Why we are obsessed with tracking key software-as-a-service metrics and KPIs

“If you cannot measure it, you cannot improve it” – Lord Kelvin

 

In this article you will learn

  1. Important SaaS KPIs related to growth and profitability and why you should measure them
  2. How to ensure a risk adjusted growth profile
  3. Insight into how you are performing compared to 16 other SaaS Scale-up companies in the Nordics

Measuring key metrics is important for all companies, but traditional business metrics are not comprehensive enough for a software company. For these companies there are some specific key metrics that are important to understand where you’re heading to make sure you’re taking the measures needed to grow and optimize your software business.

This is why we have developed the Viking Venture Portfolio Dashboard. Our focus on fast-growing software scale-ups gives us the possibility to provide a KPI reporting solution for our companies where they can report key metrics and track their performances against each other. Each company has their own KPI Dashboard and access to highly relevant benchmarks across the portfolio. By getting this insight our companies can see what is working well and what needs to be improved in their own operations. They also see which companies are top performers in the portfolio and can reach out to understand what they are doing that works so well.

 

Paul Skorupskas

You should check out our article Why we are obsessed with tracking key software-as-a-service metrics and KPIs if you are interested in learning more about the SaaS KPIs we find most important, like the Rule of 40.

 

Together with our companies we quickly realized that it was going to be hard to get in touch with new customers and that this is a great time to nurture existing customers by really showing them the value of our software solutions. Several of our companies re-allocated new salespeople (hunters) to customer success (farmers), which not only increases the effort towards the customers, but also strengthens the relationship between sales and customer success. This was also brought up by many of the speakers at SaaStock as a strategy they have used during Covid-19. One keynote speaker even went as far as to say ‘farmers are the new rock stars in SaaS’.

 

 

 

Viking Venture KPI Dashboard

ARR Growth

ARR Growth is the biggest value driver of B2B SaaS companies and there is a very strong correlation between ARR growth and valuation. Growth can be looked at in many ways. We believe it is important to distinguish between organic and inorganic growth to understand the underlying drivers:

  • Total ARR Growth including acquisitions
  • Organic ARR Growth excluding the effect of acquisitions
  • New sales ARR Growth, which only includes new sales

In addition to this, we are particularly fond of using the ARR Waterfall due to the simple but insightful way it illustrates the different ARR movements within a certain time period.

 

 


 

Net Retention

Net retention is known to be the most comprehensive churn metric as it tells the complete revenue story of the installed base of customers. What this means is that it shows you what your company’s top-line revenue would be if you didn’t gain another customer ever again. In other words, it captures the negative impact of lost customers, but also the positive impact of price changes, up-sells and cross-sells.

 

Gallery example

Net retention is known to be the most comprehensive churn metric as it tells the complete revenue story of the installed base of customers. What this means is that it shows you what your company’s top-line revenue would be if you didn’t gain another customer ever again. In other words, it captures the negative impact of lost customers, but also the positive impact of price changes, up-sells and cross-sells.

 

Churn

Churn can be measured in terms of ARR and # of customers and both are important to measure and track. Knowing your churn is important for forecasting, but the real value lies in understanding why customers choose to cancel their subscriptions. We have run several projects with our portfolio companies to understand the root causes of churn and improve the value proposition.

 


 

Why do we have an obsession with SaaS metrics and KPIs?

To make data-driven decisions, you have to track key SaaS metrics and KPIs – and this might be especially true during Covid-19, when things really can hit the fan.

 

“There is a need in every business to understand the balance between growth and profitability.” – Somebody

 

There is a need in every business to understand the balance between growth and profitability. This KPI tells you whether or not you have managed to balance growth and profitability in a healthy way. It is widely accepted that if the sum of your organic growth rate and EBITDA margin is 40% you have reached an optimal balance between growth and profitability.