We know that building a startup can be a wild rollercoaster ride. And as an early-stage B2B SaaS founder, you must be looking for ways to measure your startup's traction. We've been there too.
For startup founders, understanding business traction is crucial in establishing and achieving long-term success. Traction refers to the ability of a startup to attract new customers and demonstrate consistent growth. It serves as the foundation for a company's future, validating the worth of its business model and facilitating the transition from startup to standout.
Investors prioritize seeing a startup with a well-defined value proposition, a significant and expanding market, a scalable business model, and sufficient momentum to warrant their interest in additional calls and to progress to the next stage. Therefore, having more traction increases the likelihood of attracting potential investors and receiving the necessary funding.
Keep in mind that traction metrics can differ depending on the stage you're at:
This guide will provide information on maintaining momentum and avoiding burnout, as well as strategies for staying on track. It will also cover key metrics to monitor and the importance of traction in attracting investors. Let's dive into eight key metrics you should be keeping an eye on as a B2B SaaS founder:
Acquiring new users and retaining existing ones is essential for establishing a strong customer base. User acquisition showcases the efficacy of marketing initiatives and the attractiveness of your product or service. Alternatively, retention proves your startup's capacity to consistently provide value and meet customer expectations, thus retaining them and increasing the odds of recurring revenue.
Traction at the pre-seed stage can be more difficult to prove since you may not have early signs of user retention, or paying users yet. Make sure you have a deep pipeline of B2B pilot customers from your existing professional network to test your product and provide honest feedback. The feedback of early adopters helps investors understand the market opportunity. This also helps validate the go-to-market hypotheses and sales processes, which is a strong signal for future product monetization.
Keeping your existing customers happy is just as important as acquiring new ones. Here are some critical customer retention metrics for B2B SaaS founders:
Tracking sales growth enables startups to assess their sales strategies and gauge the market demand for their products or services. Tracking sales growth is a critical step for any B2B SaaS startup looking to assess their traction in the competitive market. Companies must understand their current performance in order to make informed decisions about where and how they need to improve. Consistent sales growth serves as a favorable indicator of progress, as it demonstrates the company's capacity to generate revenue and increase its market presence. Celebrate the wins, learn from the not-so-wins, and keep pushing forward.
To measure sales growth, startups should track four key metrics: total revenue, monthly recurring revenue (MRR), customer churn rate, and customer lifetime value.
Knowing how quickly you're burning through your cash reserves is essential. Your burn rate will help you determine how long your runway is and if you need to adjust your spending. Track your monthly net cash flow (cash in minus cash out) and aim to extend your runway as much as possible.
ARR is the lifeblood of a SaaS company. It's the total value of your subscription revenue, normalized over a year. ARR is also often used in valuation conversations, where a higher ARR can result in a higher valuation and therefore more potential capital raised. Track your ARR growth and aim for a healthy growth rate. This will vary by industry, so do you research to understand a healthy benchmark for your sector. Remember, slow and steady wins the race. Focus on acquiring quality customers, and retaining them and the ARR will follow.
We get it – spending money to make money is part of the game. But it's crucial to be smart about it. CAC is a metric that measures the average cost of acquiring a new customer. It's important because it helps you understand if you're spending your hard-earned money wisely. Keep your CAC in check and you'll have a better shot at growing your business sustainably.
To calculate CAC, divide your total sales and marketing expenses by the number of new customers acquired during a specific period. If you're unsure about what's a "good" CAC, don't worry! Just focus on keeping it as low as possible while still attracting high-quality customers.
A strong customer pipeline will differentiate a successful startup from an unsuccessful one. Understand that not every customer in your pipeline will close, so you should have at least 5X your desired number of customers in your pipeline, since close rates can vary between 10-20%. It's essential to track and understand how your prospective clients are moving through the sales funnel. Here are some key metrics to keep an eye on:
A solid business model is the foundation of a thriving B2B SaaS startup. To evaluate its effectiveness, consider these key metrics:
Traction metrics give investors and partners the insights they need to decide whether or not they should invest in your company, so showcasing strong traction metrics will enable you to raise additional rounds of funding and maintain strong investor relationships.
As a founder of a B2B SaaS startup, it is essential to keep a firm grip on these traction metrics to ensure your business is maintaining revenue and you don't run out of money. Measuring traction can also provide an indication of how well your product is being received by customers and whether there is potential for growth.