Benchmarking compares performance metrics and is commonly used to provide the logic behind targets and measure success. Those targets are less meaningful in the absence of benchmarks. Overly ambitious targets can also be made more realistic by looking at what is going on elsewhere.
When deciding how to benchmark their business, SaaS companies have an extensive list of metrics you can choose from, which can be both advantageous and disadvantageous. A SaaS company can become quickly overwhelmed by benchmark analysis and lose sight of applying it effectively. As a result, one of the most critical decisions a SaaS company must make is which benchmark to use.
If you want to know the value of SaaS Company benchmarking, what they mean, and how they are measured, read on!
Benefits of Benchmarking
Benchmarking allows businesses to gain an independent perspective. They can tell how well they compare to their peers, identify, prioritize specific areas for improvement, validate assumptions, and set performance expectations.
Benchmarking works well when the benchmark process is standard and is essentially the same for all units involved in the exercise. For instance, you can compare the costs of developing the same widget, providing the same level of online support, or using the same type of cloud service.
However, benchmarking is ineffective when comparing fundamentally different processes or products. Be reasonable and avoid comparing things that are entirely different from one another.
What to Benchmark?
1. External Vs. Internal
The only option for a startup with limiting trading data is to compare your company to others in your industry. On the other hand, more established businesses can use their performance data to make month-to-month and year-to-year comparisons.
2. Business Priority
Not every SaaS company has the same priorities. For example, a startup will typically aim for rapid growth, so metrics indicating the popularity of their service are essential indicators.
Other businesses prioritize increasing the value of their existing customers over attracting new ones, so metrics such as usage and customer satisfaction are more important to them. Other SaaS companies preparing for an IPO or private sale will be focused on profitability so that costs will be a part of their benchmarking strategy.
3. Business Sector
Different markets may have vastly different definitions of success. For example, life insurance contracts can last up to 25 years with little incentive to switch providers. Meanwhile, customer loyalty is far more fleeting in the mobile phone market. It is also essential to know where you are. The adult learning altitudes differ significantly across the EU.
4. Business Model
A SaaS company that makes money from advertising will be interested in an absolute number of customers. In contrast, a freemium company will want to know how many of those customers will convert to paying subscribers and when.
5. Business Driver
SaaS companies drive growth in a variety of ways. The product-led SaaS businesses tend to grow faster, whereas a sales-led growth strategy prioritizes margin over speed.
6. Product Type
Some SaaS services like property search websites are temporary, and some apps like holiday booking apps are designed to be used repeatedly but not constantly. Like social media platforms, others are designed to keep your attention as long as possible.
7. Customer
The B2B SaaS services can have complicated buying journeys that involve multiple stakeholders over time. Compare that to a teen gamer, who can convert into a customer in a matter of seconds. These two SaaS companies will measure customer lead time and conversion differently.
Critical Benchmarking Points
1. Decisions
SaaS businesses can define and drive success in a variety of ways. The thing that matters is that benchmarks correspond to their priorities and strategies. That is why benchmarking should be viewed as a leadership exercise.
However, it may be necessary to involve other stakeholders. For example, if the company is preparing for a new investment round or an IPO, the market may have some standard benchmarks that it expects to see.
Furthermore, experienced colleagues outside the leadership team may provide more granular insights and observations in determining benchmarks for their specific line of business.
2. Inputs Vs. Outputs
One of the first decisions you can make is to keep the right balance of input and output benchmarks. The former is defined by the activities that give results, whereas the latter is the return itself.
Both of these input benchmarks, for example, can be predictors of new customer growth, which is the output benchmark. If you only measure outputs, you may miss the root cause; you may overestimate your predictive modeling abilities if you focus too heavily on inputs.
3. Access to Data
Benchmarking requires a large amount of data. That’s fine if you can find and analyze the data. However, it is not always easy. External data that is valued up to date can be costly. It is often necessary to go to multiple suppliers to get everything you need which raises the issue of analyzing these unrelated data sources, usually provided in different formats.
Likewise, even mid-sized SaaS companies can run hundreds of other software systems, each with its own data server for internal benchmarking. It can be very challenging to find and extract data you need, free of duplication and inaccuracies.
4. Valuable Insights
The value of benchmarking is in guiding a business to the right decisions. However, too many benchmarks can have the opposite effect, causing confusion. Also, benchmarking will benefit from segmentation, eliminating less relevant points of comparison and outliers that can skew results.
5. Benchmark Interdependencies
SaaS markets and businesses are a complex web of interconnections and dependencies. That is why you should evaluate each benchmark based on the value of its insight and how it relates to the other benchmarks you have chosen. The goal should be to have a set of complementary benchmarks – that is, a positive movement in one should result in a positive trend in the others and vice versa.
6. Regular Review
SaaS companies should never be static. Your priorities should evolve in response to new opportunities and challenges that come with time. As a result, benchmarks must be adjusted regularly. A quarterly review of your benchmarks will keep them and your business relevant.
Benchmarking In SaaS Company – Insightful and Productive
Benchmarking is an essential tool that businesses can use to stay updated with trends in their industry, such as sales, customer service, etc. Moreover, organizations can use the benchmarking process to determine the best standard of performance based on the success of other companies.
It also helps organizations prioritize the areas they need improving. This is why benchmarking is essential, especially for SaaS companies.