How to Reduce the Churn and increase Revenue (Metrics for SaaS — Part 3)
By: Digital Transformation Blog
Tags: Product Strategy, Saas Metrics, Product Management, SaaS, Saas Pricing

We discussed the impact of revenue and churn on the customer’s Life Time Value (LTV) in the previous article. But the key method to improve your revenue and reduce churn is to deliver the value for the customer, in a way that is easy to understand for them. This leads to the concept of ‘Value Metric’

So what is Value Metric

Value metric simply is the unit of measurement for your product. For example for a product like Jira, the value metric is number of users i.e. when you buy a Jira license you know how many users will be able to use it. Value metric reflects the parameter/component that aligns best with the customer’s value realization.

While we generally see the value metric as a per-user licensing model, however, that type of model is most relevant for products where the value of the product for customer increases as more users adopts the product. For different products, the value metric can be different. For example for a social media management platform like HootSuit value can be the number of posts that can be scheduled or number of social profiles that can be managed or number of users per account.

The value metric makes or breaks a SaaS product. The 3 key qualities of a good value metric are:

Easy to understand: Value metric has to be easy to understand. The harder it is to understand, the more time user has to spend before making a decision, and that potentially leads to more dropouts Alignment with users: SaaS exists to create value for customers, and hence the value metric also has to align with the value user wants to get. A value metric that doesn’t align with users leads to cognitive dissonance and this cognitive load impacts signup Grows with customers: SaaS products realize true value by growing along with their customers. Thus this has to reflect in the value metric as well. The customers should not feel they are left without support as their needs grow with their business, and SaaS companies should offer customizations and enterprise relations for their customers that have specific needs.

Points 2 and 3 in above list can be achieved if the value metric is easy to understand. Though it sounds easy, the most dreaded aspect of product management is making it simple and useful. To achieve this there is a need to define a clear axis around which value metrics would be defined, and this is a three-step process:

Define high level product value Consider low-level components (parameters) of value Perform simple test

As first step Product Managers have to define the high level results that are valuable for customers, and then break up these into low level components/parameters/features that constitute the overall outcome. These features can then be prioritized through the Relative Preference study (will be discussed in the future). The outcome of the study will help identify primary components that can constitute value metrics.

Once value metrics is defined, it should be tested through a simple test, i.e. will a user be able to define how many units of value metrics would he need to solve his requirement. If the users can’t define that, it means the value metric is not aligned well with the customer’s requirements, and needs rework. Thus in simple terms, if the customer can’t tell by looking at the value metric how many units he should buy, he will simply not buy.