The Saas Math Funnel: Acquisition

For the 3rd instalment of SaaS Math, we’re going to dig into the 1st step in the conversion funnel: acquiring users. For this and all posts on the conversion funnel, I recommend you read/ watch Dave McClure’s excellent talk on Metrics for Pirates.

As the name suggests, acquisition is all about driving new users, readers or buyers depending on whether you’re running a SaaS, media or e-commerce business respectively. We’re just focusing on SaaS here but many of these principles flow into the other business types.

This is not a ‘how to’ acquire users post. Though I will share some thoughts on that. Instead it’s about the math behind acquisition. What and how to measure when it comes to acquiring users.

The image to the left is a mockup of a custom dashboard we built for a startup I used to work with. All numbers are fictitious. While dashboards are great for getting a quick sense for things, when it comes to measuring your conversion funnel (from web site visitors to users to paying customers and referrers) you want to be looking at data over time vs. a snapshot.

When you are working “in” your business, making changes to copy, A/B testing, updating your application, etc, etc, then you should be looking at your data daily. ABT. Always Be Testing.

But, when you are working “on” your business; i.e. sitting back to assess performance and make decisions weekly and monthly data are better.

What To Measure

There are some pretty basic things you should be measuring when it comes to user acquisition:

Traffic: New unique visitors (UVs) during the period. It’s important to isolate for new vs. returning visitors as only new visitors (or more accurately, visitors who have not already created an account with you) should be considered in determining conversion rates.

Conversion rates: UV to Sign up: What % of new UVs create an account?

Changes: In all aspects of your funnel you need to be very sensitive to changes from prior weeks. If, for example, 10% of new visitors usually create an account but only 8% do this week, then something may be wrong. Either some new web site copy is not working or new acquisition channels are not, or something in the flow to sign up is broken, etc.  All changes, positive or negative, need to be fully understood.

Growth: This is related to changes, but you also want to look at week over week growth in web traffic, new users, etc. This will give important trend data for business planning.

Source performance: You want to use a large number of paid and unpaid traffic source. One of our larger portfolio companies tracks 75 separate sources for users. Obviously you need to know which source or channels perform the best so that you can double down on them.

The challenge in measuring source performance is that a visitor may come to your site several times before deciding to sign up. This is especially true if your service is expensive or if there is no free version. So you  cannot simply take the source of the last visit before signing up as the one that generated the new user for you. You need to be able to track back to the first source.

Google Analytics alone will not do this for you. My companies have used scripts and logs to properly match up new users to their true source. There may be some off the shelf packages that do this well. If so, I’d love to hear about them.

Targets: The best performing businesses tend to have clear targets. If you don’t set weekly targets then how will you determine if your actual results are good? Always set targets for each aspect of your conversion funnel and make someone in your team responsible for each aspect.

What not to measure

When it comes to acquisition, the one thing to not do is focus on “vanity metrics“. Don’t spend time think about your total web traffic. Only focus on how it converts. Similarly, don’t focus on total user count, but instead focus on new user acquisition and how fast your user base is growing.

How to measure

I’ll be digging deeper into some great services like Kiss Metrics, mixpanel, RJ Metrics, etc in the future. These can all be great tools for SaaS startups. The starting place obviously is Google Analytics (GA). Properly setup with granular goals for each channel, GA can be powerful. But it’s not enough. You will also need some scripting or other tools to figure out true source performance (see above) and will likely want to be running a number of custom database queries each week.

I always recommend having one analytics package for your website and a separate one for your application.

This simple example below puts all this stuff together:

We see basic data on web traffic and user growth over a 6 week period. This allows us to track growth in traffic and key conversion rates. In reality you would further drill down by traffic source.

I’m probably leaving some stuff out, but that’s the high level on SaaS acquisition math.

  • http://www.incion.com/ Kim Meredith Smith

    good nice to see this blog..

  • http://twitter.com/carmenmardiros @carmenmardiros

    Just wanted to say that Google Analytics does proper source attribution if you use Campaign Tracking parameters consistently. Not only that but it also has the fabulous multi-channel funnels reports which show how different channels (and social media) interact before leading to conversion (which sources assist in conversion and which ones close the deal).

    • http://startupcfo.ca Mark MacLeod

      That's good to know and I would say is a relatively recent addition. Have not seen that done well in the past

  • http://twitter.com/sfahey @sfahey

    Hey Mark, Great Series.

    What do you think about the new Google Analytics Premium? Have you looked into it yet? I am wondering if this will be better than some other companies you mentioned…? I haven't setup a tracking system yet other than basic Analytics and want to consider all my options. Also I heard Kiss added cohorts this week, wondering if they are the first to do so….

    All these articles are great btw. Really appreciate the info.

    • http://startupcfo.ca Mark MacLeod

      It's a great addition to google analytics. Does not go deep enough into your actual app, so those companies should be ok. If Kiss now has cohorts then that is a great option.

  • http://dashthis.com Stephane Guerin

    Regarding new unique visitors I don't agree. It can take 2-3-5 visits before a user sign up. For example, I visited dropbox many time before signing up. So in that case, I'd also check on the average number of visits before sign up and this would tell me a lot on my visitors or communication strategy.

    • http://startupcfo.ca Mark MacLeod

      For sure and that's why I was talking about source tracking in order to track you from your 1st visit.

  • http://twitter.com/shradr @shradr

    Great post! This stuff is fodder to a Saas obsessed mind, much like the one I own :-)! The one thing I am looking for is a great referral app – any of your portfolio companies use one?

    • http://startupcfo.ca Mark MacLeod

      I know some companies that use 500 Friends for loyalty and referral. But that is more in the e-commerce space. Performable (now part of Hubspot) likely impacts all parts of the funnel. But I don't know any apps that are specifically focused on referral. Viral loop elements are usually a core part of the user experience and thus done internally

  • Jason Knudsen

    Ah.. my favorite subject after much of your brainwashing.

    I've been hearing great things about http://mixpanel.com for easily plugging into your own site and you're off and running with some awesome metrics

    • http://startupcfo.ca Mark MacLeod

      Nice. I'm going to ask them for a demo account and check it out. Of course, nothing is as good as Knudderforce…