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Top 10 Metrics for SaaS Startups Part 1

By Lauren Thibodeau

At SaaSCan, we love empowering Canadian SaaS founders and leaders with credible SaaS metric research that so you can answer two key questions with confidence:

  1. Given the stage I'm at, what key metrics should I be laser focused on and why?

  2. For those key metrics, what does great look like, and how do I stack up?

We recently sat down with 10 investors in Canadian SaaS startups to get their take so we could share it with you. They included Angel, Pre-seed, and Seed-stage investors. Here's the deal on who they are and the type and size of SaaS company they normally invest in.

The Investors

The Startup Mission

At the startup stage, your core objective is finding Product Market Fit. You want to be asking questions like:

  • What problem are we solving?

  • How big is the opportunity?

  • Who is our best fit customer?

  • What's our North Star Key Performance Indicator (KPI)?

  • What are we learning from customers who churn?

You can use a few key metrics to help you answer these questions. Be aware that at this early stage, your metrics will be lumpy and unpredictable. That's ok - you're just getting into habits that will help you transition from anedcote-based decision making to data-informed decision making as you progress.

And while data may be sparse in the early days, some data is better than no data. As Forum Ventures Partner Jonah Midanic says, "The difference between a real-world story and a fairy tale is the proof. Focus on the proof points that support your narrative."

The Metrics

In the sea of metrics you COULD measure, what's the short list you actually SHOULD measure at the startup stage? In Part 1, we count down the Top 10 list that SaaS startup investors we spoke with collectively said SaaS startup founders and leaders should focus on and why. In Part 2 we share their perspective on what great looks like for each of these metrics.

10. Customer Acquisition Cost

SaaS companies are often not profitable for years. However, you need to be sure that on a unit basis, the math makes sense. As Jennifer Francis, Chair of the Board for Capital Angel Networks says, "Your go to market channels need to match your target market and price point. If you have an inexpensive product, keep your CAC extremely low."

9. A North Star KPI for Customer Value

Customer Value is of particular interest to Isaac Souweine, Partner at Real Ventures, at the pre-seed stage. As he explains, customer value generally means increased revenue or time/money saved for customers. And it stands to reason that customers will only continue using and renewing a SaaS product if they get ongoing value from it.

That's why Pablo Srugo, Principal at Mistral Venture Partners, recommends you "Figure out the core value your company provides, and track it. That's your North Star KPI. Your entire team should obssess over that metric."

8. A Usage Metric like Daily, Weekly, or Monthly Active Users

As Patrick Hankinson, General Partner at Concrete Ventures points out, "You can trick yourself into thinking you’re delivering a great product because someone is paying you. But if they’re not actually using the product, you’re going to be facing churn at some point. Track metrics such as Daily Active Users to Monthly Active Users, Free vs Paid users, or create your own."

7. Number of Customers

Kathryn Wortsman, Managing Partner at Amplify Capital underscores the importance of this metric and explains, "The velocity at which a company is attracting new customers is an indication of urgency around the need for the product. This is paramount at the seed stage."

6. Customer Acquisition Cost Payback Period

Patrick Hankinson was one of numerous startup investors who called out this metric as key at the startup stage. He prefers this metric over Lifetime Value to Customer Acquisition Cost (LTV:CAC) because assumptions on margin and churn in LTV can skew the numbers dramatically, whereas it's generally more clear cut how long the CAC payback period is.

5. Total Addressable Market

At the pre-seed stage, Pranavi Cheemakurti, Venture Investor at Forum Ventures, looks for companies with a clear path towards building a venture scale business, in other words the ability to reach $100 M in Annual Recurring Revenue one day. As a result, she looks for founders to understand and be able to articulate the TAM in their space.

4. Recurring Revenue

No surprise that for SaaS startups, recurring revenue, whether measured monthly as MRR, or annually as ARR, is key. Snita Balsara, Senior Investment Manager at MaRS IAF stresses the importance at the Seed stage of seeing the repeatability of MRR. She also advises companies to analyze data in cohorts of time and by customer segment, and to look at the company holistically versus just at points in time. In her words, "Context really matters. Pay attention to the trend of your metrics over time."

3. Net Churn or Retention

Most startup investors SaaSCan spoke with called out high net dollar retention and low net churn as being key things to watch from day 1. At the same time, they noted that a) in the early days this data may not be available as accounts haven't come up for renewal yet, and b) churn will naturally be higher in the early days as some early customers aren't a good long term fit for the product. The goal at the startup stage is to start tracking it and look for early signs of churn/retention challenges given the increasing importance placed on net dollar retention in later stages of growth.

2. Logo Churn

Similar to dollar churn, startup investors called out logo churn as important to watch starting in the early days, especially from the perspective of what can you learn from the customers who are churning.

And the number 1 metric investors said startup founders should focus on is:

1. Recurring Revenue Growth Rate

As Standup Ventures Managing Partner Michelle McBane articulates, "At the seed stage, we help founders establish their Series A milestones. While we don't have a specific growth rate target, we're looking for evidence of strong growth rates and early traction."

The Bottom Line

As a SaaS startup, your singular focus is finding product market fit. Startup investors are clear here. You don't need to measure all the classic SaaS metrics yet - in fact you shouldn't at this stage. You want to focus on a very short list of metrics that gives you insight to:

  • Customer usage and value

  • The true cost of acquiring customers, and which channels work best for you

  • How well you retain both customers and their revenue, and which customers are the best fit

  • How quickly your recurring revenue is growing

Taylor Wilson, Associate at Golden Ventures sums up the need to focus on a few key metrics beautifully when she says, "Establish a set of metrics that you as a founder can focus on to grow your business and get obsessed about those."

Check out Part 2 where we cover what great looks like for each of these metrics for SaaS startups.

Related Resources

  1. SaaSCan's Top 10 Metrics for SaaS Startups - Part 2

  2. SaaSCan's Full Investor Metrics Research Report - Robust 77-page report on the metrics investors care about most from startup to early stage to later stage growth

  3. Klipfolio's MetricHQ - Robust metric definitions, formulas, and examples

  4. Product Market Fit - A great primer from VC Firm Andreessen Horowitz

  5. North Star Metrics - The North Star metrics 40 high growth companies are measuring

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