There are key SaaS metrics that you hear over and over in SaaS. They provide a snapshot of your success. They are the heartbeat of the business. They are what investors look at when considering investing in your business.
These metrics are universal and commonly blogged, written, or spoken about. But, since integration is such a technical part of the SaaS business model, it's not often tied to these metrics. The relationship is often overlooked.
In this post, we'll dive into how integration impacts key SaaS metrics.
Key SaaS Metrics
You can find all sorts of lists for "key SaaS metrics" with some variation between them. SaaS is as much art as it is science, and these metrics are not usually the same as more universal GAAP accounting metrics.
In this post, we'll look at how integration impacts these key SaaS metrics:
- Revenue
- Churn
- Customer Acquisition Cost
- Net Promoter Score
- Time to Value
We aren't going to go too far into what each SaaS metric means, but this article by David Skok at Matrix Partners gets into heavy detail about these and other SaaS metrics. It's worth a read if you run a SaaS company.
Integration & SaaS Revenue
Revenue is an easy one to understand. How much business (in dollars) do you have coming into the top line? What are your sales? Does anyone want to buy your product?
This isn't an accounting blog, so we'll be intentionally vague about the specifics of revenue, deferred revenue, gross profit, etc. For now, just assume revenue means sales coming in.
How does integration impact revenue?
Most people view integration as a cost initiative. That's because the common opinion holds that integration is a necessary evil and a technical liability that must be moved out of the way.
SaaS leaders with this perspective are missing a huge opportunity to think of integration as a growth initiative! This is especially true in B2B SaaS.
Picture this: You're the CEO of a venture-backed SaaS company. You just closed a $3 million Series A round. You've got a board of directors (largely representing the VC who backed you) who expect to 10x growth or more for that $3 million.
When you look at your sales pipeline, you should see it as a pool of possible revenue. No one closes 100% of their pipeline--not even close. But, your two goals are grow the pipeline and close the highest possible percentage of it.
But wait...
There will be some amount of that pipeline that cannot be unlocked, even if those people are kicking down the door to buy your product. Those prospects cannot become your paying customer, because you lack an integration to a key system and that integration is a "must have" requirement.
Those integration feature requests get stacked up in your product backlog and prioritized with everything else, but every day you don't have that integration is a day you can't sign that SaaS customer.
The faster you are able to deploy integrations requested by your customers, the sooner you can sign them. Remember, your customers are subscription-based, so signing them sooner has compounding returns.
Integration & Churn
Directly opposite revenue and customer count, churn is a measure of how many customers you are losing. It's measured in both subscription dollar churn and customer count churn. Both are important to obfuscate away the loss of a large paying customer from an actual trend.
Churn is usually expressed as a percentage of revenue or number of customers lost over a given time period. You can calculate it over any time period, but in SaaS it's very common to do so as a trailing twelve month average. This helps to smooth out anomalies to uncover actual trends.
How does integration impact churn?
Here are some of the common reasons customers leave, increasing churn. All of these can be caused by lack of certain integrations or deploying low quality integrations.
Unfulfilled Feature Requests
Maybe some integration wasn't required at the time they became your customer, but things change. That customer might have grown and now faces new obstacles, like the need to adopt a CRM or ERP. That customer may have deferred that requirement with the hope that you'd provide it later. The lack of that important-now-critical integration feature is likely to cause them to leave.
If you were able to bring that integration feature request to the top of the backlog, you'd have been able to keep that customer. If you can deploy integrations cheaper, faster, and more effectively, it's more likely that request makes it there.
Difficulty Using the Software (or Manual Workarounds)
Your product is not the only product your customer uses. It's one tool in their tool belt. It's part of their workflow (maybe even a large part), but it's not the whole thing. I don't care how big and important you are--looking at you ERP vendors--you are not the end all, be all for your customer.
If your product doesn't play well with others, it causes your customer to create manual workarounds. They have to import/export CSV files or manually duplicate data or design complicated workflows. Or they have to work with another third party solution integrator (SI) or integration platform as a service (iPaaS) to get it done.
This creates cost, risk, and time lost for your customer, and opens the door for them to evaluate alternatives that harmonize with the rest of their software stack more than you do.
Make it as easy as possible for customers to do business with you, and you'll lose fewer of them.
Negative Impact on Their Customers' Experience
Maybe you have the integration your customer needs, but if it doesn't work well, the customer is still at risk.
Low quality integration means there's risk for data loss, security or compliance violations, latency, and slow downs, and data inaccuracies. Integrations are serving your customer's customer. If your integrations don't function well, your customer takes on risk, and nothing turns off a CEO like something that turns up customer risk.
Integration & Customer Acquisition Cost (CAC)
Customer Acquisition Cost (CAC, or "cack") is a measure of your sales and marketing effectiveness. If it costs you $100 to acquire 10 customers, then your CAC is $10. If each customer that costs you $10 to acquire averages you $25 in revenue, then you're in good shape!
How does integration impact CAC?
So, if CAC is a sales and marketing measurement, what does that have to do with integration?
As a SaaS company, the ability to offer integrations into more systems that more people request integrations to helps your close rate. It means the denominator on that CAC calculation is a larger number, making your CAC lower.
"No" is expensive. Once you get a lead into your pipeline, you've already made the marketing investment and most of the sales investment. Those are sunk costs. If they tell you "no", then those dollars are for naught.
By offering more, higher quality integrations that align with the requests of your customers and more importantly your pipeline, you get fewer "no" answers, meaning your sales and marketing dollars go a longer way.
Integration & Net Promoter Score (NPS)
Net promoter score is a measure of your customer's experience. It's not quite a measure of whether you have a happy customer or not. It's actually measuring how likely your customers are to recommend your product. It's measuring how well you create really happy customers.
The calculation is kind of funky, but here's a good explanation.
How does integration impact NPS?
Integration can create a drag on your NPS if your integration options are insufficient or if the integration is done poorly. The former is an issue, because it causes your customer to create manual workaround or leverage another third party (for another fee) to accomplish their goals. The latter becomes an issue when your integration drops data, takes a long time, or causes other "behind the scenes" headaches for your customer.
That said, you can use integration to improve your NPS by letting add value to your customer. An app integration marketplace, built around your product (think Shopify, Hubspot, Salesforce, etc. for examples), actually make your customers' lives better if it helps guide them to solutions that already work with your product. Your product and its integration marketplace almost become an "always on" consultant.
Integration & Time to Value
Time to value is a metric that helps you track customer risk for new customers and the effectiveness of your onboarding/implementation team. Typically it's just measured as the average number of days until "live" or whatever event you deem signifies that the customer is actually receiving value from your product.
How does integration impact time to value?
Time to value is all about implementation and implementation is where integration hurts the most. We've talked to software vendors where dealing with integration requirements is half of the overall implementation! It's not hard to see how that going poorly increases the amount of time before a customer realizes the value for your product.
Integration slooooows it down.
It doesn't have to though! Effectively deployed integrations that are easy to set up and align with your customers' needs actually contributes to an expedient implementation overall. This reduces time to value and therefore customer risk.
Second Order Effects of Integration
Integration has many second order effects in your SaaS business, and many SaaS leaders fail to notice them. Integration can have positive or negative impact on some of your most important metrics. Watch out for these sneaky ways integration may be slowing you down.
