“If you cannot measure it, you cannot improve it” – Lord Kelvin

When it comes to your SaaS business, if you aren’t already obsessed with customer measurements and metrics, you should be. After all, SaaS is a recurring revenue business, which means the real profits occur over the customer’s lifetime, not at a single point of sale. And that means understanding which customers are happy and why -- and which ones will go on to become loyal and why -- is crucial to understanding how to grow your business. That said, if you aren’t measuring the right things you can’t really be armed with the knowledge you need to make informed decisions.

That’s where “Measure This, Not That” comes in. In this series, we’ll show you where popular opinion gets it wrong, and which metrics you should ignore and which ones you should really be focused on in order to gain valuable actionable insights into your customers.

Measure This: Conversions

Not That: “Conversions”

What do you usually measure? “Conversions”

Why are you measuring this? 

When you set about to measure conversions, you probably want to learn how many customers you’re attracting, in large part to gain insight into which marketing efforts are worth the time and money you put into them. But, if to do that, you’re looking at sign ups -- you’re wasting your time.

Sign ups -- or acquisitions -- do not indicate conversion. They only tell you one thing: how many people signed up for your app or product. And focusing on this as a measure of anything is pure vanity. Kissmetrics defines such vanity metrics as “all those data points that make us feel good if they go up but don’t help us make decisions.”

It’s even worse than that: Not only are vanity metric like sign ups useless when it comes to decision-making, they can actually lull you into misguided decisions. After all, if 10,000 people sign up for your product, if only one person becomes a real paying (and engaged) customer then those other 9,999 people mean nothing -- and shouldn’t form the basis for any decisions or strategy on your part.

What You Should Measure Instead?: Real Conversions

Real conversion metrics have value and context. They actually tell you something -- otherwise, why go to the trouble of measuring them at all?

And in order to have that value, this metric should be predictive of something, specifically of lifetime customer value. In other words: If a person does X, then they are more likely to become a valued lifetime customer. Clearly, signing up doesn’t predict any such thing, so what benchmarks should you look for instead?

  • Active trial evaluators: In other words, not the people who merely sign up, but the people who go on to become actively engaged, logging in and using the product every day
  • Those who become paying subscribers after the trial period
  • Active users who stick around for 90 days
  • Additional value-added factors: Perhaps there are additional conversion factors that add value depending on the nature and type of your business, for example, perhaps they not only buy your product but they go on to leave a good review of your app - because a negative review removes value even if they bought it

And measuring real conversions helps you determine where you’re getting the most bang for your buck, marketing wise. For example, say you spend $50K on Facebook ads. You get 10,000 sign ups, but only 1,000 users are active during the trial period and go on to buy the product after the trial. On the other hand, at the same time you spend $20K on promoted tweets, get 5,000 sign ups -- and 2,500 people actually became active trial evaluators who go on to buy the product. So where should you be cutting back and reallocating your marketing money? If you only measure sign ups in the above example, you wouldn't get an accurate picture of the effectiveness of your marketing efforts, and you’d be spending your money inappropriately.

So stop wasting money chasing after those vanity metrics, and start measuring conversions that have real value.

Check out the other posts in our "Measure This, Not That" series:

Measure Activity Churn, Not Customer Churn

Measure NPS, Not CSAT