- Hi there, I'm Dan Martell, technology entrepreneur,
investor and creator of SaaS Academy and in this video
I'm gonna share with you the six core functions of a SaaS
business and the key metrics that you need to measure to
ensure leadership team are focused and generating outcomes.
And be sure to stay to the end where I'm gonna share with you
an exclusive resource called The Weekly Sync.
The format, the structure, the 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.
(upbeat music)
As you scale your business, you're probably running into an
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 like a chicken with it's head
cut off instead of being in a place where you know 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 gonna show you exactly how to do it.
You know, I've been building companies now for over 20 years.
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. A dozen people.
I still had my own work load to go through
and a dozen people doing stuff.
So what you need to do is understand that there's core
functions 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.
One, product.
Ideally you have somebody in your team managing 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 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
bookings per night 'cause that means they're making money and
their customers that are using the platform are making money.
It's win-win-win. So north star metric's one.
Second is activation rate.
As a product manager you want to make sure people that are
signing up, trialing, buying your technology or activating or
deploying your software.
And then three it's net promoter score.
That's a simple, NPS is usually what it's called,
it's a growth number because it tells you so much.
The simple question is, "How likely are you to recommend our
"product to a friend or colleague? 1 to 10."
1 to 6 are your detractors, 9s and 10s are your promoters and
7 to 8s are your neutrals and there's a mathematical equation
to 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, et cetera and you want your
product lead to own those numbers.
Two, engineering.
If you've got somebody designing the product,
now you've got to give it to the engineering department to get it
built and if you're not technical there's a bunch of
different metrics but the ones I'm gonna 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
so that's number one. Active defects.
The second would be velocity.
Velocity is a measurement of productivity
using a point system, 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 to get built 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's getting reported to you.
And then finally, it's percent test coverage.
You know, if you're not doing unit testing or other kind of
testing, you need to start and just ask yourself for these core
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 engineering team are behaving.
Three, marketing.
This is probably my favorite
because it's very easy to quantify by.
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 MQLs, 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
and 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.
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 to acquire a customer,
you want to figure out for each channel what's your cost per
acquisition from your marketing lead.
Four, sales.
If you've got a salesperson, again maybe you're doing this
function as well, you want to measure these for yourself and
really just to make sure they understand
what matters most to you.
So first things is number of demos.
How many demos on a weekly basis are you doing?
Second is win rate.
Of those demos what percent of them end up becoming customers.
So understanding 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
the net monthly reoccurring revenue,
the new MRR and then also I want to know
the average revenue per account.
I want to know, yes, the numbers going up but on a per account
basis is the average going up over time.
So those are four core metrics in this case.
One, number of demos.
Two, your win rate.
Three, the new MRR and then finally,
the average revenue per account.
Five, 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 100 days,
I got that from my buddy Joey Coleman.
He's got a great book out. Go check it out.
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 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 for the customer.
So that's one.
Two is you wanna figure out what's the expansion MRR.
So how many opportunities is
your customer success team identifying.
Ideally they're doing things like QBRs or EBRs,
quarterly business reviews or executive business reviews.
That's the bulk of finding opportunities but regardless
even on the support side they could check accounts and see if
there's opportunities to expand, up-sell, cross-sell, et cetera.
And then finally, the net promoter score.
Again, I think the customer success needs to own that as
much as product because that's gonna tell you so much about how
the customer's experiencing or interacting with your team which
is gonna effect that big number.
Six, ops and finance.
As I mentioned, core functions in a SaaS business.
Finally six is kind of a catch-all.
It's operations and finance and here's why is you obviously need
the right reporting for your business and you need to make
sure that somebody's taking care of team and the pipeline,
the hiring and all that fun stuff.
So the first core metric for ops and finance is ENPS.
It's 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 a
"friend or colleague that's looking for a job?"
You want to make sure that 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.
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 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 and I know you're like, "Well I'm a venture backed
"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 you 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 gonna help you and your ops person,
your finance person get clear
on what's important within the business.
So quick recap, one, product.
Two, engineering.
Three, marketing.
Four, sales.
Five, customer success.
And then six, ops & finance.
As I mentioned in the beginning of this video
I know it was a dense one. It was a big one.
I hope this served the six core functions and 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 wins of our customers and the key projects
and 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
below in the description and you can download your copy.
It's what I use to manage the heartbeat and the rhythm of my
companies and if you liked this video
be sure to click the like button.
If you know somebody that it could be beneficial to,
please share the video with them.
Subscribe to my channel.
I appreciate you watching. I'll see you next week.
No, I need you to like show up my house,
grab my gear, jump in my car and we'll go
'cause if not my wife won't let me go.