Metrics Used For Your 5 Marketing Evaluations In SaaS

Q: "What is product-market fit in SaaS and what metrics indicate you're achieving it?"

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Have you ever tried balancing a ping pong ball on a running hair dryer?

When you first try to insert the ball, the air resists and pushes it out. With a few attempts, you learn to slip it in a certain angle so that it gracefully starts riding the air stream.

When it finally catches wind, it starts revolving and bobbing up & down in a steady equilibrium. However, if you change the air stream or dryer angle, the ball can pop out again.

This phenomenon is sort of how Product-market fit works. It is a state when the product (hairdryer) successfully satisfies market needs (ping pong ball) in a manner that it grows the business.

The journey towards PMF is a gradual process though. You don't get up one fine day and realize that you have it. Your key metrics start moving in the right direction week over week consistently before you know you're onto something.

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It's also incredibly easy to lose your product-market fit mojo because:

• Customer needs evolve
• Your product changes with scale
• Competition can create ripples in your market

Therefore, you don't just "achieve" Product-Market Fit as if it's a mountain peak. The goal is to develop a system to constantly "maintain" product-market fit.

I like to think of Product-Metric Fit as rungs of a ladder. At every rung, some indicative metric starts catching steam leading you to the next one.

1- Acquisition

If you're not getting customers through the door, then you're either not solving a problem the market cares about OR you're awareness/positioning is weak.

Key metrics: MAUs, Free trials, Paid Subscriptions etc.

2- Retention

This is the most popular metric quoted to measure PMF, often measured by retention rate or logo or revenue churn.

Disclaimer: The retention needle sometimes can be slow to register massive movement, so you can use core activation metrics that correlate closely with it.

For example, this might be like:

Hubspot ⇒ # of New Contacts where a sales activity (meeting, email or call) was recorded

Mailchimp ⇒ # of Emails delivered, # of Campaigns Scheduled

Shopify ⇒ %age of New Shops that sold more than $X in first month

3- Customer Satisfaction

Are customers acknowledging you are solving a key problem for them? Do they find it indispensable yet?

Key metrics: Net Promoter Score (NPS) or CSAT

4- Lifetime Value

Great, you're retaining customers across months.

But how long is that runway and is increasing over time?

Key metrics: LTV, LTV Growth over time, LTV:CAC

5- Word-of-mouth

Are you delighting your customers to a point they are willing to tell others about you?

Key metrics: % age of New Accounts via Referrals, Referral Invites Sent out vs. Claimed Referral discounts.