B2B SaaS KPIs startups need to track in 2023
It might sound far-fetched, but launching and running a SaaS startup isn’t all that different from launching a mission to space (astrophysics aside). While we are captivated by astronauts and their heroics, the fact is, they wouldn't survive very long without the guidance provided by the scientists in Mission Control continuously analyzing thousands of data points.
It can be easy in an early-stage startup to chase the wins of big-name customers or deep-pocketed investors, but a savvy founder needs to be both the astronaut and Mission Control. The latter may not be glamorous, but understanding the story your company’s data inputs are telling you will give you a better sense of its overall health and growth trajectory.
Understanding the story your company’s data inputs are telling you will give you a better sense of its overall health and growth trajectory
For a startup founder, the data points that need monitoring at Mission Control are Key Performance Indicators (KPIs) and benchmarks. Establishing KPIs and benchmarks early in the process paints a clear picture for you and your team of what success looks like. Follow these instructions to get your startup’s KPI and benchmark tracking where it needs to be:
- Define your KPIs and benchmarks based on business goals and objectives. Please note they aren't the same thing. KPIs are measurable metrics, while benchmarks are industry averages. And don't shoot for the moon. Instead, be specific and realistic when setting them.
- Set up a system to track KPIs and benchmarks regularly and review them frequently. This will help you identify any areas in your business that are lagging and need adjustment. Analytics tools like a heads-up dashboard are invaluable in this regard.
- Ensure team members understand how they play into reaching your defined KPIs and benchmarks. Do this by establishing clear roles and responsibilities and holding regular meetings to review progress or discuss challenges.
- Adjust strategies as needed. Not meeting KPIs or benchmarks could mean your current efforts aren't working. Don't be afraid to tweak your product or service offering, revise your marketing strategy, or pivot your business model entirely.
- Celebrate the milestones. It's important to enjoy the wins indicated in KPIs that show you've made gains or surpassed industry benchmarks.
Measuring the metrics that matter to a SaaS startup
As mentioned, you want to choose your KPIs and benchmarks based on your startup’s goals and objectives. It’s also important to note that not all KPIs are made equal. High-level KPIs are the ones that demonstrate a company’s overall performance, like Return on Investment (ROI), Annual Growth, or Annual Recurring Revenue (ARR). These are the big-picture metrics. Low-level KPIs demonstrate more specific performance, often at the department or individual level.
By choosing a mix of high and low-level KPIs to track, your company will have a clear, 360-degree view of what’s working and what’s not
At first glance, you might think that focusing exclusively on high-level KPIs to the way to go. But low-level KPIs inform and provide context to your higher-level metrics. By choosing a mix of high and low-level KPIs to track, your company will have a clear, 360-degree view of what’s working and what’s not. Going too heavy on one kind of KPI will create blind spots, making it harder for you to determine how successful your efforts are at attracting new customers and retaining current ones.
The four KPI pillars of revenue growth
There are enough KPIs out there to fill a dictionary. That can be daunting for a founder who wants to select the right mix of KPIs for their early-stage business. So, let’s hone in on the one thing almost every startup struggles to overcome but has to in order to succeed: Revenue growth. Fortunately, just four KPI categories (let’s call them pillars) directly impact your startup’s ability to achieve a regular revenue stream and continued revenue growth. Regardless of your specific business goals and objectives, you’re going to want to track these:
- Sales: These KPIs describe the success of moving potential customers through the sales pipeline.
- Marketing: These KPIs show how well a company generates interest in its products, so potential customers know about them and see their value.
- Customer success: Customer-success KPIs for B2B SaaS firms detail how satisfied customers are with the product, show that it works for them and that your staff solves any challenges they may have.
- Technical: These KPIs dictate the reliable delivery of the product and how fast the development can add or refine its functionality.
Revenue Growth in the Startup SaaS Space
Before diving into each of the pillars in more detail, remember that B2B SaaS startups have different strategic needs than traditional product-based or B2C businesses. With that said, keep these principles in mind as you start to select your KPI mix:
- Recurring revenue requires specific finance metrics to react quickly to declines.
- The SaaS business model allows for fast enrollment but also high customer churn
- Scaling too quickly puts pressure on sales and marketing teams to sign on new customers.
Given what those axioms tell us, there are a handful of universally relevant KPIs that all B2B SaaS startup founders should take into account. Don’t forget to put these on your list:
- ARPC (Average Revenue Per Customer) helps the founders understand revenue generated per customer, which is crucial in determining your business model's profitability.
- CAC (Customer Acquisition Cost) measures the cost of acquiring a new customer, which determines the efficiency of your sales and marketing strategy.
- LTV (Lifetime Value) measures the total revenue you can expect a customer to generate throughout their lifetime, which helps founders understand their business's long-term profitability.
- LTV/CAC Ratio compares the value of a customer over their lifetime to the cost of acquiring them, which helps founders determine if the company's customer acquisition strategy is sustainable and profitable.
- MRR (Monthly Recurring Revenue) and ARR (Annual Recurring Revenue) are critical metrics for SaaS startups that operate on a subscription-based model.
- The number of active customers provides insight into the business's customer retention and growth.
- The customer monthly churn rate helps founders understand the rate at which customers leave the business, which is crucial in determining the business's overall health.
- ASP (Average Sale Price / Average Deal Size) helps founders understand the revenue generated per deal closed, which is critical in determining the business's overall revenue growth.
- Current Sales Forecast helps founders plan and manage resources effectively based on projected revenue.
- Adoption Rate (percentage of users that convert from POC to paying customers) helps founders understand the effectiveness of the company's product and marketing strategies.
Pillar #1: Sales KPIs
Sales is the lifeblood of your business. Without a sales organization or some method for customers to walk in the door, your business won’t survive.
Headline: Formulas to Remember
Sales = Revenue
Revenue = Ability to Keep the Business Running
Below is a set of key sales metrics that early-stage startups should track to forecast their revenue and business growth. If a business doesn’t understand its revenue stream(s), it can't build a model for company growth (e.g., new hires, product innovation, etc.). Startups should monitor the data inputs listed below on an annual, quarterly, and monthly basis. Additionally, compare these metrics to the year, quarter, and month before so you can track trends (e.g., By March of last year, the company hit $1m in revenue. The goal is 35% growth, so we expect $1.35m in revenue by March this year).
- New Contacts: The total number of new contacts entered into your CRM (i.e., Hubspot, Salesforce, etc.). This is valuable information because you can create conversion rate KPIs from them like New Contact --> Lead --> Customer. With this information, founders can determine how many New Contacts the Sales and Marketing departments need to obtain to hit new Customer goals.
- New Leads: Understanding the number of New Leads generated from New Contacts allows you to build customer throughput models. And your business should know what qualifies as a lead based on criteria you've established for your contacts (e.g., job titles, industry association, etc.).
- Meetings: To forecast revenue growth, you need to know how many leads turn into actionable meetings. The goal is to turn a Meeting into a Demo to showcase your product, moving the process further down the pipeline.
- New Deals: These get created once a qualified lead is ready to buy, and there is an opportunity to earn business. Like with New Leads, establish what criteria qualifies as an opportunity (i.e., a new deal). For example, consider requiring that the lead is BANT (Budget, Authority, Need, Timeline) qualified.
- Demos: A presentation of your product or service's value to a current or prospective customer. The primary purpose of demos is to close a deal. Here's a tip, make sure that your demos speak directly to your prospect's needs, illustrating how your product or service will fix their problems, improve processes, increase revenue, etc. Tailor it to them.
- Proof of Concept (POC): This variable's relevance depends on whether your startup’s SaaS solution is a POCable product. But in many cases, prospects will want to evaluate your solution against their needs to ensure it meets their use cases and solves the core business problems that the Demo addressed. POCs have a higher Closed Won rate than demos and, if executed correctly, should result in a sale.
- Total Deals/All Deals: This metric tracks the total number of deals in your pipeline. Compare this information to your anticipated “Closed Won” dates, so you can forecast what deals will close this Month, Quarter, and Year (and then measure against the results from previous Months, Quarters, and Years).
- Total Amount in Pipeline: Similar to the one above, this metric allows you to see the total value of all deals in your pipeline. Break this out by Month, Quarter, and Year and be prepared to compare it to the same period from the previous year to track growth progress.
- Closed Won and Closed Lost with Deal Amount: These metrics enable you to understand your total won deals and their value. Use this information to build ASP, Average Deal Cycle, Closed Won %, etc.
- Average Deal Cycle: This metric tracks how long it takes for a deal to convert into a customer. Having this information makes it easier to forecast revenue based on Total Deals in the current Month or Quarter and utilize ASP alongside Average Deal Cycle to build growth models.
Pillar #2: Marketing KPIs
Having a marketing strategy is crucial for SaaS startups to generate leads at the lowest cost possible. To that end, marketing KPIs are geared towards optimizing spend and identifying channels or mediums that provide leads at low or no cost.
- Marketing ROI helps to determine your return on investment (ROI) in marketing activities by calculating the total cost of marketing divided by the total number of opportunities generated. This KPI is important for squeezing the most revenue out of every dollar spent.
- Example: A company that receives $2 in sales for every $1 it spends will grow much slower than a company that gets $5 in sales for every dollar spent.
- Total Marketing Qualified Leads (MQLs) and Cost per Lead (CPL) evaluate the quality of leads generated by marketing campaigns and the cost incurred to acquire them. By tracking these metrics, the marketing team can identify the most effective channels for lead generation and optimize campaigns to increase lead quality and decrease CPL.
- Lead Value (by type) helps to determine each kind of lead's ROI (e.g., by trial, demo, whitepaper, webinar, etc.) and see the revenue generated from each. This KPI helps you understand the lead funnel and which strategies maximize revenue.
- Website Traffic & Growth (MoM) and Website Conversion Rate concern your website's performance, identifying opportunities for improvement and optimization for increased website conversions.
- Email Open Rate and Email Click-Through Rate (CTR) measure email campaign engagement. Which in turn helps you build more effective email campaigns in the future.
- Cost per Click (CPC) tracks paid advertising campaigns to identify which ads have the most clicks at the lowest cost.
- Social Media Reach helps identify where your customers and prospects hang out and how best to reach them with messaging.
Pillar #3: Customer Success KPIs
Retaining customers is the basis for running a successful business that lasts. Essentially, you need to keep them happy. That means you need to determine what customer success is for your business to keep those customers. After all, customers investing in and deploying a software product have different expectations from customers buying sneakers. They may all have similar general requirements—a quality product and excellent service—but beyond that, their needs will differ. Prioritize these data inputs when building out your customer success strategies.
B2B Customers investing in and deploying a software product have different expectations from B2C customers buying sneakers
- Onboarding: When customers buy your software, they expect it to be up and running on time. Whether that’s a day or a week, always set those expectations with the customer and keep to what you promise. It helps to create a simple setup process, an easy-to-access product, and accessible to use.
- Helpful Formula: Onboarded On-Time Rate = (Customers onboarded on-time) x (Total onboarded customers)
- Adoption: Customers buying your product is ideal, but that doesn't qualify as adoption. That happens when your customers actually use your software. To improve this metric, put yourself in your customer's shoes and ask yourself questions like: Is the software easy to use? Does it solve business use cases? Would I recommend the product to friends and family? Once you answer yes to these questions and can act on your customer's feedback, product adoption will come naturally.
- Customer Time to Value = How long it takes a customer to realize the value proposition of your product.
- Upsell: They say it's 60% easier to sell to an existing customer than a new one. That means consistently checking in on your current customers, taking and applying their feedback, and implementing new tools and features that solve their pain points, so they hear you out when you propose something new to them.
- Expansion Bookings = (Net new revenue booked from existing customers) – (Existing customers regular/previous revenue)
- Retention/Renewal: To keep this metric high, have multiple contact points with customers throughout the year and a product that constantly improves and solves their problem at a fair price point.
- Customer Retention Rate = (# of customers across period / Total # of customers across previous period) x 100
- Overall Satisfaction will materialize in many ways within your business, including retention numbers, case studies, references, customer surveys, etc. But one of the best ways to track overall satisfaction is by implementing Net Promoter Score (NPS). Gather NPS data at least once a year by adding one simple question to a Customer Survey.
- Net Promoter Score = (Number of Promoters — Number of Detractors) / (Number of Respondents) x 100
Pillar #4: Technical KPIs
Early-stage startups often lag in setting operational standards, which affects their ability to gather and evaluate data that indicates operational health. The goal is to create initial baselines from which you can identify issues and make improvements. Numerous KPIs apply here, but for simplicity, we’ll focus on a few general technical and process-oriented items that can be the foundation for a healthy present and future.
- Google Lighthouse Score: The rating Google gives your site based on performance, accessibility, SEO, and best practice criteria. Scores below 90 may be acceptable in certain circumstances, but try not to dip too far below that. Feel free to introduce more sophisticated metrics to track website performance once your Lighthouse score is where you want it. Also, measure the differences in desktop and mobile results and how your score changes after making structural updates to your site.
- Website Monitoring: You want to know when your website has issues before your customers do. Tracking your website's health requires monitoring and alerting tools (e.g., Pingdom, PagerDuty, New Relic, Datadog, etc.). Collect this data to know what kind of work you can realistically support, or verify the fulfillment of any existing contractual obligations.
- Qualys SSL Server Test provides a letter grade for your current SSL/TLS support level. Be sure to score an A here, and if you don't, learn how to fix any reported issues. Note that some industry standards, such as those around online payments (PCI), require TLS 1.2 or better. Read more here https://developers.cloudflare.com/ssl/edge-certificates/additional-options/minimum-tls
- Velocity — an advanced metric specific to Agile development processes—provides an objective measure of work performed per unit of time. If you’re a Scrum practitioner, aiming to measure velocity is a worthy goal. There is no “right” velocity since it depends on the specific team and technologies or products being developed. If you use a different development methodology or none, find a meaningful objective metric you can track over time. Tasks completed per unit of time, average task age, and the number of defects (i.e., bugs)—perhaps categorized by severity—can indicate the health of your product and software development process(es).
Set Mission Control Up for Success
If you made it to the end of this article, there’s a good chance your head is spinning with acronyms while you’re wondering which KPIs you need to prioritize for your SaaS startup. It's a lot of information to process, so don’t sweat it.
We know how much founders have on their plate, so to make it easier on you, we built a B2B SaaS KPIs resource for you to reference. That alone should help you start to define the metrics of success your startup should track. And don’t forget, once you’ve established your KPIs and benchmarks, create a dashboard first thing so you can start to visualize all of the data coming in. Otherwise, you risk overwhelming your Mission Control. Do all of that, and your startup will be well-positioned to track its progress toward growth and improvement.