How Benchmarking Can Transform Your SaaS Business Strategy

A woman in an office researching customer reference management during a meeting

In today’s volatile economic environment, keeping pace isn’t enough to ensure survival and success. You need to understand what others are doing and how well your business performs compared to others in the industry. 

Benchmarking is like a comparison check for your business. It allows you to step back, look at your SaaS company’s operations through a wider lens, and compare your performance metrics against your competitors. 

This blog explores the vital role of benchmarking in the SaaS industry. We’ll see how it can enhance objectivity in planning, align company goals, and reveal opportunities for improvement.

Why should you use benchmarking?

Benchmarking reflects where you stand and how you measure up within the broader SaaS industry. By employing benchmarking, you gain a clearer view of your company’s health and understand where you excel and where there’s room for improvement. Here’s how:

Inject more objectivity into your planning processes

Benchmarking cuts through biases and opinions by giving you exact numbers. This reduces the guess about where you stand and allows you to see your position. By objectively understanding your performance, you can make decisions that are not just based on instincts but on solid data.

Achieve better alignment on goals and objectives

When everyone in your company sees the same data and understands where you stand compared to the best in the industry, aligning on goals becomes simpler. This clarity helps everyone focus on what’s essential and drives efforts towards common objectives.

Identify big opportunities for improvement

Once you know how you compare to others, identifying areas for improvement becomes easy. Benchmarking can pinpoint where you lag and reveal potential areas where you can excel. 

More effective change management

Introducing change can often feel overwhelming. Yet, when you back up these changes with solid benchmarks, it’s much simpler to persuade your team to adopt them. Instead of just instructing them to adapt, you’re demonstrating the reasons behind the need for change based on what top performers in the industry are achieving. 

Which metrics to choose to benchmark

The benchmarks you select should be relevant to your business. Focus on strategic-level KPIs—these metrics matter most to management, board members, and prospective investors. 

  1. Financial metrics: These include year-over-year ARR growth rate, gross margin percent, and EBITDA margin, among others. Each metric helps you understand your business’s economic health and operational efficiency.
  2. SaaS metrics: Key metrics include Net Revenue Retention (NRR), Customer Acquisition Cost (CAC), and the Magic Number. These metrics help you assess customer loyalty and the cost-effectiveness of your marketing strategies.
  3. Operating metrics: These involve measurements like average sales cycle time and employee attrition rate, which help you gauge the efficacy of your sales team and employee satisfaction.

To make your benchmarks actionable, ensure they’re appropriate for your company’s maturity, revenue range, target customer segment, and sales strategy. To track and monitor your metrics in real-time leverage an enterprise performance management software.

Things to keep in mind while choosing metrics to benchmark

Here’s what you need to keep in mind to make the most of benchmarking:

Understand the relevance

When picking metrics to benchmark, you want to ensure each ties into your business goals. For example, metrics like customer acquisition costs or lead conversion rates are your go-to if you focus on growing your customer base. If you’re more concerned with keeping the customers you already have, then net revenue retention might be your spotlight metric.

Check for standard definitions

One common pitfall is assuming all benchmarks are created equal. Metrics can vary in definition from one company to another, skewing your comparisons. Always verify that your benchmarks are calculated, like your internal metrics, to ensure you make the proper comparisons.

Consider your business stage and size

A relevant benchmark for a multinational might not be suitable for a startup. Segment the benchmarks based on characteristics such as company size, stage of growth, and market focus. This segmentation ensures that the data you compare against represents your competitive or aspirational set.

Use a Reliable Source

Where you get your benchmarks from matters, you should rely on reputable sources that provide benchmarks based on large, relevant sample sizes. These could be industry reports, benchmarking service providers, or analytics platforms.

How to leverage benchmarks to plan better

Leveraging benchmarks effectively can improve your strategic planning. Here’s a straightforward approach to making benchmarking work for your business:

Identify the right metrics

Begin by pinpointing the metrics that are pivotal for your company’s success. Focus on the ones that, when improved, can significantly impact your business’s performance.

Find reliable benchmarks

When you’ve pinpointed those crucial metrics, look for industry benchmarks. You’ll want to see how you stack up against the competition. For this, make sure you stick to trusted sources. That way, the insights you pull will be relevant and genuinely helpful in making strategic decisions.

Establish your baseline

Understand where you currently stand by establishing your baseline. This is your starting point, and it’s essential for making any meaningful comparisons.

Set target benchmarks

Now, set realistic benchmarks based on your strategic goals. Whether you aim for the top 25% in your industry or improve a specific metric by a set percentage, these targets will guide your actions.

Create a plan and track progress

With your benchmarks set, map out a plan to achieve them. This involves detailed steps and milestones. Remember, regular monitoring is key. Tweak your strategies along the way to stay on track with your benchmarks. Being flexible and responsive to the data can help you hit your targets.

About Neel Achary 19385 Articles
Neel Achary is the editor of Business News This Week. He has been covering all the business stories, economy, and corporate stories.