Mastering your metrics is about more than knowing what to look for in your data and how to interpret the numbers.
Deeply understanding key metrics helps you set the right priorities for growth and tell a more compelling story about your business to customers and investors.
Weighing in with an investor’s perspective, Tomasz Tunguz, Managing Director at Redpoint Ventures, shared his thoughts with us in an engaging episode of Diving Deep with Subscript.
We discussed which metrics matter most to growing businesses and how these critical numbers help VCs like him make investment decisions.
Net Dollar Retention (NDR) Is Even More Important than you Might Think
NDR is like compounding interest for your company’s annual recurring revenue (ARR).
Improving your NDR by 20% might not seem like a monumental change for your business, but it would lead to your company’s ARR doubling in 5 years!
(Tomasz elaborates on how this works in this very thoughtful blog post.)
Cohorted data helps you move the needle
Data cohorts give you insights into your business that you wouldn’t otherwise have.
For example, you might find that you’re doing a great job of keeping customers in North America, but not EMEA. Or, maybe your retention is wonderful for one of our products, but below average for another.
Also, cohorts will let you find patterns in your churn data based on time. For example, maybe you’ll find that folks who became customers in March 2021 (during a big promotion you ran) churn at a higher rate than all other months.
These are all insights that you’ll miss if you’re only looking at your uncohorted retention metrics.
Cohorts add urgency
When you measure cohorts and look at them as a leadership team, they give a sense of urgency to your work.
The discrete time frame and definite end to a cohort—be it a month, a quarter, or a year—have a way of grounding you in the work that will ultimately influence that cohort.
Don’t lose sight of customer success
While NDR is a critical metric, if you’re signing annual deals then you’ll have to wait to know how it’s looking. In the meantime, Tunguz encourages businesses to start by focusing on customer success.
“In the early stage, the thing that’s the most important is to have three examples of customers that expanded and be able to go deep in explaining WHY.”
Nail these use cases and go into as much granular detail as possible to understand why this customer found success with your business.
This isn’t all about metrics, though metrics are a part of it, it’s about deeply understanding the customer story and being able to clearly articulate that in a pitch.
This is indispensable for your champion inside a venture firm. Your use cases will help this person tell the stories behind your numbers and show investors how your business works.
As we’ve discussed, data is critical to the success of your business. But, never lose sight of the fact that your company is truly powered by your customers. So, when you go into a pitch meeting, think about ways data can help you highlight customer success.
When Calculating B2B SaaS Metrics, Confidence in your Data is Critical
Your confidence in the integrity of your data is everything.
Tomasz recommends a sophisticated sales/finance function and a “deal desk” where the CEO, CFO, and head of sales come together to evaluate the viability of a deal. This will help you understand burn and other cash-flow dynamics before you enter into a potentially costly deal.
Knowing your numbers makes you look good
Knowing your business’ key SaaS metrics will help you make better strategic decisions and will also demonstrate to investors that you have a complete mastery of your business. Tomasz explains:
“Having incredible command of your business is a huge asset, especially at the Series A and Series B stages. You are making a bet that the company has developed a money-making machine and that more dollars will make the machine spin faster.”
When asked a detailed metrics question in a pitch, you can always say that the answer is in your data room, but it goes that much further in demonstrating mastery of your business if you have those numbers on hand.
VC’s like Tomasz aren’t just looking for impressive numbers; they care about your business’s cash-flow dynamics and your understanding of the metrics that drive revenue. Having confidence in and understanding of your metrics goes a long way towards demonstrating what you have to offer.
Let Subscript help
Deep dive into your SaaS Metrics and master the numbers that matter to your business with Subscript. Request a demo today.