One of the SaaS industry’s leading investors, OpenView, recently published their 2020 Expansion SaaS Benchmarks report. Throughout the report, the venture capital investment firm focused on sharing insights from across the SaaS industry that included results from companies ranging below the $1M ARR mark, all the way up to publicly traded companies. In the section “Quit Measuring Metrics That Don’t Matter”, there were two specific metrics that OpenView called out.
In this article, we’ll cover these two metrics, why they’re important, as well as two more metrics that you should consider measuring in 2021.
Metric One: Return on Incremental Investment Capital
If you’ve ever been on a sales call, you know one of the biggest questions that always comes up is what’s the return on investment (ROI) for the product. But have you ever thought about what’s the ROI for building and selling your own product? Calculating your own Return on Incremental Investment Capital will help you answer that question.
By measuring your Return on Incremental Investment Capital you're effectively calculating the amount of return you’ll receive for nearly every dollar you’ve spent on customer growth and acquisition. The important distinction in this metric is that you’re determining the return on investment you’re receiving from product and engineering AS WELL as sales and marketing. This seemingly small distinction can help paint a more accurate picture into the return you’re seeing on the dollars you’re investing into growth.
Metric Two: Natural Rate of Growth
You may have missed this last March, but OpenView introduced a new metric that they believe is soon to take over all SaaS companies. The new metric they’ve invented, Natural Rate of Growth, measures a company’s ability to organically grow without marketing or sales.
Today, nearly every SaaS company offers at least a portion of their product for free. It’s the standard for the market and that isn’t going to be changing anytime soon.
By measuring your Natural Rate of Growth, you can start to understand your product’s stand alone effectiveness at acquiring new customers. And if this metric continues to grow, you can begin allocating more resources toward perfecting your product as it will begin to sell itself. And isn’t that the dream scenario for any SaaS company?
Metric Three: Viral Coefficient
Referral programs. Earning a potential buyer’s trust is not easy, but leveraging the trust you’ve earned with customers to refer their friends and family can be a quick growth hack to acquire new business for a fraction of the cost.
If you have a referral program established, or are thinking about implementing one, you should be focused on tracking your Viral Coefficient. Viral Coefficient measures how many new customers your current customers are able to pull in over their lifetime.
Not only does your Viral Coefficient allow you to accurately measure the effectiveness of your referral program, it will also give you the ability to accurately forecast future sales. For example, if your Viral Coefficient is one, you know that for every new customer you gain, they’ll bring on an additional customer.
Metric Four: Email Opt-in Rate
Think about your life outside of work in 2020. Chances are, some of your time was either spent watching Netflix, checking Instagram stories, or even scrolling through TikTok. The reason? Content is king. It’s a phrase that you’ve heard thousands of times, but it’s because it’s true. And the most successful SaaS businesses are taking advantage by consistently producing content that their ideal buyers love.
To deliver original content consistently to potential buyers and customers, SaaS companies are turning to email newsletters. In order to measure how successful your company is at converting potential leads to email subscribers, your email opt-in rate is essential.
Hubspot and Canva recently surveyed over 500 marketing leaders, and uncovered that Content Marketing was the second most popular area they wished their company invested more into. If your company has identified content marketing as a focus for 2021, you need to make sure you have an effective delivery method for those you’re trying to reach. Measuring your email opt-in rate is a great way to ensure your team’s optimizing for success when it comes to content marketing.
Be sure to start 2021 off on the right foot and make sure you’re measuring what metrics matter most to your growth.
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