SaaS Metrics -- Should They Change?

April 2021

SaaS Metrics: Should They Change?

Welcome to the April Cirrostratus Group newsletter.

I've believed for a while that Artificial Intelligence (AI) would become an integral part of SaaS solutions but it was hard to quantify or find any list of SaaS companies in that category. Although there is no way to determine if this list is exhaustive, it probably isn't, I have found a list of these companies at the Latka site. This information indicates that there are 469 companies in that category ranging from small to very large and it gives an idea of the range of solutions using AI. I certainly expect this list will grow substantially.

The market for cloud solutions and for SaaS products continues to grow and SaaS valuations are at an all time high.

Metrics have always been important in SaaS and based on some of the information below it may be time to review what metrics you're using.

Paul Ressler

The Cirrostratus Group

How SaaS Metrics are Changing

Just like the above ruler is no longer adequate for all your household measuring needs, your SaaS metrics may no longer be adequate for measuring your SaaS business.

Battery Ventures published their Software 2021 report and in it one of the major changes they identified is to focus more on cohort metrics instead of the standard SaaS metrics based on averages. Openview Partners has built on the concepts in this report specifically looking at Product Led Growth (PLG) companies and the SaaS metrics needed for them. PLG companies are known for lower investment in direct sales costs and significantly higher investment in their products including self-service.

After reading the above I think there is a lot of merit to looking at your metrics and potentially adding to them and removing some that no longer make sense for your business.

Robust SaaS Growth and Record Valuations

Gartner predicts that public cloud services will grow by 23% this year to a market size of $332B. SaaS services is the largest piece of that market at $126.6B. Although the pandemic was a major challenge to some segments of the economy the cloud did well and continues to do well.

In addition to significant market growth the valuations of SaaS companies is at a record high with the median at 15 times forward earnings. The Battery Ventures Software 2021 report mentioned above talked about this. You can also get more details on the 2021 Q1 Software M&A market from the Software Equity Group.

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