Welcome to the inaugural post of the “SaaSquatsch Blog” – your unconventional guide to SaaS success. Today, we dive into the world of Key Performance Indicators (KPIs) and the art of choosing and trusting them wisely.
The Moroccan Odyssey: A Lesson in KPI Navigation
Let me share an anecdote that mirrors the risks of blindly following KPIs. Back in the early 2000s, during a business trip to Rabat, I learned a crucial lesson. Opting to fly to Casablanca and drive from there to Rabat, I relied on a satnav for guidance. However, I soon found myself on a bizarre route, driving late at night over small roads through the Moroccan countryside as if I was a main character in Scheherazade’s Arabian Tales. Along the way I encountered stray camels, came across some mules on the road and was stopped by bemused police officers who burst out laughing when they heard I was trying to go to Rabat. It turned out, the previous user had set the satnav to ‘avoid all highways.’ Only after unchecking this, did I find myself on the direct highway to Rabat. This misadventure is akin to steering your SaaS company with KPIs. Let me share three fundamental rules to avoid similar pitfalls in managing your SaaS business.
Rule 1: KPIs are checkpoints, not roadmaps to success
Knowing your end goal is crucial. For instance, simply aiming for ’20M€ ARR’ is insufficient. In my journey, I should have used Google Maps to understand the direct route, a highway from Casablanca to Rabat, rather than blindly rely on the satnav. In the SaaS realm, this means defining your target market, value proposition and differentiators, not just relying on metrics like CAC/CLTV. KPIs are checkpoints, not your entire roadmap to success.
Rule 2: Tailor KPIs to Your Unique Journey
Just like the previous satnav user’s scenic preference didn’t suit my needs, your KPIs must align with your specific business objectives. For instance, while the CAC/CLTV ratio is essential for a lot of SaaS providers, it might not provide meaningful insights for businesses with long sales cycles or minimal churn. Imagine you are operating a niche SaaS business with less than 1% churn. Your CLTV goes through the roof and your CLTV/CAC ratio will always look good no matter how much you overspend on CAC. Here, metrics like CAC payback time could be more appropriate.
Rule 3: Trust Your Instincts Alongside KPIs
Despite obvious signs that something was amiss on my nocturnal drive, I trusted the satnav blindly. I even continued my drive after meeting camels at night and being laughed at by the police. Similarly, if your gut or observations contradict your KPIs, investigate further. Don’t run your business on autopilot. For example, I met a CEO of a SaaS scale-up who believed there was a sales conversion issue, despite ‘OK’ KPIs. A deeper dive revealed the European sales team was doing great, while the US team was struggling. The US sales team was struggling as there were not enough leads, and marketing couldn’t generate enough leads in the US as there was a significant product/market fit issue in the US, masked by overall average sales performance.
Conclusion: Plan Your Journey
In conclusion, navigating KPIs in SaaS is like a journey through unfamiliar territory. Knowing your destination, customizing your route, and staying alert to the real-world conditions are key to reaching your goals successfully. If you encounter camels on your journey even though the satnav says you are on the right track, you might be going in the wrong direction after all.
