SAAS is no more a buzz word and has progressed to be the mainstream way of selling software, it is growing by leaps and bounds and progressing towards being de facto way of selling software. SAAS offers lucrative and predictive revenue model to the vendors
and at the same time eases the capex pressure on customers paving a way for win-win situation and hence the tremendous growth and potential. Handling the kind of growth, revenue offered by SAAS and there by scaling the company requires careful and actionable
insights from performance metrics. There are innumerable number of metrics which are tracked by SAAS vendors but is there a way those metrics can be of use for Customers to select a SAAS vendor? It’s not about the SAAS selection criteria but it’s about making
sense out of SAAS metrics tracked by SAAS vendor from customer's perspective.
Not all, but there are few metrics from the whole lot which are relevant to potential customers and can help them to evaluate SAAS vendors. Best part is that these metrics are driven by real data unlike most of the evaluation criteria and hence they can
be real differentiators in decision making. Sales and Marketing are well versed in playing to the typical evaluation criteria but can’t play around with Metrics because it would be shooting oneself in their own feet.
ARR, MRR and different variants of MRR, ARPU / ARPA, Customer Lifetime value ( CLV) , Customer Acquisition Value (CAV), Customer Churn rate, Customer Retention Rate ( CRR ) , Lead Velocity Rate, Active Users, Net Promoter Score ( NPS ) , Net Revenue Retention,
renewal rate, average resolution rate , activation rate, First contact resolution etc and the list goes on . These are the metrics which SAAS vendors track day in and day out to measure their performance and base their future growth plans on. Out of all these,
following 5 metrics do make sense to potential customers and also will help them to decide on betting their future with SAAS.
Customer Retention rate is one of the key metrics looked at by the SAAS Vendors and is an important input to committed revenue. Existing customers are retained beyond a term only if they are happy with the product / solution and importantly service.
This metric will aid the SAAS vendors from assured revenue, but it gives an important insight on how the existing customers are being taken care and hence can be used by potential customers as an important metric to see themselves down the line. SAAS Vendors
focus is more on acquiring new customers as the model is based on volumes and hence typically they end up reducing focus on existing customers and CRR stays the same. Higher the CRR, happier the customers will be in the hands of that SAAS vendor.
Typically, SAAS Vendors focus on Churn rate which is quite opposite to CRR. It is around the number of customers leaving the company whereas CRR focusses on number of customers retained. Companies focussing equally on CRR besides Churn should be the choice
Pricing elasticity (Expansion / Contraction Revenue):
SAAS Deals are done on subscription basis but, are the customers paying the same fee throughout the term? If they do, then it signals the fact that once the product is sold there is no value add happening which would increase the subscription fee. Also,
the solution is not being optimised or the benefits of optimisation are not being passed on to customers and not only that, but pricing is not being tailored on usage. SAAS Vendor which has pricing elasticity will have considerable expansion and contraction
revenue and of course vendors will strive to ensure expansion revenue beats contraction revenue which means there is a lot happening on value addition to the product and ultimately it’s a good sign for customers.
Customers should look at Expansion and contraction revenues of vendors which will give them insight on both continuous Value addition to the product and tailored pricing based on usage over a period of time.
Services Revenue is one metric SAAS Vendors track, and they always shy away from it, it being low margin and high maintenance business. How much ever they shy away from, it is in reality that irrespective of the product maturity, services are required to
implement and maintain the product for the customers in one or other form. Approx. 60% of the requirements of all the customer might be same but there is always a bit of customisation required for rest of 40% of requirements which mandate for services. The
extent of services might vary but having decent portion of services revenue shows long term commitment of the vendor to customers and it also indirectly signifies that new features are being added to the product.
Most of the times SAAS vendors tend to have partners execute services but still services would be required from vendors to help partners and customers and more so in case of rapid evolving of the product.
Hence Services revenue is an important metric that customer should look at and look in detail to ensure smoother journey after subscription.
First contact resolution (FCR)
First contact resolution measures the percentage of customer requests or queries solved upon first contact itself. This Metric is important from SAAS vendor's perspective as it directly measures the efficiency of the customer support team but at the same
time it indicates customers satisfaction. Resolving customer issues is one level of customer satisfaction which the vendor is bound to do anyway but if they can resolve in first contact, it differentiates them in terms of the services and support offered to
customer. In fact, at times resolving customer queries in multiple iterations frustrates the customer and adversely affects customer satisfaction though the queries are resolved. Hence FCR denotes true customer satisfaction and can be looked at by potential
customers during evaluation.
This is a metric that I recommended as a concept (Please refer to https://techsnipes.blogspot.com/2021/05/saas-valency-sustain-beyond.html). SAAS
- Valency is the ability of the product to integrate and more importantly cross pollinate with other adjacent products with an objective to maximize coverage of services within its own market space. Adjacent products can be along the dimensions of either line
of Engagement/ Line of processing / Line of Services.
It’s imperative from a customer's perspective that the Software they are going to subscribe is not going to be out of market soon but evolves and leverages future developments in the market. It reduces the risk of being outdated and getting into a cyclic
process of procuring new software and then followed by new complexities of integrating for the customers. If SAAS Software has high SAAS-Valency, it indicates the strength of product being future proof, as new product and technologies evolve which must be
integrated to thrive in the market. Looking at SAAS-Valency helps customers evaluate the software from a futuristic perspective.
Above 5 Metrics add lot of value during evaluation of SAAS software and being driven by data they are most reliable, unlike the sales and marketing pitch created by vendors which naturally comes with a bit of hype. All the available and proposed metrics
make sense, but these 5 metrics in particular are pivotal and help the customers to narrow down on SAAS vendors with confidence.