Slack & Metrics

Hey there,

Today I'll go through why you might be tracking the wrong SaaS metrics, and how they can make or break your business. 📈

So a friend's friend who runs a SaaS startup was frustrated because despite having a great product and a steady stream of users signing up, his business wasn’t growing as fast as he’d hoped.

We started talking about details and soon realized that they were focusing too much on user acquisition and not enough on things like user engagement, and the cost of acquiring those users vs their long-term spending and retention.

They are generally doing good things when it comes to acquiring new users, but they are not (well “were” not at this point) tracking the right metrics.

Not to say user acquisition is not important.

But sustainable growth (in my experience) won’t come from simply “outrunning” churn for a while.

This got me thinking about how easy it is to get caught up in the hustle of running a business and lose sight of the metrics that truly matter.

In the world of SaaS, understanding your key metrics is not just important, it’s essential. It’s the difference between running a profitable business and burning through your cash reserves.

Now let’s see how that translates to metrics in general 🏄🏻‍♂️

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Topic Of Today

• The Power of SaaS Metrics 📊

• A breakdown for different business stages 🪜

• The Story of Slack: A SaaS Success Story 🚀

• How to Monitor Your Metrics with a Financial Marketing Template 📝

Mastering SaaS Metrics for Sustainable Growth 📈

In the SaaS universe, metrics are the guiding stars.

They illuminate the path to sustainable growth and profitability. While metrics like Customer Acquisition Cost (CAC), Lifetime Value (LTV), and Churn Rate are fundamental, they are just the tip of the iceberg.

To truly navigate the SaaS landscape, we need to delve deeper.

CAC, the cost to acquire a new customer, and LTV, the total revenue you can expect from a customer, are two sides of the same coin. An often-stated golden rule is that LTV should be at least three times the CAC for a business to be sustainable.

But, it's not just about having a high LTV and a low CAC.

The time it takes to recover CAC (CAC Payback Period) is equally crucial. If it takes too long to recover your CAC, you may run into cash flow problems, even if your LTV is significantly higher than your CAC.

Churn Rate, the percentage of customers who stop using your product, is a well-known & critical health indicator. Yet, focusing solely on outrunning your churn by acquiring new customers is like trying to fill a leaky bucket. It's not a sustainable growth model.

Instead, businesses should focus on improving customer retention and reducing churn.
Winning new customers is always good news. But if your current customers are turning away at a not significantly lower rate, you are only temporarily avoiding the inevitable.

This is where engagement metrics like Daily Active Users (DAU) and Monthly Active Users (MAU) come into play. High DAU/MAU ratios indicate that customers are finding value in your product, which can lead to lower churn rates.

However, in my experience, these metrics alone don't always paint the full picture.

What metrics you choose to focus on also depend on the stage of your business.

While Net Promoter Score (NPS) which measures customer happiness & loyalty may not always paint an accurate picture, talking to your customers and understanding how they feel about your solution at different stages is definitely of high value.

Expansion MRR (=MRR from Upsells + MRR from Cross-sells + MRR from Upgrades), which tracks additional revenue from existing customers is also an indicative metric to measure customer satisfaction. A high NPS and a growing expansion MRR are signs of satisfied customers and successful upselling and cross-selling strategies.

Also, metrics should not be viewed in isolation.

The interplay between different metrics often tells a more compelling story.
For instance, a low churn rate coupled with a high DAU/MAU ratio and a growing expansion MRR could indicate a highly engaged customer base that's ripe for upselling and cross-selling opportunities.

In essence, mastering SaaS metrics is partly about understanding the nuances and interrelations between different metrics and partly about understanding when to track what..

It's about looking beyond the surface and using these insights to build a sustainable growth model. It's not just about acquiring new customers; it's about keeping them engaged, satisfied, and eager for more.

A potential breakdown of each stage could be:

Early Stage (Product-Market Fit)

At this stage, the focus is on validating the product and finding a market that truly needs it.

Key metrics include:

• Active Users (DAU/MAU): These metrics help you understand if users are finding value in your product and using it regularly.

• Customer Feedback/NPS: Early on, qualitative feedback can be as valuable as quantitative metrics. NPS can help gauge customer satisfaction and loyalty.

• Churn Rate: Even in the early stages, it's important to monitor churn. High churn could indicate a mismatch between your product and market needs.

Growth Stage (Scaling)

Once product-market fit is achieved, the focus shifts to growth.

Key metrics include:

• Customer Acquisition Cost (CAC): As you scale, it's crucial to understand how much it costs to acquire a new customer. This helps in budgeting and forecasting.

• Lifetime Value (LTV): Understanding LTV helps ensure you're spending the right amount to acquire and retain customers.

• LTV:CAC Ratio: This ratio helps you understand the relationship between the value of a customer and the cost to acquire them. A ratio of 3:1 is often cited as a benchmark.

• MRR Growth Rate: This measures the month-over-month growth in MRR. It's a key indicator of the health and momentum of a SaaS business.

Maturity Stage (Optimisation)

At this stage, the focus is on optimizing for profitability and sustainability.

Key metrics include:

• Expansion MRR: This metric helps you understand how much additional revenue you're generating from existing customers through upselling, cross-selling, and upgrades.

• Net Revenue Retention (NRR): NRR takes into account both churn and expansion MRR. A NRR over 100% indicates that revenue from existing customers is growing even if some customers churn.

• Profitability Metrics (Net Profit Margin, Gross Profit Margin): At this stage, turning a profit becomes increasingly important. These metrics help you understand if your revenue is outpacing your costs.

The Story of Slack: A SaaS Success Story 🚀

Slack, the team collaboration software, is a shining example of a SaaS company that effectively used key metrics to drive growth.

Instead of spending heavily on traditional marketing channels, Slack focused on creating a product that users loved and would naturally recommend to others.

This strategy led to a low CAC.

By encouraging word-of-mouth marketing and virality, Slack was able to acquire customers at a much lower cost than if they had relied solely on paid marketing channels. This then allowed them to scale rapidly without burning through their cash reserves.

But Slack didn't just focus on acquiring new customers.

They also focused on increasing their LTV by creating a product that users would stick with for a long time. They continually added new features and improved usability, which kept users engaged and reduced churn.

When Stewart Butterfield, the CEO of Slack, launched the communication platform, they implemented a freemium model. Instead of focusing on the usual metrics such as MRR, they centred their attention on Daily Active Users (DAU) and the ratio of DAU to Monthly Active Users (MAU).

The strategy was to provide so much value that users would log in daily, and it worked. Slack had a DAU of 500,000 within a year, which skyrocketed to 10 million DAUs within five years. This focus on user engagement metrics over traditional revenue metrics was pivotal to their success.

By focusing on user engagement metrics (such as DAU and the DAU to MAU ratio) in the beginning, Slack was able to drive its freemium model's success.

It's an excellent example of how understanding the right metrics can lead to informed marketing decisions that directly impact the bottom-line revenue.

This combination of a low CAC, a high LTV, and a focus on user engagement metrics led to exponential growth for Slack.

It's a testament to the power of understanding and optimising key SaaS metrics.

How to Monitor Your Metrics with Our Financial Marketing Template 📝

So, you understand the importance of SaaS metrics, and you've seen how they can impact your business.

But how do you actually track these metrics?

That's where our financial marketing template comes in.

We designed this tool to help you monitor your key SaaS metrics, from CAC and LTV to Churn Rate and beyond.

The template is easy to use and can be customised to fit your business's needs.

It provides a clear overview of your metrics, allowing you to see at a glance how your business is performing.

By using this template, you can keep a close eye on your metrics and make value-driven decisions that can boost your bottom-line revenue.

A template like this is a must-have tool for any SaaS business looking to grow and succeed.

It does not have to be our template, but understanding and monitoring your SaaS metrics is crucial if you are planning for the long term.

By focusing on the right metrics, you can make informed decisions that can lead to cost savings, increased profitability, and sustainable growth.
That’s it for today…

P.S.: If you are interested in the template, the first 20 people reaching out either by replying here or through LinkedIn will receive a link with 50% off.

That’s it for today…

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Happy learning! ❤️

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2. Cialdini's 6+1 persuasion techniques in practice
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3. Scaling an email list from 0 to 500k
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