Dan Martell - August 13, 2018


6 Core Business Functions of a SaaS Company And The Metrics To Measure

Hosted by
Dan Martell
Mentioned
Simple Numbers Greg Crabtree Joe Coleman David Skok
How To Setup Your Free Trial Email Sequence To Activate Customers How To Use Custom Audience on Facebook To Reduce Your Marketing Costs

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10 minutes

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201.38

Word count

2,056

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104

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Summary

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As you scale your business, you're probably running into the issue where you have a bunch of people that are working, doing stuff, taking action, but you just feel like you're running around like a chicken with its head cut off. Instead of being in a place where you now kind of delegate outcomes and hold your team accountable based on some metrics and some numbers, and have them report to you. That's what's possible and I'm going to show you exactly how to do it.

Transcript

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00:00:00.000 Hi there, I'm Dan Martell, technology entrepreneur,
00:00:02.200 investor, and creator of SaaS Academy.
00:00:04.040 And in this video, I'm gonna share with you the six core
00:00:06.840 functions of a SaaS business and the key metrics that you need
00:00:11.040 to measure to ensure your leadership team are focused
00:00:13.940 in generating outcomes.
00:00:14.940 And be sure to stay to the end.
00:00:16.460 We're gonna share with you an exclusive resource called the
00:00:18.360 Weekly Sync, the format, the structure of 30 to 45 minute
00:00:21.660 meeting you can use with your team to keep them on pace.
00:00:25.260 And there's a ton of stuff in there.
00:00:27.260 Celebrate the wins.
00:00:28.400 and they'll share with you how to get that at the end.
00:00:42.580 As you scale your business, you're probably running into
00:00:44.720 the issue where you have a bunch of people that are working,
00:00:47.820 doing stuff, taking action, managing projects,
00:00:50.280 but you just feel like you're running around with your,
00:00:52.700 like a chicken with its head cut off.
00:00:54.320 Instead of being in a place where you now kind of delegate
00:00:58.620 outcomes and hold your team accountable based on some metrics
00:01:01.720 and some numbers and have them report to you.
00:01:03.820 That's what's possible and I'm going to show you exactly how
00:01:06.260 to do it, you know.
00:01:07.260 I've been building companies now for over 20 years.
00:01:09.540 I've been blessed to exit my last three and really when I
00:01:12.700 started Flowtown and we grew really fast, we ended up raising
00:01:16.140 venture capital that I had a ton of people reporting to me,
00:01:19.080 okay, and my rule now is seven's the max.
00:01:22.320 I had at one point a dozen, a dozen people.
00:01:25.060 I still have my own workload to go through
00:01:27.120 and a dozen people doing stuff.
00:01:28.620 So what you need to do is understand
00:01:30.200 that there's core functions and key metrics
00:01:32.600 that you need to hold the people
00:01:34.260 that are reporting you to accountable for
00:01:36.760 so that you can free up your time.
00:01:38.500 Here's how they work.
00:01:39.780 One, product.
00:01:41.580 Ideally you have somebody in your team managing product
00:01:44.000 or maybe that's you but regardless
00:01:45.980 you need to measure a few key areas.
00:01:47.740 Number one is your North Star metric.
00:01:49.720 If you think about it, the only goal of product design and
00:01:53.720 road map is to increase the value to the customer and drive
00:01:57.420 the business forward.
00:01:58.260 So what a North Star metric is is that one number that everybody
00:02:02.300 agrees that not only captures the value created for your
00:02:04.700 customers but the value created in your business, okay?
00:02:08.540 So this is, for example, Airbnb's North Star metric is
00:02:12.640 bookings per night because that means that they're making money
00:02:15.220 and their customers that are using the platform are making
00:02:17.540 money and it's win, win, win.
00:02:18.940 So Northstar Metrics, one.
00:02:20.040 Second is activation rate.
00:02:21.640 As a product manager, you want to make sure people that are
00:02:23.380 signing up, trialing, buying your technology,
00:02:26.040 you're activating and deploying the software.
00:02:28.220 And then three, it's net promoter score.
00:02:29.960 That's a simple, NPS is usually what it's called,
00:02:32.580 and it's a growth number because it tells you so much.
00:02:35.060 The simple question is how likely are you to recommend our
00:02:38.000 product to a friend or colleague?
00:02:39.260 One to ten.
00:02:40.260 One to six are your detractors.
00:02:41.960 Nines and tens are your promoters.
00:02:43.660 And seven to eights are your neutrals. 0.79
00:02:45.860 And there's a mathematical equation to figure that out.
00:02:47.660 but that net promoter score should be going up
00:02:50.300 as you build new features, as you improve the product,
00:02:53.700 as you reduce load times, et cetera,
00:02:55.400 and you want your product lead to own those numbers.
00:02:58.900 Two, engineering.
00:03:00.500 If you've got somebody designing the product,
00:03:02.400 now you gotta give it to the engineering department
00:03:04.380 to get it built, and if you're not technical,
00:03:07.780 there's a bunch of different metrics,
00:03:09.340 but the ones I'm gonna recommend, one is active defects.
00:03:12.660 You know, within your product,
00:03:13.760 if the engineering team's building things right,
00:03:15.980 you shouldn't have so many defects,
00:03:17.360 you should have a great process for code development.
00:03:21.060 So that's number one, active defects.
00:03:23.000 The second would be velocity.
00:03:24.560 Velocity is a measurement of productivity using a point
00:03:29.140 system and you guys can debate amongst your dev team on how
00:03:31.800 to do that, trust me, I have some very nerdy friends that
00:03:34.320 would argue different strategies.
00:03:36.780 But the core essence is we have stories that get built which
00:03:40.120 come from the product team and we're able to build some level
00:03:43.780 the velocity on a sprint cycle, usually a two week cycle.
00:03:47.460 So that's another number you'd want to make sure that it's
00:03:49.420 getting reported to you.
00:03:50.520 And then finally, it's percent test coverage.
00:03:52.920 You know, if you're not doing unit testing or other kind of
00:03:54.920 testing, you need to start and just ask yourself for these
00:03:57.760 core functions in our code base, what's the percent test
00:04:01.640 coverage amongst that code?
00:04:03.340 And that'll let you know at a high level, again,
00:04:05.360 there's many others, how efficient and how mature your
00:04:10.000 development and your engineering team are behaving.
00:04:13.140 Three, marketing.
00:04:14.700 This is probably my favorite because it's very easy to
00:04:17.540 quantify.
00:04:18.540 At the end of the day, somebody should be leading marketing and
00:04:20.640 they should be accountable for your few core areas.
00:04:22.680 One is the number of leads they're generating.
00:04:25.360 What's the MQLs, the Marketing Qualified Leads?
00:04:27.960 To do that, they need to figure out who your core customer is
00:04:29.720 and how they get in front of that customer and what's the
00:04:32.160 message, but at the end of the day, they're driving number of
00:04:34.260 new leads.
00:04:35.220 The other thing you want to add on top of that is visitors.
00:04:37.440 How many unique visitors to the website?
00:04:39.260 If you're doing social media, you're doing inbound content,
00:04:41.340 you're doing partnerships, that number should be going up.
00:04:44.240 If you're writing blog posts and it's not moving anything,
00:04:46.720 then you should have a conversation
00:04:48.180 with your marketing person.
00:04:49.540 And then finally, what's the cost per acquisition?
00:04:51.780 If you spend time and or money and put that together
00:04:55.380 in your CAC, your cost to acquire a customer,
00:04:57.360 you wanna figure out for each channel
00:04:59.220 what's your cost per acquisition from your marketing lead.
00:05:03.360 For sales, if you've got a salesperson,
00:05:06.360 again, maybe you're doing this function as well,
00:05:08.840 you wanna measure these for yourself
00:05:10.400 and really just to make sure that they understand
00:05:12.240 what matters most to you.
00:05:13.740 So first thing is number of demos.
00:05:15.480 How many demos on a weekly basis are you doing?
00:05:18.500 Second is win rate.
00:05:20.100 Of those demos, what percent of them end up becoming customers?
00:05:23.580 So understanding the close ratio.
00:05:26.580 Then finally, if you're closing those customers,
00:05:28.660 what's the new MRR being added every month to the top line?
00:05:32.480 So net monthly reoccurring revenue, the new MRR.
00:05:36.200 And then also, I wanna know the average revenue per account.
00:05:39.900 I wanna know, yes, the number's going up,
00:05:41.940 but on a per account basis, is the average going up over time?
00:05:46.840 So those are four core metrics in this case.
00:05:49.040 One, number of demos, two, your win rate,
00:05:51.040 three, the new MRR, and then finally,
00:05:53.880 the average revenue per account.
00:05:56.520 Five, customer success.
00:05:58.960 If you've got somebody that's accountable
00:06:00.780 to grab a new account and make sure that they,
00:06:03.560 I call it the first 100 days.
00:06:05.020 I got that from my buddy, Joey Coleman.
00:06:06.400 He's got a great book out, go check it out.
00:06:08.220 But to me, it's really mapping out that experience and
00:06:10.980 ensuring that those new customers get activated and
00:06:14.120 retained and obviously expanded.
00:06:16.400 But to ensure that that person in customer success is doing the
00:06:19.900 right things and taking action, you want to follow or you want
00:06:22.260 to measure a few metrics.
00:06:23.660 Number one is the time to first response.
00:06:26.140 So if they've got some kind of support ticketing system, how
00:06:28.940 fast are you to respond to inbound tickets?
00:06:32.120 Because if that gets backlogged, you know there's going to be a
00:06:34.080 horrible experience to the customer.
00:06:36.180 So that's one.
00:06:37.180 Two is you want to figure out what's the expansion MRR.
00:06:40.480 So how many opportunities is your customer success team
00:06:44.180 identifying, ideally they're doing things like QBRs or EBRs,
00:06:47.860 quarterly business reviews or executive business reviews.
00:06:49.900 That's the bulk of finding opportunities.
00:06:52.460 But regardless, even on a support side,
00:06:54.060 they could check accounts and see if there's opportunities
00:06:55.940 to expand, upsell, cross-sell, et cetera.
00:06:58.700 And then finally, the net promoter score.
00:07:00.400 Again, I think that customer success needs to own that as
00:07:02.800 much as product because that's going to tell you so much about
00:07:06.880 how the customer's experiencing or interacting with your team
00:07:10.180 which is gonna affect that big number.
00:07:12.460 Six, ops and finance.
00:07:14.680 As I mentioned, core functions in a SaaS business.
00:07:17.260 Finally, six is kind of a catch-all.
00:07:18.960 It's operations and finance and here's why is you obviously
00:07:21.600 need the right reporting for your business and you need to
00:07:24.060 make sure that somebody's taking care of the team and the
00:07:27.540 pipeline and the hiring and all that fun stuff.
00:07:29.340 So the first core metric for ops and finance is ENPS.
00:07:32.940 It's the employee net promoter score which is a different
00:07:36.080 question but the same concept and it just asks, you know,
00:07:38.920 how likely are you to recommend our company to friend or
00:07:41.660 colleague that's looking for a job?
00:07:43.160 You want to make sure that your, somebody's got a pulse on
00:07:46.760 your team and to know that they're good because at the end
00:07:49.600 of the day your product isn't being built by robots.
00:07:52.660 Good people equals great product and process and then,
00:07:56.340 so that's one.
00:07:57.340 The other thing is you need to implement the SAS Metrics 2.0.
00:07:59.640 So David Skok, the godfather of SAS Metrics,
00:08:03.400 essentially designed a spreadsheet and says here are
00:08:06.500 all the metrics and kind of the funnel that you need to be
00:08:09.080 monitoring within your business.
00:08:10.740 You can get these for free using tools like ProfitWell,
00:08:14.380 Bear Metrics, ChartMogul, et cetera.
00:08:16.920 But you just need to have it instrumented.
00:08:18.620 So the SaaS Metrics 2.0, the most recent version is probably
00:08:21.620 your best bet especially for your B2B SaaS founders out
00:08:23.880 there and then finally Simple Numbers.
00:08:26.060 So Greg Crabtree wrote an incredible book called
00:08:28.900 Simple Numbers that gets you understanding how businesses
00:08:32.460 work and I know you're like, well I'm a venture-backed
00:08:34.420 business and our economics are totally different.
00:08:36.440 Trust me, doesn't matter, you wanna know that when you spend
00:08:40.340 a dollar it's actually contributing to the top line,
00:08:42.800 you've got your contribution margin,
00:08:44.500 you understand how much overhead have just in the management
00:08:46.840 side and are you profitable on a month-to-month basis even if
00:08:50.280 you're not to what degree so you can map your run rate.
00:08:52.540 So there's the financial metrics that's modeling,
00:08:55.020 that's a financial model which is simple numbers.
00:08:57.120 Then you have your SaaS metrics which are high level how the
00:08:59.720 business is operating from a SaaS point of view.
00:09:01.820 So that is gonna help you and your ops person,
00:09:05.260 your finance person get clear on what's important
00:09:07.420 within the business.
00:09:08.700 So quick recaps, one, product, two, engineering,
00:09:13.300 three, marketing, four, sales, five, customer success,
00:09:18.900 and then six, ops and finance.
00:09:21.340 As I mentioned at the beginning of this video,
00:09:22.740 I know it was a dense one, it was a big one.
00:09:24.820 I hope this served the six core functions and the key metrics,
00:09:27.940 but I wanna share with you a resource called the Weekly Sync
00:09:30.620 And it's my process for sitting down with my team and reporting
00:09:34.380 not only on the wins of our customers and the key projects
00:09:37.180 and the rocks that we're executing against but the score
00:09:39.680 card which is comprised mostly of the metrics that I just went
00:09:42.980 through. So if you want to download a copy of the Weekly
00:09:45.020 Sync, click below in the description and you can download
00:09:48.120 your copy. It's what I use to manage the heartbeat and the
00:09:51.720 rhythm of my companies. And if you like this video be sure to
00:09:54.720 click the like button. If you know somebody that it could be
00:09:57.680 beneficial to, please share the video with them.
00:10:00.020 subscribe to my channel.
00:10:01.580 I appreciate you watching and I'll see you next week.
00:10:03.660 No, I need you to like show up in my house,
00:10:06.460 grab my gear, jump in my car, and we'll go.
00:10:10.220 Because if not, my wife will let me go.