You can be on Entrepreneur’s cover!

4 Metrics Enterprise Software Companies Should Be Tracking, But Aren't You'd be surprised what you'll learn from determining, for instance, average revenue per end-user.

By Tx Zhuo

entrepreneur daily

Opinions expressed by Entrepreneur contributors are their own.

Have you ever thought that happiness might be measurable?

Related: Tracking These 6 Metrics Could Boost Your Sales

New Relic, a successful software analytics company, assigns every customer a happiness score and tracks those scores, to measure satisfaction and determine when customers need extra support. The system works. Each year, the typical New Relic customer pays 14 percent more than he or she did the previous year. This means that the company could stop acquiring new customers and still see growth.

Like New Relic, other companies are realizing that moving beyond the usual metrics paints a more complete picture and leads to greater success. Traditionally, businesses focus on four core metrics: monthly recurring revenue, customer acquisition cost, lifetime value and churn. However, focusing on these metrics alone obscures important information and blinds companies to potential earnings opportunities.

Here are four metrics that dig deeper into what is really going on:

1. Payback period

Cash flow management is crucial to sustaining an enterprise software business, especially when monthly revenue is a fraction of the customer acquisition cost. If you spend $100 to acquire a customer, and that customer pays only $10 a month, then you don't recoup your investment for 10 months. This long payback period will place enormous strain on your company's cash position. One solution is to offer customers a small discount for paying upfront. For example, if you offered a 10 percent discount to this customer to pay upfront, you would have $108 ($120 less 10 percent), which means you would net $8 immediately each time you bring on a new customer.

2. Revenue churn

I can't stress enough how important it is to identify and retain your biggest customers, and that means going beyond simply tracking account churn. If you lose only two customers this year, you'll be happy, right? But what if those customers represent 25 percent of your revenue? That's why you need to track your actual monetary retention rate. It tells you which customers to prioritize and alerts you if you're in danger of losing the big ones.

Related: It's Easy to Spy on Your Competitors Conveniently and for Free

3. Customer engagement and satisfaction

Software companies used to overlook this metric, thinking it was more relevant to consumer-facing businesses. But smart companies track customer service metrics like response times, customer inquiries and frequency of customer contact, and they work to determine whether their performance is exceeding customer expectations. These comprehensive metrics allow you to anticipate customers' needs and problems. The more you can do to measure customer engagement and satisfaction levels, the more likely you are to retain business.

4. Average revenue per end-user

Tracking how much a client spends on your product -- per user -- tells you which clients you can upsell. Let's say that Client A pays you $100,000 a year and has 10,000 employees. He's paying $10 per end-user annually. Client B pays you $20,000 a year and has 500 employees, so he's paying $40 per end-user annually.

If you didn't look at the metric for average revenue per end-user and simply focused on the size of the contract, you might be tempted to upsell Client B. But the true opportunity lies in getting Client A to pay you more. This metric helps you see gaps in cost and value and identify upsell opportunities.

So, consider focusing on the above metrics to boost business growth. In addition, choose a couple of metrics that are specific to your company. In all, you should be tracking seven to 10 metrics on a monthly basis. You can also check out venture capitalist Tomasz Tunguz's blog for ideas of which key benchmarks to track.

The next step is to pick three or four businesses comparable to yours in terms of sales cycles and contract size. Use them as monthly benchmarks for how your company is doing and how you should be setting performance goals.

Finally, your C-suite should review your metrics monthly. It's important to take action if your metrics fall below a certain level. You should also encourage the company to do more in the areas doing well. Your metrics dramatically impact your company's performance, so make sure you're using the right ones to give you the full story -- and put that story in context.

Related: 10 Data Tools Every Marketer Needs to Be Using

Tx Zhuo

Managing partner at Karlin Ventures

 TX Zhuo is a managing partner of Karlin Ventures, an L.A.-based venture capital firm that focuses on early-stage enterprise software, e-commerce, and marketplaces. Follow the company on Twitter.

Want to be an Entrepreneur Leadership Network contributor? Apply now to join.

Editor's Pick

Side Hustle

He Took His Side Hustle Full-Time After Being Laid Off From Meta in 2023 — Now He Earns About $200,000 a Year: 'Sweet, Sweet Irony'

When Scott Goodfriend moved from Los Angeles to New York City, he became "obsessed" with the city's culinary offerings — and saw a business opportunity.

Personal Finance

How to Get a Lifetime of Investing Experience in Only One Year

Plus, how day traders can learn a lesson from pilots.


94% of Customers Say a Bad Review Made Them Avoid Buying From a Brand. Try These 4 Techniques to Protect Your Brand Reputation.

Maintaining a good reputation is key for any business today. With so many people's lives and shopping happening online, what is said about a company on the internet can greatly influence its success.


Save on Business Travel with Matt's Flight's Premium, Only $80 for Life

This premium plan features customized flight deal alerts and one-on-one planning with Matt himself.

Science & Technology

Here's One Reason Urban Transportation Won't Look the Same in a Decade

Micro-EVs may very well be the future of city driving. Here's why, and how investors can get ahead of it.


I Got Over 225,000 Views in Just 3 Months With Short-Form Video — Here's Why It's the New Era of Marketing

Thanks to our new short-form video content strategy, we've amassed over 225,000 video views in just three months. Learn how to increase brand awareness through short-form video content.