7 Steps to Improve a SaaS Metrics Performance Problem
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When I read a benchmark report as a SaaS operator, or received feedback from a board member that I needed to improve a specific metric’s performance, I was left with the same question: “HOW are we going to improve a specific metric(s) performance that highlighted less than desirable results”?
My 30+ year journey in recurring revenue software has provided many opportunities to analyze potential approaches to improve a metric’s performance, develop a plan to execute, measure the improvement and ultimately report the metric’s improved results… hopefully!!!
The below 7-step methodology to improve the performance of a specific metric or metric(s) is the result of many opportunities, attempts, mistakes, failures, and a few successes that led to the below “SaaS Metrics Performance Improvement” Methodology.
7 Steps to Improving a SaaS Metrics Performance Problem
Step 1: IDENTIFY
Identifying the SaaS performance metrics that represents the highest priority to improve is an obvious first step. A common issue I see during the SaaS metrics and benchmark assessments we conduct is that the CEO and management team feel significant pressure from the board to improve company performance - now. As a response, they take on too many priorities simultaneously and/or error on the side of taking quick action across multiple fronts resulting in a diffused effort in fixing the highest priority and root cause issue(s).
This initial step of identifying the top priority metric(s) to improve should be led by the CEO in partnership with the CFO. Having the CEO and CFO take primary responsibility for the identification of the top performance metric(s) that require improvement will ensure the initiative is driven from the top and is aligned with the priorities of the investors and board of directors. In fact, a best practice is to confirm with the board that they are in alignment with the metric(s) selected as the top priority for improvement and are correlated to increased company value.
Having the top one or two metrics identified for improvement by the CEO and CFO eliminates significant time, energy and resources invested in debating or guessing on the board’s priorities. In Step 2: Organize the cross-functional team will have the opportunity to review the top metric(s) prioritized, ask questions and/or provide alternative ideas for prioritization - backed up by data and analysis.
Step 2: ORGANIZE
Organizing a cross-functional team to develop, execute and communicate the “SaaS Metrics Improvement Plan” starts with selecting team members who are directly responsible for the organization(s) and processes that can impact the metric’s performance, coupled with a proven ability to approach an issue analytically with a process orientation.
Another key skill to have on the team is a “mobilizer” who has the cross-functional relationships and skills to engage the resources who are key contributors to the metric’s inputs.
You might still be thinking about the Step 1 recommendation that the CEO and CFO are primarily responsible for identifying the top metric(s) to improve. Step 2 takes into consideration the need for the project team to buy-in and align on the top priorities identified by the CEO and CFO.
Let’s take “Net Revenue Retention” as an example of the metric for improvement. Since NRR is impacted primarily by customer retention and customer expansion, both measured by ARR, it would make sense to include the following resources on the SaaS Metric Improvement Team:
✔ Customer Success leader responsible for customer retention
✔ Sales or account management leader responsible for customer expansion
✔ Revenue Operations leader responsible for the platforms and data that contributes
to the calculation of the output metric and input metrics to NRR calculation
✔ Finance resource responsible for financial performance metrics reporting
✔ Marketing resource responsible for growth or customer marketing including pipeline generation of expansion opportunities
✔ Product resource if product usage data, customer or prospect feedback will be included in the root cause analysis and/or improvement action plan
Step 3: ANALYZE
This is a critical inflection point in the program. Often, there's an assumption that everyone understands what impacts a specific metric, with little to no empirical evidence to support it. An example is that low NRR is primarily impacted by customer churn and/or expansion ARR. While on the surface this is true, it is important to understand the leading indicators and signals that are most correlated to customer churn and expansion ARR.
By deconstructing and analyzing the primary input signals to each variable included in the metric, one is better able to understand which input variables have a causal or correlated relationship to the outcome metric.
This will require a certain level of subject matter expertise and solid analytical or statistical skills to analyze and validate the hypotheses.
As an example, let’s continue with the “NRR” metric. Below are a few variables that could impact customer churn:
✔ Ideal Customer Profile of retained versus churned customers (segment analysis)
✔ Product utilization of retained versus churned customers
✔ NPS and/or CSAT scores of churned versus retained customers
✔ Executive sponsor presence and engagement of churned versus retained customers
✔ Contract type and pricing model used
✔ Time customer was acquired (cohort analysis)
✔ Number of support tickets
✔ Competitive presence - adjacent products, competitive takeaways, etc.
The key here is trying to identify those variables that are measurable and can be analyzed for correlation or causation to customer churn.
In addition, we will also need to evaluate the multiple input variables that impact expansion ARR such as:
✔ Pricing model’s impact on organic expansion performance
✔ Product portfolio potential for cross-sell of other products to existing customers
✔ Product functional and applicability to up-sell to other functions
✔ Internal organizational responsibilities and associated skills sets for expansion motion(s)
✔ Internal objectives and incentives for identifying, nurturing and closing expansion opportunities
As can be seen from the above, a single metric - in this case NRR has many potential input variables that can impact the outcome metric. Guessing or assuming which one’s have the highest impact is not a solid foundation for future improvement.
Step 4: DESIGN
Expecting more and more efficient outcomes from current processes and resources will not typically result in the improvement required to materially impact an underperforming, high-priority metric.
Starting with a “business process mapping” approach resulting in the documentation of the current state process and the associated resources responsible for executing the process. Then identify potential enhancements or re-designs of the current process and resources, ultimately resulting in the creation of a new process map.
Big bang, wholesale changes to the current process and organizational responsibilities is not typically the best approach to improve “current state performance”, but do not rule out the need for larger changes if required. Identifying only one or two variables maximum to change will limit the uncertainty of understanding what impact any resultant change in performance.
Have the department leaders impacted by the process redesign review the suggested process changes, consider the impact on resources, understand the necessary instrumentation, technology, and automation changes. Define each unique step (milestones) in the enhanced process, along with the associated metrics, including both leading and lagging indicators, to measure process efficacy.
Step 5: MEASUREMENT
Develop, instrument, assign and publish the measurable improvement goals as metrics with quarterly milestones over a 4 quarter time frame. Identify 1-2 objectives for every organization, department, team and individual that are correlated to the outcome metric(s) and communicate the importance of each employee's correlated objectives to the goal.
It is critical to ensure the primary “outcome metric” is instrumented for automated calculation whenever possible. In addition, the top leading indicators or signals identified that directly impact the “outcome metric” need to be instrumented, calculated and reported.
It is a best practice to develop models that can automatically predict or calculate the impact of different input variables (leading indicators) on the outcome metric that is the focus of the SaaS Metric Improvement Program.
Defining, gaining alignment and communicating the target metrics “definition” and “calculation formula” is a key element to ensuring everyone in the company understands what input variables impact the outcome metric.
Step 6: MANAGE
This step in the process resulted from one of my favorite quotes from Peter Drucker “what gets measured gets managed”.
Managing the Metric Improvement Program will be ineffective without Step 5: Measurement being in place, and instrumented for automated reporting, including capturing and highlighting the input signals exception conditions in near real-time.
A key component to successfully managing the Metric Improvement Plan is to have documented, measurable objectives for every department, team and individual that are correlated to the outcome metric(s) targeted for improvement. Having a “cascading objectives” framework in place helps to reinforce the importance of this metric and serves as an applicable point of reference that improving the performance of this metric is a top company priority.
Every executive team meeting held should include an update on the metric improvement plan.
Step 7: COMMUNICATE
Communicating the status of the targeted metric’s performance improvement should be a continuous process including a monthly and quarterly update to all employees.
Developing a communication plan that includes the below elements is a best practice:
✔ Share the business imperative and value for the SaaS Metrics Improvement Program
✔ Highlight the key resources, milestones and goals for the program at the very beginning
✔ Establish a communication cadence and channel for continuous updates on the progress of the program.
✔ Communicate the quarterly trends and status of the plan to all employees
One of the most critical aspects of the communication plan is ensuring consistency throughout the entire life of the program. It's essential that every level of management, especially those with resources contributing measurable objectives, integrates this plan to impact the ultimate outcome metric targeted for improvement.
Relying solely on the CEO, CFO, or an executive champion to communicate the status of the program once per quarter will not achieve the same level of focus across the company as having each manager consistently communicate the program's progress.
Yes, this may seem like overkill at the beginning but as you enter the second, third and fourth quarters of the program, the need for consistent communication is even greater as the focus will be reduced over time without consistent reminders of the importance, the trends and the successes towards meeting the goal.
Do not be a slave to a single metric!!!
Though this entire newsletter is dedicated to prioritizing the focus on the most important 1 or 2 SaaS metrics and their related performance, it is important to remember that it is dangerous to become so focused on a single metric that other SaaS performance metrics are completely ignored.
In a previous edition of the SaaS Barometer newsletter, we outlined the importance of having a SaaS Performance Metrics framework. This framework should act as the global positioning system for the overall company performance metrics. Specifically, it's important to watch for how increased focus on the "target metric" for improvement might be negatively impacting other company-level outcome metrics that affect company value, and are being tracked and reported to investors and the board.
Next week we will add to this discussion with ideas on how to introduce a SaaS metrics council inside of your company.
For the love of SaaS Metrics!!!
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