Do you know what constitutes a user? Do you know what constitutes a customer at least? What if your assumptions to answering these questions are off the mark? Lincoln Murphy writes about how to clear up any uncertainties in your SaaS deployment by addressing metrics that point you the wrong way.
Finding the Real Numbers
Murphy starts by saying that “free trial” users are basically a vanity metric, so you can disregard them off the bat. To really define a user, you should only look to those who are engaged in using the product; of course, this only works if your company has already agreed what “engaged” should mean. Engaged should mean more than a user who logs in, or installs. It should be the people who are clearly using the software to derive value.
Another error in how we view the metrics regards churn. Murphy notes that there will be customers who, likely for contractual reasons, cannot churn during a given period. If you still include these fixed customers in the churn rate, it is going to make your numbers sound better than they really are. This same principle applies to only counting customers who are actually customers in all your SaaS metric calculations:
Many SaaS companies will have a cohort of customers that – immediately after the sale or right after their conversion from free trial to paid customer – really shouldn’t be considered a customer, yet.
Maybe it’s a cohort of customers that came from being featured on Product Hunt, or from being included in a bundle with other SaaS products, or by running a discount campaign (the way I do discounts doesn’t cause this problem, but I digress) where we aren’t sure if they’ll stick around.
Maintaining good metrics requires you to be honest with yourself and practical about what the numbers should show. Vanity only gets you so far. You can read the original post here: http://sixteenventures.com/saas-metrics-customer-definition