What is a SaaS (Software as a Service) business?
A Software as a Service business is a business that sells its software on a subscription basis, usually through monthly or yearly payments. Famous consumer SaaS companies include:
Netflix
Spotify
Strava
A lot of SaaS companies also sell B2B, and a few that comes to mind are:
Shopify
Hubspot
Snowflake
Mailchimp
All these companies make their software available to their customers. The pricing models for each vary very much, but that’s a topic for another day. Let’s look at how SaaS businesses might work with OKRs.
Why SaaS should work with OKRs
SaaS companies can benefit from using OKRs because:
OKRs should always be based on data (which SaaS people love)
OKRs focus on the outcome instead of the output
It helps align people inside the company on their goals
What’s important for SaaS OKRs
To start working with OKRs, it’s important to sit down and discuss the following two key aspects:
What is the primary goal of a SaaS business?
Which elements are considered key drivers of that success?
The primary goal to achieve for a SaaS business
One of the benefits of the OKR framework is that it helps teams focus. Focus on what’s important and zoom in on, optimally, a single overall goal for each OKR cycle. Before defining the OKRs, it’s a great idea to discuss the scenario where the team could only achieve one thing for the next OKR cycle. What would be the primary goal?
What are the key drivers of success?
Related to the primary goal of SaaS, it’s important to define when SaaS efforts are considered a success. This will help clear any doubt about whether some project added value or not, as it will be very clear, due to the nature of OKRs if it was achieved or not.
What makes a great SaaS OKR
As you can see from the examples above, there are plenty of ways to create and formulate OKRs. But there are key requirements that OKRs should pass.
SaaS key results should not be binary
If you go to Google and type in “SaaS key result examples”, you’ll stumble across sites suggesting that you could create key results like “Launch new feature X”.
That’s what we call a binary key result. Either you achieve it or you don’t.
Don’t create these!
Because what if you launch that new feature in your software product and nothing happens?
The purpose of Key Results is to enable you and your team to track progress on them, objectively. You should be able to pull in a person from the street, give them access to your data and have them answer how you’re doing.
But if your Key Result is binary, you’ll only be able to answer the progress questions once you’ve finished the OKR cycle. That’s a problem and it’s one that lots of teams who work with OKRs face.
A great exercise that will enable you to get rid of binary key results is to ask yourself “Why do we want to launch this feature?”.
Maybe your team has observed a problem and plans on doing something to fix it. If you do, what state will that put you in? What will the desired outcome be? That should be your key result.
Another way to frame it is to finish this sentence: “Because we completed our OKR, we are now at a state where we are/have …”. Then re-write your key results to be about that future state.
SaaS key results should be ambitious
In short, key results should have a probability of being achieved by 50%. But why 50%? One of the requirements for key results is that they should be very ambitious.
The reasoning here is that people very often overestimate what they can do in a day, but underestimate what they can achieve in a month or quarter. And so, setting ambitious targets often lead to extraordinary results. This is one of the reasons why the OKR framework is so popular.
In addition, when scoring your key results, it’s usually told that achieving 70% of your target goal is enough to call the goal “achieved”. This is again one of the reasons why key results shouldn’t be binary as you’ll then only succeed or fail. Nothin in-between.
Tracking SaaS key result progress
You should track progress on your key results as often as you expect there to be changes in progress.
Imagine that I have a key result saying “Increase MRR from $20k to $25k”. My guess is that my team would at least add a little bit of revenue each week.
So it makes sense for me to update progress every week.
On the other hand, if I only expect there to be noticeable progress on a monthly basis, reporting on it every week makes little sense.
I should instead use the time to make sure that the initiatives I plan for are adding true value to my progress.
The number of key results per OKR objective
You should create as few key results as possible to achieve your objective.
The overarching benefit of OKRs is laser focus. Creating too many key results will spread focus and you’ll likely have too many initiatives not being related to each other.
In addition, improving on one key result should ideally not affect progress on another. If so, then they’re likely too dependent on the same things and should instead be merged into one.
We usually say that unless your objective is covering a larger team, sticking to 1 or 2 key results should be enough. Remember, the key here is to be very focused on moving in the same direction.
Large corporations often have more key results, but that’s usually also because each department or team is responsible for one each. This makes great sense, but if you’re creating them for your own small team or yourself, stick to as few as possible.
Individual OKRs for SaaS people or not?
If you’re setting key results on an individual contributor level, you should aim to stick to as few as possible. The reason is that employees are likely also working on team or company OKRs and their focus should be as tight as possible.
Companies like Spotify chose to ditch personal OKRs because the overhead was too big. They essentially spent too much time creating them. So if you’re going to use them, make sure they’re as few as possible.
Our general advice is that unless you’re highly experienced, using OKRs on a personal level is likely to become a micromanaging pain in the butt for both manager and employee.
Prioritize outcomes over outputs
When working in a SaaS business, it’s easy to just focus on that next feature.
“If we release this, then we’ll be successful”.
But remember, there are many ways to succeed, and by focusing on defining the outcomes, you can set your team free to focus on the most impactful outputs.
The whole point of OKRs is to force you to think about your desired outcome. The happy place where you’ll be once you’ve done the necessary work to get there. Think: “If we succeed with this, which things will have changed and to what?”.
Then activate the people in your team and democratize how you’ll get there. The key way to turn output-focused goals into outcome-focused goals is to ask “why?”. “Why do we want the output you’re describing?”.
Initiatives are what will move the business
OKR initiatives are day-to-day tasks that you do in order to achieve your OKR objectives. The results are measured by your Key Results and will ultimately determine whether your initiatives were the right choice or not.
Initiatives are super important because they make sure that everyone involved is working towards the same goal; achieving the objective.
Whenever you start planning your OKR cycle, make sure that you immediately start brainstorming on initiatives as well. This often gives people a great idea about whether you're stretching too far or if you're being ambitious, but also realistic.
How SaaS OKRs should be structured
When you create your OKRs, they should include these elements at a minimum:
Objective
Key results
Owner
Before the next OKR cycle starts, it’s important to have these three defined, as they’ll help set direction and keep people accountable.
Ideally, as mentioned earlier, you should also start brainstorming early on initiatives that you think could potentially drive the OKR forward.
How many key results per SaaS objective?
You should create as few key results as possible to achieve your objective. The overarching benefit of OKRs is laser focus.
Creating too many key results will spread focus and you’ll likely have too many initiatives not being related to each other. Also, improving on one key result should ideally not affect progress on another. If so, then they’re likely too dependent on the same things and should instead be merged into one.
We usually say that unless your objective is covering a larger team, sticking to 1 or 2 key results should be enough. Remember, the key here is to be very focused on moving in the same direction.
Large corporations often have more key results, but that’s usually also because each department or team is responsible for one each. This makes great sense, but if you’re creating them for your own small team or yourself, stick to as few as possible.
The SaaS OKR checklist
Overall, a great SaaS OKR should follow the SMART guidelines of being:
Specific
Measurable
Achievable
Results-oriented
Time-bound
1st SaaS OKR criteria: specific
Your OKR should be specific enough so that when other people within the organization, that aren’t necessarily on your team, know what you’re working on.
No one ever got punished for having an OKR that was a bit too long. Instead, writing fuzzy or unclear OKRs is a definite no-go.
2nd SaaS OKR criteria: measurable
Because OKRs are usually working with specific metrics, it’s a lot easier to check the box that the OKR is measurable. We measure things that are relevant to progress within SaaS.
3rd SaaS OKR criteria: achievable
It’s important to have achievable OKRs. They should always be ambitious, but nothing is more demotivating than unachievable goals. A rule of thumb is that the chance of achieving a Key Result should be around 50% from the start. If you reach 70% and above, it’s considered a success.
4th SaaS OKR criteria: results-oriented
Being focused on results is a very important aspect of OKR. It’s so important, that we’ve dedicated an entire section to describing why you should focus on outcomes over outputs below.
5th SaaS OKR criteria: time-bound
A key part of defining a goal is also defining when you’re expecting it to be met. For OKR, your goals are usually divided into different cycles and your goals should of course be reached within the end of the cycle.
Summary
We hope this introduction to SaaS OKRs helped you get a better idea of 1) how SaaS businesses can use OKRs and 2) the requirements for a successful OKR framework.
From here, it’s your job to set top-level strategic goals and focus areas and then empower your team to go chase these goals with their OKRs.
If you're interested in additional advice on how to achieve your OKRs, click one of the examples at the top of this page and signup to get the 3 key things that you need to think about before starting your next cycle.