Dan Martell - August 13, 2018


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


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Length

10 minutes

Words per Minute

201.38435

Word Count

2,056

Sentence Count

104

Hate Speech Sentences

1


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Transcript

Transcript generated with Whisper (turbo).
Hate speech classifications generated with facebook/roberta-hate-speech-dynabench-r4-target .
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.
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.