Critical KPIs for a SaaS-Based PSO - Update on My Research

I'm back...after a busy week followed by a busy vacation...and I'm ready to share my thoughts once again about a SaaS-based PSO.

As I mentioned in my very first post, I am actively conducting research designed to better understand how many SaaS-based PSOs are measuring their success vs. how they should be measuring their success. I have talked to PS Directors and VPs from large and small companies at various points in their evolution (see SPI's Professional Services Maturity Model at www.SPIresearch.com). When it comes right down to it, most are using the standard PSO metrics (Bookings, Revenue, Profit Margin, Utilization, etc.) to measure the health of the practice, but few feel those metrics are hitting the mark.

One of the biggest challenges we face as managers of SaaS-based PSOs is defining how our contribution should be measured. It is natural for us to gravitate toward the traditional metrics. They are easily quantifiable, and we are comfortable with them given our experiences in the non-SaaS world, but the fact is, all but only one firm I have encountered in my research is structured in such a way for the traditional metrics to make sense when the question one is trying to answer pertains to measuring the contribution the PSO is making to the organization. Most of the SaaS companies with whom I have talked have revenues smaller than 10% of corporate revenues. There is tremendous pressure in many cases to "keep the PSO small," and while the metrics would indicate a focus in selling profitable projects, the 'give away work' is refelctive of the need to keep customers happy, protect those renewals, and enable the sales teams to grow the size of the subscriptions.

Don't get me wrong, the traditional metrics have their place. Most Directors and VPs with whom I have talked agree that utilization, for instance, is an important operational metric used to understand available PS capacity and hiring needs. It is also important for evaluating your staff's competency in terms of on-time/on-budget delivery or the sales team's ability to properly scope and size an engagement. (I only talked to one firm that does not measure utilization at all.) That said, does high utilization really inform the company of the contribution the PSO is making to the organization. Is it at all refective of customer satisfaction or the value the customers realize from the product or services?

I heard, loud and clear, from most interview candidates that, for a SaaS customer, it's all about customer satisfaction and value realization. As my manager, Matt Poepsel, says...it's about making happy customers. However, only one company had a quantifiable method for measuring the value a customer realized (not just from the PSO, but from the firm as a whole) and their level of satisfaction. This firm used what appears to be a fairly sophisticated statistical approach by identifying a number of attributes that were measurable and that provide insight into customer-satisfaction levels.

Customers who hirer a general contract for their home are, for instance, buying a new kitchen or a new den. Customers who buy marketing tools are buying higher lead generation results and conversion rates. Customers who purchase web performance management software are buying performance improvement and the benefits of that improvement.

Customers have needs and wants that cause them to make a purchase. It's the company's responsibility to ensure that the customer's needs and/or wants are met, and it's the PSO's role to assist the customer in achieving that value. Therefore, there should be metrics that measure a PSO's ability to fill that role for customers and the company.

For instance, a customer purchases Gomez products to improve the performance of their web application. Therefore, a performance trend could be used as an attribute in the statistical model to determine if a customer is getting the value from their purchase. If performance is improving over time (and other metrics are also improving) one could draw the conclusion that the customer is achieving value and they are at a low-level of risk for cancelling their subscription.

As I continue with my research, I will be looking to determine what some of the standard KPIs should be for SaaS-based PSO and understanding how each company can identify its own, unique, metrics for their business. If you are doing anything non-traditional within your company or practice, I'd love to hear about it.