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

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

During Flowtown’s peak, I had TWELVE people reporting to me.

That was on top of my own workload that I was responsible for delivering on.

Talk about overwhelm.

I was literally inundating myself with reports/metrics/managers that didn’t necessarily serve the growth of the company.

Rule of thumb:

If you need your hands and toes to list all the people reporting to you, you’re doing it wrong.

When working with my clients inside SaaS Academy, I recommend that a founder has no more than 7 people reporting to them.

That’s it.

This helps prevent “metric shock” while still giving you instant visibility on the metrics that are vital for your growth — and holding the right people accountable to generate those outcomes.

In this week’s video, I lay out the 6 Core Business functions you need to have someone reporting on — as well as the key metrics that they need to obsess over.

Exclusive Download: The Weekly Sync™ – Run Your Weekly Team Meetings Following This Structure Easy, Fast & Productive

At a high level, the core functions you need to have someone reporting on are:

  1. Product
  2. Engineering
  3. Marketing
  4. Sales
  5. Customer Success
  6. Ops & Finance

Of course, these are broad categories with literally hundreds of metrics you can track for each.

But after 20 years of building, investing in, and advising SaaS companies, I believe there are only a handful of metrics that are absolutely critical for the growth of your company.

Watch this video to make sure you have a pulse on them.

What follows below is a lightly edited transcript of the video.

Dan: Hi, I’m Dan Martell technology entrepreneur investor and creator of SaaS Academy and in this video I’m going to share with you the six core functions of a SaaS business and the key metrics that you need to measure to ensure your leadership team focus in generating outcomes and be sure to stay to the end. We’re going to share with you an exclusive resource called the weekly sync, the format, the structure, 30 to 45 minute meeting you can use with your team to keep them on pace and there’s a ton of stuff in there. Celebrate the wins. I’ll share with you how to get that at the end.

Dan: as you scale your business, you’re probably running the issue where you have a bunch of people that are working, doing stuff, taking action, managing projects, but you just feel like you’re running around with your, 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. You know, I’ve been building companies now for over 20 years. I’ve been blessed to exit my last three and really when I started Flowtown and we grew really fast, we ended up raising venture capital that I had a ton of people reporting to me. Okay? And my rule now is seven’s the max. I had at one point a dozen people.

Dan: I still had my own workload to go through at a dozen people doing stuff. So what you need to do is understand that there’s core functions in your SaaS Company and key metrics that you need to hold the people that are reporting you to accountable for so that you can free up your time. Here’s how they work.

Dan: 1. Product, ideally you have somebody in your team managing your SaaS product or maybe that’s you, but regardless, you need to measure a few key areas. Number one is your North star metric. If you think about it, the only goal of product design and roadmap is to increase the value to the customer and drive the business forward. So what a North star metric is, is that one number that everybody agrees that not only captures the value created for your customers but the value created in your business. Okay, so this is for example, Airbnb’s North star metric is a bookings per night cause that means that they’re making money and their customers that are using the platform are making money.

Dan: It’s win, win, win. So North star metrics one second is activation rate. As a product manager you want to make sure people that are signing up, trialing, buying your technology are activating and deploying the software. And then three, it’s net promoter score. That’s a simple NPS is usually what it’s called. And it’s a, it’s a growth number because it tells you so much. So the simple question is how likely are you to recommend our product to a friend or colleague? One to ten one to six are detractors, nines and tens are your promoters and seven to eight are your neutrals. And there’s a mathematical equation. Figure that out. But that net promoter score should be going up as you build new features, as you improve the product, as you reduce load times, etc. And you want your product lead to own those numbers.

Dan: 2. Engineering. If you’ve got somebody designing the product, now you’ve got to give it to the engineering department to get it built.

Dan: And uh, if you’re not technical, there’s a bunch of different metrics, but the ones I’m going to recommend, one is active defects. You know, within your product, if the engineering team’s building things right, you shouldn’t have so many defects, you should have a great process for code development. Um, so that’s number one active defects. The second would be velocity. Velocity is a measurement of productivity using a point system. And you guys can debate amongst your dev team on how to do that. Trust me, I have some very nerdy friends that would argue different strategies. But the core essence is we have stories that get built, uh, which come from the product team and we’re able to build some level of velocity on a sprint cycle, usually a two week cycle. So that’s another number you’d want to make sure that it’s getting reported to you and then finally, it’s percent test coverage.

Dan: You know, if you’re not doing unit testing or other kinds of testing, you need to start and just ask yourself for these functions in our code base, what’s the percent test coverage amongst that code and that’ll let you know at a high level. Again, there’s many others. How efficient and how mature your development and your engineering team are behaving.

Dan: 3. Marketing, this is probably my favorite in any SaaS company because it’s very easy to quantify. At the end of the day, somebody should be leading marketing and they should be accountable for your few core areas. One is the number of leads they’re generating. What’s the MQL is the marketing qualified leads. To do that, they need to figure out who your core customer is and how they get in front of that customer. What’s the message, but at the end of the day, they’re driving number of new leads. The other thing you want to add on top of that is visitors.

Dan: How many unique visitors to the website? If you’re doing social media, you’re doing inbound content, you’re doing partnerships, that number should be going up. If you’re writing blog posts and it’s not moving anything, then you should have a conversation with your marketing person. And then finally, what’s the cost per acquisition? If you spend time and or money and put that together in your CAC, your cost, acquire a customer, you want to figure out for each channel, what’s your cost per acquisition, uh, from your marketing lead.

Dan: 4. Sales. If you’ve got a sales person, again, maybe you’re doing this function as well in your SaaS company. Um, you want to measure these for yourself and really just to make sure that they understand what matters most to you. So first thing is number of demos. How many demos on a weekly basis are you doing? Second is Win rate of those demos.

Dan: What percent of them end up becoming customers? So understanding the, the close ratio. Then finally, if you’re closing those customers, what’s the new MRR being added every month to the top line? So net monthly reoccurring revenue, the new MRR. And then also I want to know the, the average revenue per account. I want to know, yes, the number’s going up, but on a per account basis, um, is the average going up over time. So those are four core metrics in this case.

Dan: One number of demos.

Dan: Two your win rate.

Dan: Three the new MRR.

Dan: And then finally the average revenue per account.

Dan: 5. Customer success. If you’ve got somebody that’s accountable to grab a new account and make sure that they, I call it the first hundred days I got that from my buddy Joey called me, he’s got a great book out, go check it out.

Dan: But to me it’s really mapping out that experience and ensuring that those new customers get activated and retain and obviously expanded, but to ensure that that person in customer success is doing the right things and taking action you want them to follow or you want to measure a few metrics. Number one is the time to first response. So if they’ve got some kind of support ticketing system, how fast are you to respond to inbound tickets? Cause if that gets backlogged, you know there’s going to be a horrible experience to the customer. So that’s one. Two is you want to figure out what’s the expansion MRR. So how many opportunities is your customer success team identifying? Ideally they’re doing things like QPRs or EBRs, quarterly business reviews or executive business reviews. That’s the bulk of finding opportunities, but regardless, even on a support side, they could check accounts and see if there’s opportunities to expand upsell, cross-sell etc.,

Dan: And then finally the net promoter score. Again, I think that customer success needs to own that as much as product because that’s going to tell you so much about how the customer’s experiencing or interacting with your team, which is going to affect that big number.

Dan: 6. Ops & Finance, as I mentioned, core functions in a SAS business. Finally six is kind of a catchall, it’s operations and finance. And here’s why as you obviously into the right reporting for your business and you need to make sure that somebody is taking care of the team and the pipeline and the hiring and all that fun stuff. So the first core metric for ops and finance is EMPS is the employee net promoter score, which is a different question but the same concept and it just asks, you know, how likely are you to recommend our company to friend or colleague that’s looking for a job?

Dan: You want to make sure that your, somebody’s got a pulse on your team and to know that they’re good. Cause at the end of the day your product isn’t being built by robots. Good people equals great product and process. And then so that’s one. The other thing is you need to implement the SaaS metrics 2.0 so David Skok, the godfather of SaaS metrics essentially designed a spreadsheet and says, here are all the metrics and kind of the funnel that you need to be monitoring within your business. You can get these for free using tools like Profitwell, Baremetrics, ChartMogul, et cetera. But you just need to have it instrumented so that the SaaS metrics 2.0 the most recent version is probably your best bet, especially for your B2B SaaS founders out there. And then finally, simple numbers. So Greg Crabtree wrote an incredible book called simple numbers that gets you understanding how businesses work.

Dan: And I know you’re like, well, I’m a venture back business and our economics are totally different. Trust me, doesn’t matter. You want to know that when you spend a dollar, it’s actually contributing to the top line. You’ve got your contribution margin, you understand how much overhead have just in the management side and are you profitable on a month to month basis even if you’re not to what degree? So you can map your run rate. So there’s the financial metrics that’s modeling, that’s a financial model, which is simple numbers. Then you have your SaaS metrics, which are high level, how the business is operating from a SaaS point of view. So that is going to help you and your ops person, your finance person, get clear on what’s important within the business.

Dan: So quick recap. One Product, Two Engineering, Three Marketing, Four Sales, Five Customer Success, and then Six Ops & Finance.

Dan: As I mentioned at the beginning, this video, I know it was a dense one, it was a big one. I hope this served the six core functions in the key metrics, but I want to share with you a resource called The Weekly Sync™. And it’s my process for sitting down with my team and reporting not only on the winds of our customers and the key projects in the rocks that we’re executing against, but the scorecard, which is comprised mostly of the metrics that I just went through. So if you want to download a copy of the weekly sync, click here to download your copy. It’s what I use to manage the heartbeat in the rhythm of my companies. If you know somebody that it can be beneficial to please share the video with them. Subscribe to my channel. I appreciate you watching. I’ll see you next week.

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