Twitter has over 217 million, Spotify, 400 million; Instagram, one billion.
"New users" is to the SaaS world what the “Red Wedding” was to Game of Thrones fans — a hot topic, a game-changer; but depending on your business goals, industry, and even audience, it may not be a fair representation of your organization’s actual growth or success.
For many SaaS organizations, it is, in fact, a vanity metric.
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What are vanity metrics anyway?
Simply put, vanity metrics are numbers that look and sound impressive, but don’t really correlate back to your goals or bottomline.
For example, the number of “likes” on your Facebook update, or the number of views on your pricing page.
Sure, seeing numbers like these hit an all-time high is exciting, but if it doesn’t translate to conversions or revenue, why does it matter?
If you have 100,000 people visiting your consultation page every day, but none are filling out the form, are those views really worth celebrating?
Balfour argues that in many of today’s organizations, especially those in the SaaS industry, teams are too heavily focused on vanity metrics and are, in turn, losing sight of what actually reflects their growth and profitability.
To better illustrate this point, take a look at this chart from his article:
First, vanity metrics are celebrated outside of the organization (say by the press or industry influencers.)
Then this external recognition is celebrated within the organization, and subsequently, the team is encouraged to repeat the success to prompt further external celebration.
It’s basic psychology.
By rewarding the achievement of a vanity metric with both external and internal praise, organizations condition their team to repeat that action. It creates a cycle of team members striving to achieve numbers that don’t actually work toward their goals and neglecting those that do.
At HubSpot, the growth team used to monitor a number of different metrics both big and small, but ultimately, they all lead back to what Balfour calls their “north star:” Weekly Active Users (WAU).
But what makes this their most important and true growth metric?
How to define your true growth metrics
The HubSpot team pinpointed WAU as its most important metric based off of four key criteria:
Represents meaningful engagement
Retention and engagement
For a SaaS company like HubSpot, retention and engagement are extremely important.
Having new registrants or downloads on your app or free trial are meaningless if they aren’t using it, or worse, if they delete it. (You should see App Graveyard in my iCloud. Ugh.)
People who are not active aren’t actually users and people who don’t use your app aren’t going to pay for it or stick around in the long run, ultimately taking its toll on your revenue.
For HubSpot, WAU reflected both of these points, but depending on your offering, this metric may not be relevant.
In terms of relevance, your metric has to make sense for how your offering is actually used and positioned.
For instance, let’s say your product is a pedometer app, intended to track your user’s daily movement. Since you ideally want your user to open the app everyday, tracking and working to get more monthly active users does not help you progress towards this actual goal.
Say you have 15,000 MAU, but only 1,000 daily. Yes, you can publicize, celebrate, and reward having 16,000 users, but at the end of the day 15,000 of those are not invested enough to use it everyday (or most likely, pay for it.)
HubSpot was designed to be integral part of a professional’s work day routine so looking at the work week through WAU is a relevant and helpful measurement to have tracked.
Last, but not least, an effective SaaS metric should be honest.
Not honest like it doesn’t lie to you when you ask if it ate the last slice of pizza and there’s clearly crumbs and sauce in the corner of its mouth, but honest in that it frames a realistic portrait of your current state.
Inflated numbers or bloated percentages will not only misrepresent your success to your audience, but they will also give your team a false sense of security regarding its current state and the work that has to be done.
As Balfour discusses, 452% growth can still be something a small number depending where you began, or 10,000 new pageviews could just be a drop in the bucket if you average 10 million in a normal week. Putting a positive spin on the numbers, may dull the impact initially, but in the long run, it will the progress you make towards your goals.
Overall, your company needs to frame its numbers in metrics that most effectively illustrate what your goals are, while also making it easy to determine when progress has been made or needs to be made.
While many SaaS experts find it best to track your Monthly Recurring Revenue, Churn, and Conversion Rates, your metrics may differ.
Once your true growth metrics are identified using the criteria above, your team will know where it focus its efforts and stay on track, and most importantly, they’ll know when it’s actually time to celebrate.