B2B SaaS Metrics are talked about in board meetings, investor diligence, executive team meetings, and recently across every corner of the internet from industry influencers and thought leaders.
As the host of the Metrics that Measure Up, I was thrilled that I could speak with Dave Kellogg, one of my long-term follows, and a master of all things B2B SaaS metrics.
Dave is a multiple-time, CEO and Chief Marketing Officer of B2B Software and SaaS companies, and a highly sought after advisor, board member and speake.
During this episode, we discuss the top five metrics that Dave advises every B2B SaaS founder and CEO to calculate and they include:
✔ Committed ARR (CARR)
✔ Committed ARR Growth
✔ Net Dollar Retention Rate (NDR)
✔ Net Promoter Score (NPS)
✔ Employee Net Promoter Score
✔ BONUS METRIC - Customer Acquisition Cost Ratio (CAC Ratio)
Next we discussed why Net Dollar Retention (NDR) is a less fungible metric than "Churn". One example of "gaming" churn is to include all customers, including multi-year deals in annual churn calculation. Survivor bias is one caution for NDR, where a company will look at a cohort of customers today and look at how much ARR they represented a year ago - which is not a best practice for NDR calculation.
The next thing we discussed is which metric(s) have the highest impact on Enterprise Value to Revenue multiples. Traditionally Rule of 40, and company growth rate were the two highest impacting metrics to enterprise value. I suggested to Dave that we are seeing NDR having a much higher impact on EV, and in real-time, Dave calculated the R^2 of NDR which was .35, and three times more causal impact on EV than growth!
The other item we discussed was "selection bias" which happens when you look at the public B2B SaaS/Cloud company's metrics, and target their metrics as the benchmark. It's important to remember that these are the BEST of the BEST, and many SaaS metrics will look much better at scale (> $250M) and in those companies that were able to go IPO.
We also discussed how some metrics, even something as seemingly simple as "Win Rate" can be miscalculated. Dave has seen several companies take the number of opportunities at the beginning of the accounting period, dividing that into the # of closed-won deals, without considering that many of the opportunities that are still open will close in subsequent accounting periods.
Dave once wrote a blog entitled "Don't be a Slave to Metrics". A couple of pithy, and easy-to-remember quotes included: "Metrics work for us, we do not work for the metrics" and " Metrics reflect strategy - they do not drive strategy".
If you are just learning B2B SaaS metrics or are a seasoned SaaS metrics veteran, this episode is a must-listen for anyone responsible to led a SaaS company and/or calculate and present your top-level performance, company value-creating metrics.