Five Signs a SaaS Startup Will Grow – What the Product Data Tells You

Build a great product, and people will come. 

Many SaaS founders believe in this saying, which explains why you might invest all of your time and resources into building great products. But if few people or businesses sign up, your faith in the saying may soon crumble. 

Many products fail because they only target people who know what solution they need. These prospects understand their problem, how to fix it, and they’re searching for a solution. 

However, this group is just a small percentage of your potential market. The biggest group is people who have a problem but don’t understand how to fix it or even know what a solution looks like. 

To achieve great results, you need a great product – a product that can quickly convince customers that it’s the best solution for them. 

One quick way of assessing the quality of a product and its market fit is with a product analytics solution. Luckily, there are many options on the market with free plans, catering to startups.

Here’s a list of things to look for when evaluating whether your product answers your market’s needs and helps your startup grow.

1. Onboarding Rate

The first metric to check is the onboarding rate. 

I define onboarding as the process people go through from the moment of sign-up to the moment of experiencing the promise of the product for the first time. So you need to identify and define the action that delivers on that promise. 

Once identified, you (or your product analytics solution) calculate the conversion rate between the people that sign up and those that experience that action or that promise. 

An onboarding rate of over 60 percent indicates you have a great product, that people can quickly experiment with and see the value the product provides.

The onboarding rate is crucial for the growth of a business because only onboarded accounts become customers. They experience the product rather than read about it in marketing materials, so they can easily decide whether to upgrade to a paid plan. 

When the onboarding rate is lower than 40 percent, you need to fight for signups to generate enough paying customers. 

2. Activity Retention

The next metric to review is the activity retention of the accounts that onboarded. (Only check onboarded accounts or retention can be very misleading.) 

  • What is the first week’s retention rate? A strong retention curve tells you that over 60 percent of onboarded accounts will return to use the product in the first week. If the product retention curve is over 80 percent, your product offers something people want and probably need. 
  • Where does the retention curve become stable? Again, this is the activity retention curve, not the revenue retention curve. The activity retention curve tells you how engaged people are with the product. 

The retention curve should stabilize. If it decreases weekly, people aren’t in the habit of using the product. But if it flattens after the third or fourth week, people will likely use your product consistently for the long term. 

A consistently stable retention rate of over 40 percent indicates your product is doing extremely well. 

3. Number of accounts with medium and high engagement

Next to review is the number of accounts with medium and high engagement

Products with few customers or that target people who know what they’re looking for will negatively skew your NPS. Instead, check the engagement of all of your customers, not just people who responded to your NPS survey. 

The engagement score usually correlates highly with the NPS. Highly engaged customers will always score a 9 or 10 on the NPS. Evaluating the percentage of medium and high engagement customers helps you validate your product and learn what needs to change to boost revenue and signups.

Engagement also helps you measure how much value your product delivers to a customer regularly. If that value is very high, you can experiment with pricing, for example. But when that value is low, you might need to develop the product or even consider lower pricing tiers. 

How Do You Define Engagement? 

To define engagement, review the actions that answer the following questions:

  • What are the main reasons people use your product? 
  • How does your product address those reasons? 

A product anlaytics tool should deliver a score every time a user or account performs engagement actions. By applying a formula that looks at the frequency of those engagement actions, you can split engagement into four categories: 

  • No engagement is an active account without any engagement actions.
  • Low engagement is an active account whose engagement score matches those that have churned in the past. 
  • Medium engagement is your regular customer. 
  • High engagement is an outlier. 

Medium plus high engagement should make up more than 30-40 percent of all active accounts. The medium engagement score should also correlate with the behavior of a person that gets significant value from the product regularly. 

Also, measure how much engagement your product can deliver to its top users. Often, 1-2 percent of these users are tens or even hundreds of times more engaged than the medium engagement users. Then you know your product has great potential.

4. How Long Does Conversion Take?

Finally, measure how long it takes to convert a signup to a paying customer. Is days, weeks, or months? 

Before investing in marketing, decide whether you need to develop the product a little further to convince people to hand over their cash. 

People upgrading before the trial is finished is a sign of a valuable product that will support further growth, freeing up your marketing budget.

Review the percentage of the customer accounts that add credit cards before the free trial is finished. If it’s over 20 percent of your accounts, you’re onto something big.

Next steps

These four metrics demonstrate you can build a profitable business if your product fits your market, is well communicated, and is distributed across your sales channels. 

If all of the above signs are positive, invest in marketing. Deliver results quickly with an end-to-end report on the performance of your marketing channels. Maybe start with ads and optimize them until the results are close to or above the benchmark already set by the product organically. 

But that’s not all. One last metric I pay attention to when implementing growth programs is sign-up intent.

5. Sign-up intent

If you’re going to invest in attracting traffic, measure how many of the people who discovered your product showed sign-up intent. Over 20 percent sign-up intent tells you your targeting is going well. A conversion rate of over 50 percent indicates your messaging and positioning are convincing people to try your product.

Then I simply iterate and experiment time and time again until I hit these numbers.

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