The article below is taken from SaaS Mag Issue 3. To order your free copy, click here.
Ask any SaaS business owner what they prioritize, and invariably metrics are top of the list. It pays to get into the trenches of how to drive great metrics, though Josh Pigford would know. He founded Baremetrics to help provide SaaS businesses insight into their data. “When I started Baremetrics, I realized early on that I couldn’t keep making assumptions about what people needed. The only way to get rid of those assumptions was to have conversations with customers.” As the owner of three pugs and previous operator of the most popular pug community on the internet, taking a chance on starting a SaaS venture had to have been a really good idea to dive all in for.
Not too long ago, Baremetrics launched a new metrics dashboard integration for Shopify Partners. As a leader in SaaS analytics, Baremetrics streamlines metrics analysis for developers who are building apps for the Shopify App Store, granting them comprehensive and accessible insights into user data directly impacting the profitability of their apps. Key integrations include cancellation insights and failed charge recovery, as well as transparency into the metrics of companies like ConvertKit, Buffer and other startups which share their data with other users.
Baremetrics was borne of the idea that SaaS businesses can’t simply guess at what was and was not working with their customers. Pigford served as a consultant and operator of several SaaS companies before going on to found Baremetrics, a metrics, forecasting and engagement measurement platform for businesses which use Stripe, Braintree and Recurly. The idea is to take founders who are using dozens of spreadsheets to manage their data and house the metrics in one centralized spot. Who wouldn’t want that?
As the founder of a metrics tracking company that recently expanded to serve one of the world’s biggest e-commerce platform providers, we were curious about Pigford’s insight into what metrics SaaS founders should be paying attention to, the most prevalent issues SaaS businesses can fix, and his advice for where SaaS businesses can tweak their strategy to see key improvements and remain competitive in today’s market.
What are some key performance indicators that startups should absolutely focus on?
In the early days what’s important is not the numbers, it’s really trying to understand if you’re solving a core problem to the business—and if you’re solving it well. So, you find that out by talking to customers, not by looking at numbers in the early days. Otherwise, if you’re obsessing over 20% churn but you only have 10 customers, there isn’t much value to those numbers.
After you’ve got 100 or more customers, and maybe at least a few thousand dollars in MRR, I suggest focusing on churn in the early days because it’s a leaky bucket that will just get much leakier. You’re just draining water out of the bottom of this bucket of money and if you don’t plug it up it’s just gonna keep haunting you. It makes it much harder to grow. Typically we see MRR scale linearly. So, you’ll typically keep adding, say $2,000 or $5,000 a month (or whatever it is) and that tends to stay pretty consistent for most people. However, churn does tend to remain exponential. If you stay at 5% churn, well you’re going to keep churning 5%—and 5% of $1,000 hurts, but 5% of $100,000 hurts even more. Eventually, the growth will not keep outpacing the churn. The sooner you can reduce churn, the easier it is to grow.
“I do think churn is the most prevalent issue. Most people know that they need to get churn down, but they choose to ignore it or push it off.”
Once you do have some data it’s worth paying attention to churn, also because it tends to be an indicator of whether you’re solving a real problem for customers. If they’re not sticking around, you need to figure out what it is that’s causing people to churn. You could have a fundamental problem with the way you’re solving things for your customers.
Is there a particular threshold of churn that might indicate you’re not really actually solving a problem (or solving it well) and that’s why people are abandoning?
Yeah, for most companies, if you’re in the double-digit churn, that is a low-hanging fruit for you to solve. There’s likely a common problem for you to solve across all customers. The higher you get in the double digits, the bigger product problem you likely have. At ten percent, you’ve probably got something that you can just adjust. You start getting into like the twenty percent range and you’ve got serious issues that you need to address, like right away.
Do you have a particular workflow method that you’ve found to work best?
Most recently we’ve been testing out six-week product cycles. We spend a couple of weeks beforehand talking through what features we think need to be built, what improvements can be made, and coming up with a couple of big items and then a handful of small items that we think we can accomplish in a six-week time frame. We scope all that out and then jump in.
What have you noticed are the most prevalent issues SaaS businesses can fix?
I do think churn is the most prevalent issue. Most people know that they need to get churn down, but they choose to ignore it or push it off. They say, “Yeah, we know, we’ll work on it. Yes, our churn is bad now, but we’ve got these big product improvements coming out and that’s going to fix it. Then, it doesn’t. So it always gets pushed and pushed and pushed until churn does outpace your growth and then it’s oh gosh, and then it takes months to fix that. You end up losing money because you didn’t fix your churn in time. So that’s one I do think that’s a really prevalent issue.
As far as what I think SaaS companies will focus on in the next year, I feel like a lot more companies are realizing that features don’t solve problems in and of themselves. You need this sort of holistic picture or view. It’s the features plus the customer support plus the onboarding plus…I mean, it’s just all the things mixed together.
On top of that, you have to market that appropriately. Especially new companies, I think, have a really hard time doing marketing correctly or it’s just sort of this after the fact. Oh, we’ll get somebody to throw an article together. We’ll post this cheesy little blog post every couple of weeks or something and then we’ll call that content marketing and that’s it.
I think companies are realizing that marketing has to play a really heavy role in growth. It’s the marketing plus an end product that has this holistic solution for the businesses instead of just little features here and there that hopefully reduce churn. To me, this is big picture thing that companies are realizing it’s the sum of all the parts that matters instead of these one specific bits.
It takes work to produce solid stuff that people want to read and I think people too quickly try to just turn it into some checkbox on a to-do list and call it a day, but it has to be a pretty core thing if you’re gonna make it work. I spend probably 25% to 30% of my time just on content. Because it’s just this primary growth method for us or growth channel for us. It pays off, both in the short term and very much in the long terms, so because we don’t have to have this exponential growth right away, because we are playing the long game, then I need to produce content or do a marketing method that also can play the long game with us.
How do you know what changes to make to your strategy and how to communicate with your target audience?
We actually started doing something a few weeks ago that’s proven to be really enlightening. I send an email to customers who are pretty active, in which I tell them like I’m doing some product research and trying to figure out better ways that we can serve them. Then I ask the question, “What is something that we could create that would make you tell every business you know about Baremetrics?
What I don’t want is for customers to tell us a feature. I want them to tell us a problem that they’re having. It almost feels generic, but, posing the question to customers that way—the responses have been fantastic. It’s everything from the features that people want or, even better, what their biggest problem is right now. And they’re telling me a problem that nobody else is solving for them because it’s still a problem for them.”
Of course, Pigford notes, it takes time to build features. Development takes time and we cannot will products into existence yet. This method is a long term strategy for staying on top of the market’s needs, and ultimately, if you are constantly asking consumers where their pain points are, you will be in touch with the market, capable of providing the answer to customers’ problems.
In a previous issue of SaaS Mag, we focused on the importance of product-led growth and how it is the water wheel by which a business turns customers into evangelists. Pigford’s advice echoes what nearly all successful SaaS founders like David Cancel and Patrick Campbell will tell you: ego aside, if what you are building is not solving a problem for your customer, and solving it well, the long-term trajectory for your SaaS business will suffer. He works hard to build a culture of getting to the heart of a business, reflecting on your operations, and as he mentions, creating a place where people want to work. Getting down to the bare bones—without emphasis on title, pride or trying to force a product customers don’t love—seem to be the building blocks of a successful business.