Understanding the Leading Indictors for a B2B SaaS Business

Getting in front of your business

I was talking to a serial entrepreneur who just raised over $10 MM for his SaaS venture. Last quarter they grew 70% year over year. Fifteen months ago, that was not the case. The numbers were off, many new customers were not the best fit, and churn expanded. The new sales VP (and subsequent hires) were supposed to take the company to the next level. Instead they were running it off the rails. Here’s the toughest part. It took him months to even realize it. He had to blow things up and re-tool the entire sales operation. I asked him how it got away from him. “We managed to results and did not pay enough attention to behaviors.” This story plays out time and again- it afflicts even the very best of us. We get busy growing our business. And take our eyes off what is really going on.

As leaders we often focus way too much on financial results. Some of the more beloved metrics are recognized revenue, ARR, CAC, CLV and EBITDA. The problem is these are lagging indicators. It can take months for these numbers to tell us something is not right. Shifting more focus to the leading indicators of financial results is essential. And what are these leading indicators? The best measure of future success is customer behavior. Spend time identifying those customer behaviors that foretell financial success.

Focus on what you can control

While driving, a car moving into my lane sent us both to a complete stop to avoid a collision. An angry passenger popped out of the other car. I smiled and signaled them to proceed ahead of me. My unexpected behavior totally froze the other driver. They jumped back into the car and drove off.

I cannot control what others do. I only control what I do, what I say, and how I react. And my actions have a profound impact on the behavior of others. In business, it is the behavior of others that impact your success. By others, I mean customers and partners. The challenge is we don’t control customer behavior. We can only strive to influence it through our own actions. This is where managing behaviors (ours and our customers) is critical. What things were we doing (or could we do) that can influence customer behavior the most?

Experiment with new tactics that the team envisions. Establish a hypothesis of their impact on customer behaviors. Identify metrics to track the efforts. Look for early qualitative and anecdotal evidence that they are working. Analyze and correlate the tactics to measurable customer behaviors. Give them adequate time to have an impact. But move off tactics that don’t show promise. Iterate, measure, adjust, iterate, measure, adjust. Dig deep with the team.

Is the messaging consistent and effective and does it affect the right customer behavior? How well do our efforts align with the customers’ reality? What friction are customers running into? How do we adjust to remove that friction? Are we offering a clear path for customers to learn, acquire, use, and gain value from our offering?

A framework for managing behaviors

Take this example of customer behavior affecting financial results. Our product enabled companies to integrate data across their cloud apps. We spent a lot of time looking at customer behaviors that impacted our churn. Our cohort analysis revealed something really interesting. Customers that integrated two applications had churn of nearly 10%, but if they added a third app to the mix, it dropped under 2% and if they integrated four or more, churn became zero. Number of apps integrated was a key indicator of churn. 

Through that process we found a few simple tactics impacted customer behavior. Providing a periodic design audit uncovered opportunity for expansion. Getting 2 or more customer staff trained led to expanded usage. Providing targeted case studies for connecting relevant apps inspired expansion. We experimented, managed, tracked, reported, and incentivized our way to results. The success and challenges of these efforts was a focus of our monthly leadership meeting.

Take this other scenario. A B2B SaaS company wants to increase their initial average selling price (ASP). Most customers buy their ‘Basic’ edition. ASP will grow by getting more customers to buy their ‘Pro’ edition. Pro has many benefits that can be quantified for customers. Their data shows that when reps lead confidently with Pro, most customers purchase it. Getting the customer to complete an ROI calculator reinforces the Pro decision. Positioning the value of Pro effectively also strengthens the case.

Digging in on the team and customer behaviors also informs strategic adjustments. In the ASP scenario, you may find that a simple price change could impact behaviors. By moving a few items around in your pricing matrix, the mix could shift dramatically. This is the type of iteration that can have a profound effect on results.

Some final thoughts

Some may conflate managing to behaviors as micro-management. The two are not the same.

You still need to provide the team the freedom to creatively execute. Connecting team behaviors to customer behaviors to results is a strategic construct. It provides clear context for the team. It encourages teamwork and collaboration. It holds everyone (at all levels) on the team accountable. It provides transparency for what really matters.

So how can you tell that you are focusing on leading indicators enough?

  • Does your sales leaderboard post key activity metrics like number of qualifying calls in addition to sales bookings?
  • Do you know (and share with everyone) the key usage metrics in your product that lead to customer stickiness?
  • Do you A/B test marketing messages to understand which ones affect the desired customer behavior?
  • Do you track what features get the most use and obsess over it with your entire product team?
  • Do your sales and customer success teams regularly review your best customers for improved targeting and qualifying?

These are just a few examples that indicate you have a ‘behaviors focus’. While not always done effectively, managing behaviors is not complicated. First, deeply understand what customer behaviors impact the key variables that lead to success. Then, identify the behaviors of your team that influence the desired customer behaviors. Finally, focus your management effort on these team behaviors and measuring their impact. 

– Peter Chase, Founder of AccelARRate & Co-founder of Scribe Software

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