Growing a SaaS vs growing a AIaaS company

Are you considering (like me) what to do with opportunities found in the explosion of AI tools and services, such as ChatGPT/Codex, Midjourney, Dall-E-2 and so many others that are popping up these days, then keep reading.

I have looked into, with the help of AI, what the metrics one need to consider for growing or assessing a SaaS vs AIaaS company and the most critical business factors both have in common.

Five must-haves no matter AIaaS or SaaS

The most important factors for the success of any company and the most crucial ones are listed below. These are not new or unique and have been around forever, but they are no less crucial today and must-haves for the success and growth of a company.?

1. Product-Market fit: having a product that addresses a real need in the market and meets customer expectations.
2. Customer Acquisition: finding and attracting the right customers through effective marketing and sales strategies.
3. Customer Retention: providing an excellent customer experience, and ensuring that customers continue to use and pay for the product.
4. User Engagement: fostering a high level of user engagement with the product to increase customer lifetime value.
5. Revenue Growth: scaling the business and increasing revenue through upselling, cross-selling, and increasing the average revenue per customer.

Key metric(s) for SaaS

In terms of key metrics, the most important one depends on the stage and goals of the company you would like to grow. However, the most commonly used and important metric in a SaaS company is the monthly recurring revenue (MRR) as it provides insight into the company's recurring income and overall growth trajectory.

Other metrics that will provide insight into the growth trajectory in addition to MRR and that owner and leaders of a company need to have focus on to provide insight are:

1. Customer Acquisition Cost (CAC): measures the cost of acquiring a new customer and is important in determining the efficiency of sales and marketing efforts.
2. Lifetime Value (LTV): estimates the net profit attributed to the entire future relationship with a customer.
3. Gross Churn Rate: measures the percentage of customers that cancel their subscription in a given period.
4. Net Churn Rate: measures the rate at which customers are lost after accounting for new customers acquired during the same period.
5. User engagement metrics: such as monthly active users, daily active users, and usage frequency, which provide insight into how well the product is resonating with users.
6. Gross Margins: measures the percentage of revenue left after deducting the cost of goods sold and provides insight into the profitability of the business.
7. Expansion Revenue: measures the amount of additional revenue generated from existing customers through upselling or cross-selling.

These metrics provide valuable insight into the growth trajectory and help inform decision-making and business strategy.

What about AIaaS, do they have other metrics than a SaaS company?

AI as a Service (AIaaS) companies, similar to SaaS companies, also have several key metrics that provide insight into their performance and growth trajectory, but they do differ and have more to do with precision of the algorithm (ref. Google’s fail yesterday) and hosting and processing power needed.

Here are a few metrics that are relevant for AIaaS companies:

1. Accuracy: measures the performance of the AI algorithms in solving a specific problem or task, and is a key factor in determining the success of AIaaS offerings.

2. Adoption rate: measures the rate at which customers are using the AIaaS solution and can provide insight into the product's value proposition and customer experience.

3. Retention rate: measures the rate at which customers continue to use the AIaaS solution over time, providing insight into customer satisfaction and the overall value of the solution.

4. Cost of goods sold (COGS): measures the cost of delivering the AIaaS solution and is a key factor in determining the profitability of the business.

5. Average Revenue per User (ARPU): measures the average amount of revenue generated per user and provides insight into the profitability of the business.

These metrics provide valuable insight into the growth trajectory of an AIaaS company and help inform decision-making and business strategy tactics and focus. However, it's important to note that AIaaS companies might have additional metrics that are specific to their offerings and the problems they solve, like the obvious access to datasets, update frequency and API functionality.

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