When speaking with investors and stakeholders, SaaS founders should be knowledgeable and discerning with regards to relevant metrics. Christoph Janz gave a presentation in 2013 that rings true today. He highlighted common errors made by SaaS founders.
- Confusing MRR with cash inflow (or Bookings or Sales or Revenues): MRR is the number 1 SaaS metric.
- Underestimate churn (by mixing up monthly with yearly plans): It should be (Number of Customers Who Churned) / (Number of Customers Who Could Have Churned)
- Ignore cohorts: Don't do this, create and use cohort analyses.
- Don't track each step of the conversion funnel: Need to look at funnel to understand what needs improvements.
- Mix up visitors to your marketing website with users of your software: If you don't know who is a visiting customer vs. visiting lead, you can be confused when looking at visits, sign-up rate, and sign-ups. Need to know for actionable insight.
- Show CACs on a blended basis only (mixing up paid and non-paid sources of leads): E.g. 100 customers @ $0 CAC and 20 customers @ $500 CAC means average is $83.33 but this is meaningless
- Attribute all conversions to your sales team: Find out how well your sign-ups are converting without being called by a salesperson. A/B test and calculate the ROI on your sales investments based on the conversion split.
- Assume you're growing exponentially: SaaS generally grows linearly with step functions. True exponential growth is very, very, very rare in SaaS and requires virality - something most SaaS products don't have.
- Don't start tracking KPIs until investors request it: You need them to drive decision-making and help focus the team. Investors want historic numbers, not just a snapshot.