We recently completed an internal review of the dashboards our executive team uses to review the health of our business. We wanted to consolidate the various dashboards our team was using into a single unified view of our business. But before we dove into analysis, we decided to pull together a small task force to develop a conceptual model of our business to guide the effort.
Drawing up a conceptual model of how your business works and how all of your KPIs interact is a good way to make sure that everyone is looking at the business the same way. And once you’ve gotten buy-in from relevant stakeholders, this model serves as the definitive roadmap for your analytical project. I highly recommend it to anyone undertaking any serious analysis.
I also have a very specific recommendation for how you should go about building this model. I like to call it “metric decomposition”—breaking down a metric into its component parts.
- Step 1
Choose a very small number of metrics that are the very most important metrics for your business. These metrics are the best view into the most important aspects of our business. For us, these metrics are ARR:CAC, net new MRR, and LTV:CAC. - Step 2
Take your top level metrics and break them down into component parts. For example, we broke down net new customers into new customers, churned customers, and debooked customers (customers who never were successfully onboarded). - Step 3
Repeat step 2. Continue breaking down your metrics into their component parts until you’ve reached the point of diminishing returns.
This process leads you to a model that allows you to ask “why did we succeed?” or “why did we fail?” for any of your top level metrics, and then trace that success and failure into each component metric to diagnose problems. It also allows the people who spend their days working on one specific metric to understand how their efforts fit into the larger success of the company.
The model we came up with has been incredibly valuable for us, but it’s also a great tool for any SaaS businesses. I’ve embedded it here (our designers got their hands on it first). It includes everything from new customers, new MRR, churn, debookings, gross margin, CAC, and more.
This diagram helps us communicate how our business works quickly and easily to everyone at the company. Even for experts on SaaS metrics, it’s hard to keep track of how every metric impacts every other metric. SaaS businesses are complicated machines, and this model makes it easier to understand how ours works.
Now that we have this map of our KPIs, we’re about to roll out a dashboard with every one of these metrics on it. And yes, we track every piece of data for every one of these metrics within our own RJMetrics account. We also have goals for every single metric baked into our 2015 financial model and will be measuring actual performance vs. goal for every single KPI, updating automatically every day. This will allow us to quickly diagnose any variance from goal throughout the business and trace the problem to its source.
If you’d like help creating your own dashboard, just let us know. We know a thing or two about measuring SaaS businesses.
