Reflecting on your business is a difficult thing. Take all the complexities you face in life as one person, and multiply that by the number of people that work with or are served by your company. At this scale, the only reliable tool for self-awareness is analytics, and even then we often run into trouble.
These metrics are just math, they can't knowingly deceive you, but you'd be surprised how often you get in your own way with analytics. Here are just 3 examples:
1. You're A Creature of Habit--With Massive Blindspots
Think about tasks you do all the time. How much thought do you give them? Mindless, repetitive tasks are just that: mindless. For many companies, calculating their monthly recurring revenue (MRR) is a matter of routine. It shouldn't be.
A recent study at ProfitWell, a financial analytics service for subscription businesses, found that out of 50 SaaS companies, the majority were making some mistake in their calculation. Whether they were omitting an expense or counting revenue that didn't recur, they were all convinced they had more money than they actually did.
Miscalculations can have massive consequences for your company. Your MRR defines the financial reality of your business, and overestimating your wealth has a domino effect throughout your entire company. Spending money you don't have is generally frowned upon, and it can sometimes result in the death of your business.
What You Should Do: Don't calculate your own MRR. In the same way that people with complex incomes need an accountant during tax season, your company needs a specialist. Financial metrics services like ProfitWell specialize in calculating revenue, minimizing mistakes and enforcing an industry-standard system of measurement.
2. You're Eager To Use Shiny New Metrics, Even If You Don't Understand Them
New metrics mean new insights about our business. We like that. Whenever a new metric is created, there is a rush among companies to apply it to their data. However, misinterpreting how a metric applies to your business can fool you into thinking your company is underperforming, leading you to change course and disrupt your current success. Example: the SaaS Quick Ratio.
For the uninitiated, the Quick Ratio compares your revenue gains to losses. The formula is simple: your total MRR growth divided by your total churn (the subscribers you lose each month). By putting growth in the context of churn, the ratio claims to show a more complete picture of growth.
Quick Ratio creator Hamid Mamoon, a venture capitalist at Social+Capital, gave some widely-circulated advice that a ratio of 4 (4 dollars made per 1 dollar lost) is a good goal for startups in their growth stage. This is true, unless your company has passed its rapid-growth stage. In fact, one study found that successful companies in their steady-growth stage had an average Quick Ratio of only 2.68.
What You Should Do: Make use of a sales analytics service like InsightSquared. They offer a Benchmark Analysis to help you interpret your metrics accurately. Analytics isn't art history. It's not enough to just appear to understand it.
3. You Skimp On Work You Should Outsource
Cutting costs by doing things in-house isn't just a habit for startups, it's often times a necessity. Part of growing as a company, however, is learning that a penny saved can mean a workday lost.
Analytics is always the last part of every project. You can't collect data until customers are already interacting, and at that point analytics often becomes an afterthought. It gets filed under "useful, but not worth pouring resources into" However, the actual cost of handling data in-house is much greater than outsourcing.
It's easy to imagine building your own analytics. Part of the culture around startups involves doing things in-house and hacking your way to success. Simply put, the mess involved in data cleanup in unbelievable, and even if you have the skill set, the time you lose wrangling your data will far outweigh the cost of hiring someone.
What You Should Do: Accept the limits of what you can do alone. Outsourcing this work through a company that specializes in data and analytics like Amplitude is guaranteed to save you immense amounts of time and energy.
Using the right metrics is a crucial part of analytics, but it is only half the battle. The real key to analytic success is not getting in your own way.