Going Overboard on a Data-Driven Approach (How to Avoid the Trap)
These days, product management and a data-driven approach are unshakeably tied together. Most want decisions based on a solid foundation of facts with experiments...
Product managers and marketers share many of the same goals. But if marketing isn’t your thing, you might not know a ton about the various SaaS marketing metrics. Understanding how marketers gauge their progress can help you be a more balanced product manager. And, in some cases, these marketing metrics can even influence the product roadmap. So today, we’re going to buckle up and take a ride into the minds of our marketing peers.
Many marketers focus on building visibility and driving top-of-funnel conversions. But early success in the SaaS industry can be expensive.
Return on Investment (ROI) for marketing spend only occurs after you’ve built a sizeable user base and have allowed enough time to pass to collect recurring revenue. So SaaS marketers are not only responsible for fueling top-of-funnel growth but also for conversion and retention.
For this reason, we separate SaaS marketing metrics into the various stages of the customer lifecycle they each support. There are variations in how companies measure success at each of these stages, so you don’t need to understand every SaaS marketing metric. All you need to know are the questions they’re meant to answer.
Let’s get started.
Both SaaS product managers and marketers value customer acquisition. Customer acquisition is the process of attracting new customers to your business and (ultimately) persuading them to use your solution. After all, what’s the point of building an amazing product if no one uses it?
Marketing teams use acquisition metrics to measure the effectiveness of marketing initiatives designed to attract new customers. These metrics help marketers understand which tactics are working, which are not, and what they can do to improve. This insight allows them to make small adjustments to their campaigns and broader strategy. Acquisition metrics help marketers build better content, run efficient campaigns, and host successful events.
Let’s take a look at some important SaaS acquisition metrics and what we can learn from them.
Website traffic is sometimes dismissed as a “vanity” metric, but it’s critical to answering the question “How are people finding our business?” Marketers segment website traffic into new vs. returning visitors and dig deep into the channels and campaigns that drive people your way. This helps them identify the marketing activities that work well and those that need work.
Marketers also examine the behavior of website traffic. Website behavioral metrics answer the question “What happens when people get to our website?” Your “bounce rate,” for instance offers insight into the visitors who arrive at your site, then leave without clicking any links. For most SaaS marketers, a high bounce rate is a problem because it suggests the content didn’t convince visitors to explore further. Other metrics like “time on page” or “behavior flow” track visitors who didn’t bounce and allow us to see the content they consumed, how much time they spent with it and where they left the site.
The conversion rate is a vital SaaS marketing metric. It answers important questions like “Which marketing activities inspire people to take action?” and “How much traffic or how many email submissions does it take to gain a customer?” In other words, which marketing materials and campaigns drive value for your company?
A conversion can take many forms. The visitor to lead conversion rate usually means the visitor gave you their email in exchange for a blog subscription, webinar registration, or free trial. For the marketer, this is a win. It means that someone (who was once an anonymous website visitor) agreed to engage with your company on a deeper level.
Once we acquire a lead, we focus on the next step. In the SaaS world, we want that lead to becoming a paid user of our solution.
A conversion, in this case, helps us answer the question “How many free trials does it take to create revenue for our company.” In other words, if 1,000 people sign up for a free trial and 100 of them go on to subscribe to the paid version, your conversion rate would be 10% (100 divided by 1,000 = 0.1 or 10%).
Marketers rely on your input and expertise throughout the customer lifecycle. But the content and campaigns that drive early adoption are critical because they require a substantial upfront investment.
Long before a product or version release, your marketing team is hard at work – building an array of materials to promote your solution. Website pages, eBooks, blog posts, landing pages, and advertising copy are just a few examples. Each piece of content takes time, energy, and money to produce. And once completed, there’s an additional expense for promotion. In short, acquisition metrics matter to product management because these expenses impact a metric your C-suite cares about; CAC (Customer Acquisition Cost).
Acquisition metrics provide insight into the effectiveness of your marketing messages and campaigns. These metrics demonstrate how people discover you and whether your content is compelling enough to inspire action. From the product manager’s perspective, acquisition metrics are an indication of how well you’re communicating with the marketing team and whether your product is resonating with your target audience.
SaaS businesses invest a lot of time and money into customer acquisition. So, once you gain a customer it makes sense that you’d like to keep them around. This is true for product managers and marketers alike. But marketers view retention metrics a little differently than product managers may. Retention for you might involve adding features to the product roadmap. Meanwhile, retention for your marketing peers could influence your company’s messaging and campaigns.
Let’s take a look at some retention metrics and how marketers interpret them.
When product managers think about customer engagement, they want to know how customers are using the product. Which features are popular, which aren’t, and what you can do about it? But when marketers think about customer engagement, they want to know “How do customers interact with the content or campaigns designed to nudge them toward a deeper relationship?”
For example, imagine your company offers customers a 14-day free trial. Your marketing team created an email marketing campaign they want to test on a certain segment of trial users. The goal is to increase the user’s knowledge of the solution and help them see the value of a paid subscription. The team will measure customer engagement based on “open rates” (how many customers open the emails), “click-thru rates” (to a pricing page where they can elect to upgrade), and successful “conversions.”
Your marketing peers will scrutinize the results of this campaign. If users engage (open the emails and respond to the call-to-action), they will consider the campaign a success and use it again. If the results are disappointing, these metrics can help them identify the problem and make adjustments.
As a product manager, the results of these campaigns can be informative. Knowing how your customers respond when you promote certain features and benefits arms you with more data. Combining marketing insights with your own product-related metrics could help you build a stronger case for why certain features should (or should not) be part of your strategy.
Ahhh – the almighty churn rate. This highly actionable SaaS metric influences your roadmap every day. In its simplest form, churn rate is the number of customers you lost in a given time frame (typically a quarter) divided by the number of customers you started with. So if you entered the quarter with 100 customers and you lost 2, your churn rate would be 2%.
Product managers react to a high churn rate by talking to customers and reviewing their product analytics to gain an understanding of what’s causing it. Are there certain tasks that your users are unable to complete? Is there a way that you can make your product more sticky? For product managers, churn is personal. You understand that a certain level of churn is unavoidable, but you want a strategy that minimizes it.
When marketers look at churn, they want to examine the metrics by segment and answer the question “Are we delivering on our promise?” Marketers attract leads and customers by describing the value of the solution. If you have a problem with churn, marketers seek to understand whether it’s due to the product or due to communication.
Similar to customer engagement, product managers and marketers can influence this metric more effectively if they combine their insights and work together to resolve product and messaging problems.
Clearly it’s important to keep your customers using and enjoying your solution. And, quite frankly, if you have a data-driven product roadmap that’s focused on creating additional value for the customer you’re doing a good job. But you can do better if you pay attention to key retention metrics.
Marketing retention metrics indicate how well segments acclimate to your solution, where they’re falling off, and why. Is it the product itself? Is it the messaging? Or maybe there’s a problem with onboarding. Just as they did during the acquisition phase, marketers continue to build campaigns and content to encourage customers to use the product and deepen their commitment. And they rely on you to keep them informed.
Monetization is the home stretch for your organization. When you build a loyal customer base that can’t imagine life without your solution, you’re well on your way to a sustainable business. Monetizing these customers will help you grow your monthly or annual recurring revenue (MRR/ARR) and recover losses. It will also reduce your customer acquisition cost (CAC) and net promoter score (NPS).
Some monetization activities like upgrades or add-ons to your solution are probably already on your product roadmap. But marketing is responsible for supporting all monetization activities including encouraging in-app purchases and enrichment offerings like online training. The SaaS marketing metrics often used to reflect monetization are as follows:
Your marketing team is responsible for promoting any additions to your standard subscription. This could include upgrades to additional seats or features, in-app purchases or enrichment offerings like online training. As a reminder, conversion rates are a percentage; the number of paid customers that upgraded divided by the number exposed to the offering.
A 2% churn rate may seem like a manageable problem when you don’t have many customers. But as your number of subscribers grows, that same churn rate imposes higher losses and affects your growth. Enter “negative churn.”
Negative churn isn’t a metric in it’s own right. It’s more of a concept that refers to the fact that monetizing customers can reduce the impact of churn on your bottom line. In other words, if you grow the revenue earned from your existing customer base (by selling upgrades and value added services) you can offset the effect of churn. For a deeper look at how this works, check out David Skok’s article titled “Unlocking the Path to Negative Churn.”
The high cost of acquiring a SaaS customer is a challenge for marketers because it makes it tough to demonstrate the value of your efforts early in the customer lifecycle. But once you’ve monetized your customers the total cost of acquisition doesn’t seem so bad. So savvy marketers compare the lifetime value (LTV) of their customers to customer acquisition cost (CAC). The acceptable difference between these two numbers will depend on your business, but clearly LTV should outweigh CAC.
Monetization is a win for everyone in your organization, not just marketers. Understanding which metrics marketers look at, however, and how they impact your organization’s view of marketing’s efficacy can be illuminating.
Businesses understand that marketing is an investment, but when the bills start rolling in it’s easy to lose sight of the bigger picture. As a product manager, your success depends on your ability to work with people from all departments and keep them in sync. And one way to do this is to keep everyone focused on your ultimate goals.
If you’re at all fuzzy on top-level metrics such as:
make it your business to understand them. Our article on the SaaS product metrics pyramid is a good place to start.
Top-level metrics are affected by initiatives across your organization, including marketing activities. Make sure you know what these metrics mean and what your organization is doing to improve them.
Ask to be added to the SaaS metrics dashboard your marketing team uses to monitor their progress. Then compare the SaaS marketing metrics to the product metrics that drive your decisions. There’s often a lot of overlap between these metrics. Identifying the ones you have in common will help you see how your respective teams can support each other.
Your success depends on gaining alignment from every department that impacts the product roadmap, so understanding what matters to them is critical. Marketing relies on SaaS marketing metrics to monitor the impact of their content and campaigns on customer acquisition, retention, and monetization. You can contribute by improving your communications with the entire marketing team, involving them in activities that affect their work and growing your knowledge of the metrics that drive them.