With so many benchmark metrics to choose from, it can be difficult to land on the right ones for your business. The key is to approach the selection process as a project in its own right. Here are some of the factors you should consider.
As we have just read, SaaS businesses can define and drive success in lots of different ways. What’s important is that benchmarks align with these priorities and strategies. Therefore, benchmarking should be a leadership exercise. However, it can be important to bring in other stakeholders. For example, if the business is shaping up for a new investment round or IPO, there may be some standard benchmarks that the market expects to see. Also, experienced colleagues outside of the leadership team may be able to provide more granular insights and observations in deciding benchmarks for their specific line of business.
Inputs vs outputs
One of the early decisions that needs to be taken is the right balance between input benchmarks and output benchmarks. The former is defined by activities that generate a result (e.g. web traffic, prospecting calls), while an output benchmark is the result itself. For example, both these input benchmarks can be predictors of new customer growth, which is the output benchmark. If you are only measuring outputs, you may miss the root cause; and if you focus too heavily on inputs, you may be overly relying on your powers of predictive modelling.
Access to data
Ambitious benchmarking requires a lot of data. That’s fine if you can find the data, and analyze it. But it’s not always easy. Valuable and up to date external data can be expensive, and often means going to multiple suppliers to get everything you need. That then raises the challenge of analyzing these disparate data sources, often supplied in different formats. Similarly for internal benchmarking. Even mid-size SaaS businesses can run hundreds of different software systems, with data silos between them. It can prove problematic to find and extract the data you need, free from duplication and inaccuracies.
Benchmarking’s value is in helping to steer a business to the right decisions. But if you’re looking at too many benchmarks, they can have the adverse effect, creating noise and confusion. Equally, benchmarking will almost always benefit from segmentation, which discounts less relevant points of comparison and outliers that can skew results. But again, there is a trade-off between how forensic you need to go, to get what you really need. The question should not be “Is this interesting?”, but “Can this be actionable?”
SaaS markets and businesses are a complex maze of connections and interdependencies. So each benchmark should be appraised not only on the value of its insight, but how it relates to the other benchmarks you have selected. The aim should be to have a set of benchmarks that are complementary - in other words, a positive movement of one benchmark should result in a positive movement (directly or indirectly) in the rest, and vice-versa.
SaaS businesses should never be static. Your priorities should adapt to new opportunities and challenges that come with time. As such, benchmarks need to be continually adjusted too. Reviewing your benchmarks every quarter will keep them - and your business - relevant.