Usage is the North Star in SaaS

It took me 25 years in SaaS to figure this out, but ultimately, building a successful SaaS company is all about customer usage.

It is the most important thing in SaaS – full stop.

If customers use your product frequently, your SaaS business will succeed. Frequent usage drives retention, expansion, NPS scores, and referrals, all contributing to a stable and growing revenue base. 

With a stable revenue stream, a SaaS business will not fail. (I built a successful investment business on this premise, and it’s absolutely true.)

Let me put it this way: If customers are using your product a lot, you will figure out how to monetize, but if they are not, no pricing or retention scheme will save you.

This applies to all SaaS companies – not just those with usage-based pricing.

Customer usage is the North Star metric for some of the most successful businesses of the last two decades:

• Airbnb: Nights booked
• Netflix: Total hours viewed
• Uber: Weekly active riders
• Spotify: Monthly active users
• Slack: Daily active users
• Zoom: Meeting minutes
• Peloton: Monthly subscriptions

Peloton? Look closely at that last metric. It’s not usage-based! The worst-performing company tracks the one metric not directly tied to customer usage. Monthly subscriptions matter, but the underlying driver is engaged customers. 

I have been in the SaaS metrics space for a long time, but usage-based metrics are rarely discussed. One reason is that they are often unique to a product or company. For example, “Nights Booked” is not relevant to most companies in the same way CAC Payback is.

That said, metrics like “monthly active users” are relevant to many different companies. 

Most SaaS companies track some usage. The data might be in the Customer Success system or in Product Management, but it tends to be fragmented, siloed, and often dated. 

Companies with consumption pricing are typically in better shape because usage is tied to revenue and needs to be tracked and billed. Still, even here, data might be siloed in Finance and may only track a subset of what is required to understand your customer.

Understanding customer usage will be more critical than ever as we move into 2025. According to subscription management firm Zylo, enterprises have reduced their SaaS applications by about ten percent in each of the last two years. Applications not in use are the first ones to be cut. 

In addition to retention, deep dives into usage data create valuable customer insights. What are the common characteristics of your most active customers? Are their use cases different from those of other customers? Do your most active users fit your ideal customer profile? Should they?

It is a lot of work to identify, capture, clean, tag, store, distribute, report, and analyze the various usage data – but this is the absolute core of your business. No data is more foundational to your success than customer usage data.