We’re all familiar with some of the most-common SaaS metrics, and why they matter. Cost of customer acquisition (CAC) must be lower than average customer lifetime value (LTV), or your business can’t survive over the long run. However, subscription business consultant and thought leader Lincoln Murphy recently suggested another metric known as common conversion activities (CCA), which could dramatically affect the way SaaS providers budget their time and staff.
What is Common Conversion Activities?
According to Murphy, CCA are commonly defined as “things that all or most paying customers do during their trial period.” It’s highly individual according to a given company’s product, and it’s best calculated from analysis of historical data over a 1-year period of time. There’s no guarantee it will work every time, but the goal is to develop a working hypothesis of what behaviors your potential clients will exhibit during their trial.
How to Develop These Metrics
The best CCA are based on data, but they’re also “story driven,” according to Murphy. By analyzing data about the behavior of a group who eventually converted into customers, you’re trying to determine which behaviors and goals these individuals had in common, and how your product tied in. They’ve actually got a great deal in common with buyer personas, sketches of the behaviors and psychographic characteristics of ideal customers that have been used heavily by marketers for decades.
Test and Test Again
Any subscription business owner with a background in science knows the basics of the scientific method. In order for a hypothesis to be a plausible solution, it should be able to be tested. Apply your hypothesis to your latest group of free trial subscribers, and see whether the story is relevant to the individuals who ultimately convert.
- Are they all exhibiting the behaviors you find most-common, which could be a high amount of engagement and occasional calls to customer support?
- Are there any common behaviors that didn’t make it into your original CCA?
The best way to develop a CCA that can predict your prospects with the highest potential for conversion over the long-run is to continually strive to improve your model, and pivot as your initial hypothesis is proven wrong.
Why We Recommend Common Conversion Activities
Despite the fact that Murphy refers to CCAs as “the uncommon approach to SaaS metrics,” it’s really just good business. Every operator of a subscription-based company should continually strive to apply behavioral analysis to their free trial subscribers, with an eye towards determining the signs that indicate someone is most-likely to convert.
In a highly competitive field and a changing market, CCAs are suitably nimble for companies who may also need to pivot quickly and on a semi-regular basis. Knowing your customers and using behavioral analysis to determine how to direct your sales team isn’t anything new, but it’s definitely a smart move.