The Most Important Metric for API-First Companies

As engineers, we’re accustomed to gathering and monitoring metrics from our APIs and services. Some of the metrics that we gather are vital for monitoring the health of the environments that we support and are also critical for uptime monitoring. Those who are responsible for business operations have different metrics that they must monitor in order to ensure that the business remains healthy and profitable.

In this article, we will explore the metrics that are essential from a business perspective and explain why monitoring them is crucial for the success of the business. By educating engineers about these particular metrics, they will be able to provide better support and assistance in moving the organization forward on a path of continuous improvement and profitability.

Metrics that matter

There are many different types of metrics which a business can use to measure its success. Some of these metrics offer more value than others. Metrics that offer the least value are commonly called “Vanity Metrics.” These metrics might look good on paper but are a poor yardstick for measuring our success. In many cases, they might even provide a false sense of security, appearing to reflect success as our business slowly degrades.

Usually, organizations that create and monetize APIs adopt a Software-as-a-Service (SaaS) model. The company generates revenue by providing customers with access to one or more APIs. It may choose to offer subscription plans, pay-per-use options, or a combination of both. In order to achieve growth, it is vital for businesses to keep existing users happy and attract new users by expanding the services that they offer.

One of the most important metrics (or key performance indicators (KPIs)) for our business is the Monthly Recurring Revenue (MRR). We’ll break this metric down more in the next section and discuss how we can use cohort analysis to improve the accuracy and usefulness of our MRR metric. Our ultimate goal is to ensure that the metrics we report are representative of real growth and stability.

Monthly recurring revenue

Monthly Recurring Revenue, which reflects the amount of money generated in a given month, is indispensable to a SaaS-based company. If we have a high quality product, we can reasonably expect customers to continue to use our services. By monitoring our MRR, we can predict future revenue fairly accurately.

While MRR gives us vital information about the health of our revenue stream, it’s important to understand more about the sources of the revenue that we’re reporting. We can get more information by performing a cohort analysis of the data. When tracking our success, we should take into account whether our revenue was generated by first-time users or repeat customers, and whether our users are individual students or large organizations. Performing a cohort analysis will enable us to understand our sources of revenue in terms of growth and stability.

Understanding revenue with cohort analysis

Cohort analysis involves organizing our data into groups with common characteristics. Analyzing the performance of a cohort from month to month provides greater insight into our revenue and facilitates a data-based approach to our company strategy.

Consider the following scenario: our MRR increases by 5% from one month to the next (which seems to indicate that everything is going well), but our cohort analysis shows that while new users have increased by 20%, corporate subscribers have fallen by 15%. Although the increase in new users reflects a potential increase in future revenue, the marked decrease in corporate subscriptions is a cause for concern.

Cohort analysis also allows us to chart trends over time. We might notice that mobile usage is increasing while desktop usage is decreasing, which might persuade us to invest in providing additional support for mobile customers.

The key to supporting organizational goals

Organizations always have specific goals such as generating revenue and growing a loyal consumer base. Whatever the goal, our chances for success improve when everyone in the organization understands the objectives and can do their part to work towards them.

The MRR metric and the additional insights gleaned from cohort analysis are invaluable for understanding the health of our organization and for tracking how we’re performing in relation to our goals. They are also excellent tools for motivating and informing members of our organization. This actionable data will enable our business to identify trends and relate the big picture of our overall performance to the work being done by individual teams.

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