Why SaaS startups need a KPI hierarchy

In B2B SaaS, your go-to-market (GTM) strategy is only as strong as the metrics guiding it. With so many key performance indicators (KPIs) to track, it’s easy to lose focus and chase the wrong numbers. That’s why having a KPI hierarchy is essential. By focusing on the most critical metrics, you ensure your growth is sustainable, your teams stay aligned, and your operations remain optimized.

1. Focus on 3-5 north star metrics to rally your team

Your top-tier KPIs—often called north star metrics—are high-level indicators of your business’s health. These metrics should give you and your team a quick read on your company’s trajectory. Ideally, you’ll track no more than 3-5 of these metrics to maintain focus across the organization.

Examples of north star metrics for early-stage SaaS:

• The magic number: measures how efficiently your sales and marketing spend drives new ARR. It’s crucial for understanding the ROI on acquisition efforts.
• Net revenue retention (NRR): tracks how well you’re retaining and expanding existing customers. Strong NRR shows your business is not just holding onto customers but increasing their value over time.
• ARR/MRR growth: a critical measure of overall revenue growth.
• Revenue per FTE: tracks how efficiently your workforce generates revenue.
• Profitability or runway: for profitable companies, gross margin or EBITDA are key. For venture-backed startups, runway (months of cash left based on burn rate) is essential.

Key point: aligning the organization around these north star metrics ensures everyone is focused on the same goals—driving growth and operational efficiency.

2. Diagnostic metrics: dig deeper when north star metrics shift

When your north star metrics change unexpectedly, you need to dive into a second layer of metrics—your diagnostic KPIs. These are the metrics that explain the movements of your top-level indicators.

For instance, if your magic number drops, you might investigate:

• Customer acquisition cost (CAC): are you paying more to acquire customers?
• Return on ad spend (ROAS): are your paid channels underperforming?
• CAC
   
  ratio: has the value from new customers decreased compared to acquisition costs?
• Conversion rates: are leads converting at lower rates?

Key point: diagnostic metrics let you quickly identify what’s driving changes, allowing for faster course correction.

3. Granular diagnostics: break down metrics for precise insights

The third layer of KPIs provides more granular insights, allowing you to segment your second-tier metrics. This is where you dive into specific details to understand performance shifts.

For example, if your conversion rate drops, break it down by:

• Sales rep: is the underperformance isolated to certain reps?
• Customer segment: are SMBs converting better than enterprise customers?
• Geography: are specific regions outperforming others?

Or if ROAS decreases, analyze it by:

• Channel: compare LinkedIn, Google Ads, and other platforms.
• Campaign type: are top-of-funnel campaigns underperforming compared to mid-funnel or bottom-funnel efforts?

Key point: granular diagnostics allow for targeted improvements—whether by individual rep, customer segment, or marketing channel.

4. Avoid metric overload: focus on what matters

While you’ll track a range of KPIs, not all of them need constant attention. Regularly monitoring just your north star metrics keeps you from getting overwhelmed by the noise. Use diagnostic and granular metrics when a problem needs investigation.

Key point: focusing on the few metrics that drive growth allows you to act swiftly without obsessing over minor fluctuations.

5. Start tracking early for better future projections

One challenge for early-stage SaaS companies is the lack of historical data. That’s why it’s critical to start tracking your KPIs now. Doing so ensures you’ll have reliable data for forecasting as your company scales.

Key point: even if you’re not forecasting yet, tracking the right metrics today sets you up for informed projections in the future.

6. Build a comprehensive KPI list, but don’t monitor everything

As you grow, your list of potential KPIs will expand. Here’s a broader set of KPIs to consider tracking. These metrics provide a deeper understanding of your business, but they shouldn’t distract you from your core north star and diagnostic metrics.

Customer acquisition metrics:

• Customer acquisition cost (CAC)
• CAC payback period
• Lead velocity rate (LVR)
• Conversion rate (lead-to-customer)

Sales performance metrics:

• Sales cycle length
• Win rate (close rate)
• Quota attainment (per rep)

Revenue and retention metrics:

• Annual recurring revenue (ARR)
• Net revenue retention (NRR)
• Customer lifetime value (LTV)

Customer success and engagement metrics:

• Time to value (TTV)
• Net promoter score (NPS)
• Customer satisfaction score (CSAT)

Marketing and funnel metrics:

• Website traffic
• Bounce rate
• Return on ad spend (ROAS)

Financial and operational metrics:

• Gross margin
• Burn rate
• Runway
• Revenue per full-time employee (FTE)

Of course, there are tons more metrics that could be added to this list, but these are the top KPIs we’d recommend starting with for B2B SaaS.

Conclusion: focus on what moves the needle

Creating a KPI hierarchy allows you to zero in on the metrics that truly matter. Your north star metrics offer a high-level snapshot of your business’s health, while diagnostic and granular metrics help you investigate when things go off course. Track what’s essential and stay focused on driving sustainable, efficient growth.