However, when it comes to working out the ARR, as outlined above, it’s not quite as simple as the monthly figure x12, as the CEO of Buffer explains:
“The way we’ve measured “Revenue” has been to take the total revenue we generated in the month and use that. For “Annual revenue run rate,” we simply multiplied monthly revenue by 12. Our revenue includes people who pay us monthly and also those who pay for the whole year in advance. This is where the miscalculation lies.”
“As a recurring revenue (SaaS) business, we can’t guarantee we will get the same number of people paying for annual subscriptions month after month, and we are counting revenue that is in the future. The correct way is to ‘amortize’ and divide those annual payments by 12.”
“In this way, we’re only counting the next 12 months of actual recurring revenue we have already acquired.” Joel Gascoigne, CEO & Founder, Buffer
When trying to work out ARR, remember to take into account those paying every month, and annually. Also, take away those likely to stop subscribing, based on current churn rates. This should give you a fairly accurate ARR.
SaaS CMOs and CEOs could also run a projections spreadsheet, based on the potential value of new customers entering the pipeline, so you can start to project forward. But don’t count this into actual revenue, until a client starts paying.
Next, we look at the various steps SaaS CEOs and marketing teams need to take to drive forward growth.
2: Setup traffic and user analytics dashboard
Website and mobile app analytics are useful, to ensure you’ve got a clear idea of the volume of traffic, time people spend on the website or in the app, and click-through rates. But this is only one part of the overall marketing picture, albeit one of the best ways to track key SaaS metrics.
Whenever possible, aim to bring all the metrics you need to track into a dashboard. To ensure that SaaS leaders can have a quick overview of where the numbers are going every month. When it comes to measuring SaaS metrics before you even put a strategy in place, you need a clear idea of the following:
- Is growth going up or down?
- What do the numbers look like at the top, middle, and bottom of the funnel (e.g. when a customer decides to buy, or not)?
- If you operate using a Freemium model: How many sign-ups vs. the percentage who stay as paying customers?
- When it comes to marketing: what’s working and what isn’t?
- Can we then double down on what is working?
Any dashboard needs to include all of the key SaaS metrics outlined in the section above. Make sure you’ve got a clear handle on MRR, ARR, growth and churn rates, and of course, conversion rates. If you’ve got salespeople playing a role in the sales/marketing funnel, then it helps to understand their conversion rates too.
3: Outline your strategy
Once everything is set up to monitor growth activities, you need to design and implement a strategy. Base this on a few simple questions:
- Who are our customers?
- Where are they?
- How do we reach them?
- What content or advertising would be useful to attract their attention?
- Once we’ve got their attention, how do we keep it?
- How do we convert them from being web visitors to paying customers?
Every SaaS marketing strategy is unique, of course. There is no one-size-fits-all approach. However, many include similar components and are running up against the same challenges: Getting the attention of your target audience and converting as many as possible.
As a former CMO of Slack says:
“Marketing is the fuel to the fire. Once you’ve got great product/market fit, marketing, and all the different tools that we have, everything from advertising to nurturing to conversion rate marketing to split testing to positioning messaging, those are all the tools that can help just accelerate that growth further.” Bill Macaitis, former CMO of Slack
Normally, the first year or two in the lifecycle of any startup and software company is finding what works and what doesn’t. To measure everything as effectively as possible, you need analytics and a dashboard. That way, you can see whether the content is generating leads, or how many are coming through advertising and if social media is increasing traffic.
4: Generate traffic
Once you’ve decided on a marketing strategy to implement, you need to know how to move forward. Will you hire a marketing person, or work with an external agency, or freelancers, or a hybrid mix of the above?
The aim of any marketing strategy should be to get traffic to the website and app if you have one. Once you’ve got visitors visiting, the aim should be to convert as many as possible.
5: Monitor performance and increase conversion rates
This is where you move from marketing into either sales or on-boarding, depending on the pricing model you operate. When software sells for a higher monthly price and therefore requires custom pricing for every new client, you often need salespeople. Whereas, those that operate on a lower-price freemium model often need a smooth onboarding process to generate the sort of conversion rates you need.
This is where analytics plays such an important role. When you know what the figures are looking like, you can start to identify ways to increase conversion rates. Whether that means improving the user experience and onboarding, using AI-powered bots, FAQ sections, videos, instant demos, or other methods to generate more revenue.