driven than ever before. There is no doubt that data is impacting most jobs. But this is amplified for product managers, especially if they work for an emerging software company. Being a PM at an early-stage company has never been more challenging.
But if you get the role and product right, it is the best job on earth.
So, how do you help your software offering stand out in a crowded market? It's actually straightforward when you think about it. You need a strategy that combines a specific vision with the quantifiable metrics to measure your progress. To be successful, you must know where you are going, and if you are getting closer or have arrived.
Metric-driven goals are fundamental to building great products. As the CEO of Aha! I have made it a high priority for our whole team to have them and track them. You can only improve what you measure. We have been fortunate to set up the right metrics for our business and outpace them every quarter.
But this growth did not happen by accident. We look at how our business is doing against our goals each week and measure how well we are responding to our customers every day. We also speak with hundreds of product managers and teams each week about their own strategies and roadmaps. This gives us a sense for how leading teams measure their own progress.
So, now we know that every business needs a vision and clear goals. But how do you know which metrics you should be tracking? Which ones are right for your unique business?
There are hundreds of different metrics that product managers could potentially measure. But all successful teams have a core set of metrics that matter most to them and the nature of their business.
While every business is different, here are some metrics that we believe are important for SaaS companies and product managers to track. We measure them at Aha! and see huge gains from doing so. This list focuses on essentials and is split into three core areas: marketing, customer success, and business operations.
Monthly unique visits are the number of unique individuals visiting your website each month. So, one person visiting the site multiple times will be counted as one unique visitor as long as they use the same device to visit the site each time. Monthly unique visits (UVs) is a standard benchmark for marketing teams. Since this data is readily accessible from third-party websites, it is commonly used for competitive analysis.
Customer acquisition cost (CAC)
Customer acquisition cost, or CAC, is the estimated cost of gaining each new customer. For example, if you spend $1,000 on a campaign which directly results in 10 new customers, the CAC will be $100 per customer. Use this and the annual contract value and customer lifetime value to understand if your customer acquisition model is profitable and sustainable.
Understanding how much it costs you to acquire new customers is key to scaling a SaaS business profitably. You can also gain a holistic picture of your marketing channels by segmenting CAC by source (organic, paid, email, social).
Organic traffic vs. paid traffic
Organic traffic is a measure of how many people find your website via an unpaid organic search, while paid traffic is how many people are visiting your site from a paid source such as an ad. Measuring traffic by both organic and paid channels is essential to understanding where and how your business is growing. It will also allow you to make better decisions on which marketing campaigns are most valuable.
The conversion rate to customer is the percentage of potential customers who started a trial and end up converting to paid customers. It is most commonly measured by taking the number of leads or trials (depending on your model) in a given month and dividing by the total number of new customers added during that same month.
Your conversion rate is a benchmark for how good a job you are doing at turning prospects into buyers. By increasing your conversion rate to customer even a small amount, you can quickly increase your customers and revenue.
Number of support tickets created
The number of support tickets created is a measure of how many customers are requesting help. An increase can be an indicator of more users or could point to an even deeper usability problem. With this data, the team can work to improve self-service options or may choose to add more team members when heavier volume is expected.
First response time
First response time is an average measure of how long it takes for customer support to respond to a customer or act on a support ticket. For example, if a support request was sent by a customer at 7 a.m. and they received a response by 8 a.m., the first response time for that interaction would be one hour for that day for that customer.
By tracking this metric each day and week, you can easily see areas for improvement and the times when help is most often needed. The first response time is critical to keeping customers happy and engaged with the product.
Time to close support ticket
The time to close a support ticket is a measure of how long it takes for the support team to completely resolve an issue. This is different than first response time and shows a more holistic perspective on customer satisfaction. No matter how quickly you respond to the original request, the "ticket" or request will not be closed until the problem has been completely resolved and the customer is satisfied.
Churn is a measure of what was lost during a given period in terms of customers, dollars, etc. It's important to understand that no matter how good your software is, some customers will naturally cancel each month. So, planning for a healthy amount of cancellations is not a bad thing.
The most simple view of monthly customer churn is calculated by dividing the number of customers lost in a month by the prior month total. While it is good to know customer churn, in software companies it is even more important to know the revenue lost through churn each month. Over time, you can work to reduce not only the number of customers who cancel, but also the revenue associated with those lost customers.
Active users are the number of people actively using the product. This is another common benchmark used to determine the growth and relative size of a software company's customer base. Active users usually do not include past users who have cancelled and are no longer active.
New monthly recurring revenue (MRR)
New MRR is the new monthly recurring revenue added in a given month. New MRR only refers to brand-new customers and does not include expansion revenue or upgrades to existing customer accounts. It is a great way to track new revenue growth on a consistent basis over time, as well as measure the amount and size of new customers that are added each month.
Add-on monthly recurring revenue (MRR)
Add-on MRR is a measure of new monthly recurring revenue attributed to add-ons from existing customers. This could be additional product purchases or additional users added to an account. A healthy software company should be adding new customers each month and expanding relationships with existing customers at the same time. In many cases, add-on MRR is a better indicator of how useful your product is to your customer base. It is a very good sign if they are increasing their investment with you each month.
Total new monthly recurring revenue (MRR)
Total new MRR is the total monthly recurring revenue, or the total of recurring revenue at the end of a given month. Total new MRR is different from new MRR because it includes add-on and churn (cancelled customers). The most simple calculation to use is (Total new MRR = New MRR + Add-on MRR - Churn MRR).
Measuring total new MRR allows you to roll up every aspect of your customer base from a financial standpoint into a single number that measures net change in revenue. For example, if you see a very high new MRR but a very low total new MRR, it means you are likely losing as many customers as you are adding each month. By adding your total new MRR to your existing MRR, you can easily calculate your total annual revenue (see next metric).
Total annual recurring revenue (ARR)
Total ARR or annual recurring revenue is your monthly recurring revenue (MRR) x 12. It is the annual value of recurring revenue from all customers, excluding one-time fees and other variable fees.
Annual contract value (ACV)
Annual contract value is the value of a customer over a 12-month period determined by their billing plan. Your ACV is important when determining the type of customers you are converting (segmentation) as well as the ROI of your sales & marketing investments. Ideally, you would like your ACV to be more than four times the average cost to acquire that customer.
Paying $4,000 to acquire and sign up a single new customer might sound like a lot, but would be a wise investment for a company whose ACV is greater than $16,000. That means you would make your money back in the first quarter, assuming your average customer does not churn in that time period.
Lifetime value (LTV)
Lifetime value is the estimated net revenue from the customer over the life of the relationship. You determine the LTV by understanding the average revenue per month and multiplying it by the average lifetime of a customer in months.
These are the core metrics that we track regularly at Aha! There are hundreds of possible data points to capture and study, but we do our best to match the data that brings the greatest insights to the organization with what is needed to continue to rapidly and efficiently grow.
Metrics are a necessary part of business. Once you get comfortable understanding and applying quantifiable metrics that matter most for your business, you will be better able to spot trends, make decisions, and look ahead with more confidence.
Welcome to life as a data-driven product manager.
Did we miss anything for a rapidly growing SaaS business? What metrics matter most to you?