Porsche by Raul

We continue with our posts defining our strategy and marketing plan for the launch of Nelio Content. If you don’t want to miss any post, here are the links:

  1. The Idea
  2. Strategic Objectives
  3. Marketing Training
  4. Marketing KPIs
  5. Buyer Persona
  6. Webdesign
  7. SEO Strategy
  8. Web Content
  9. The Blog
  10. Social Media and Emailing

In this fourth post, I will explain how we’ve defined our marketing KPIs (Key Performance Indicators). I’ll focus on everything that we want to achieve with our marketing actions, taking into account our financial goal of achieving an MRR (Monthly Recurring Revenue) with Nelio Content of $4,000 in six months. That is, we’ll define the indicators (or metrics) that tell us if our actions and marketing campaigns are getting the results that will help us achieve our strategic objective.

Marketing Goals

Objectives are key in business. With them, we can define the performance indicators that will give us quantitative information regarding the achievement of these objectives.

If you don’t measure it, you can’t improve it – Lord Kelvin

But how do we define them? Is there a recipe we can follow or are we supposed to simply “invent” them? Let’s take a look at the steps we followed for defining our marketing goals.

As part of our strategic plan, we decided that Nelio Content would be a service that is offered with the following characteristics:

Nelio Content Service Features
Nelio Content Service Features.

Being Nelio Content a service, it’s important to understand the typical sales funnel of a SaaS model (Software as a Service) and how to measure it. If you don’t know what it is and want to learn more about it, I recommend the article by David Skok: SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters.

FunnelMetrics by David Skok
Source: Funnel Metrics by David Skok.

With this funnel, we can:

  • identify which campaigns generate more traffic (and hence are worth more attention),
  • analyze the number of visitors that arrive at our website and what they do once they’re there,
  • determine how many of them become users of the trial/free version of our service,
  • determine how many of those switch to paying customers and, ultimately,
  • calculate how many sales per month (i.e. income) we get.

This funnel can be used as a starting point for defining the marketing goals and objectives that should be addressed. In a fantastic session on How to set the valuation of a startup by Luisa Alemany from ESADE, I learned that one of the techniques used to establish the value of a startup is by the venture capital method (so-called by Luisa) or equity dilution.

The idea is that the project is valued in reverse—the question is not so much what is my project worth as how much money do I need to take my project to the next level. So, following this idea in the sales funnel, we won’t look at the visitors that arrive at our site and derive the final income we can get, but we’ll start by defining how much we want to make and determine how many visitors we need to achieve that goal.

Start the house at the roof. I’m sure that will be much better for us…

Indeed, this is exactly what we did when we established that the MRR was to be $4,000—the amount of money we wanted to reach with Nelio Content to continue with our startup.

Monthly recurring revenue (MRR) at the end of the year (2016): $4,000

The next step (look up at the funnel again) is to calculate the number of new subscribers per month that we should get.

Number of new subscribers per month

Taking into account our sales target by the end of 2016, obviously, the number of new subscribers per month depends on the price that we put on our paid plans.

Price of the Paid Plans

Deciding on the price of a product is one of the hardest decisions you have to make when you put any new product or service on the market.

How do you calculate it? In our case, we analyzed:

  • what our competitors offer,
  • what the prices are for their services, and
  • how we want to be different (price? quality? service?)

And from there we’ve established the following prices:

Personal Plan: $19 per month.

Team Plan: $49 per month.

To simplify the numbers, I’ve made the average of what users pay, considering that there will be more users to the Personal Plan (2/3 of users) than to the Team one (1/3 of users).

Average revenue per user: $29 per month.

Number of subscribers

Now that we have our average revenue per user set at $29 per month, and knowing that we need a $4,000 MRR, the next step was to create a growth projection to make the numbers fit.

At the point we find ourselves in, we do not want to complicate our life with complex tables taking into account hundreds of variables. For this purpose, I’ve downloaded and reused a very simple template which takes into account also the churn rate (paid subscription cancellations) from A Complete Guide to Forecasting Sales for Your Monthly Subscription Business, by Noah Parsons.

If you’re not yet familiar with the concepts of MRR, churn rate, CAC, or LTV, I recommend reading the article from David Skok, already mentioned above: SaaS Metrics 2.0 – A Guide to Measuring and Improving what Matters.

The growth proposed is as follows.

Proposed growth for the next 6 months
Proposed growth for the next 6 months

In the table you can see that the first month I have assumed that 5 new prospects subscribe and 1 cancel, the next month there are 10 new subscribers and 2 cancellations, and so on. In the sixth month, we have 83 paying subscribers, 55 new subscriptions, and 8 cancellations, which result in 130 subscriptions by the end of the month. That is, we’d reach our objective of an MRR of $4,000.

Number of new registrations for the free service per month

Now that we have the monthly sales and the number of paying subscribers, we can continue with the calculation of our marketing objectives.

What conversion rate (from free trial users to paying customers) can we expect? According to Chris Anderson, father of the theory of the long tail, a 5% conversion is usually the threshold to be considered for the model to be sustainable and 10% to consider that it is properly implemented.

Nelio Content follows a freemium model. That is, one can use the plugin (with limited functionality) completely for free—it doesn’t include a Free Trial period. If the free tier is powerful and useful (and ours definitely is), you can expect “a lot” of individuals and small companies to be satisfied with it and requiring no upgrade. So, again, what conversion rate should we expect?

We looked at other similar services and, according to what their founders say, a realistic conversion rate would be 2 to 5%. Obviously, we don’t know beforehand the exact conversion rate we’ll have, so let’s assume the following:

Conversion Rate (from free users to paying customers) = 3.50%

So we added a new row to our previous table for this new indicator.

Table including new free subscribers to the plugin.
Table including new free subscribers to the plugin.

We have done the reverse of the 3.50% applied to the number of paying subscribers in the table. Therefore, in every cell of every month we have multiplied by 28.57 (i.e., 100/3.50) the number of new subscribers for the same month, so already have numbers: we’ll need 1,571 new free trials by the end of the sixth month.

Before continuing, stop for a moment and think about it… Does this make sense? Is it feasible?

We are sure that we could find cases where it works and cases where it doesn’t. It seems to us an ambitious number, but not impossible. Take one of our free plugins, Nelio External Featured Image, as an example. This plugin was published in the WordPress directory in May 2014. We haven’t run any campaigns for promoting it (we just published one post when we released it). Currently, as you can see in the WordPress plugins directory, we have more than 10,000 active users. This means that the average number of new active users per month is around 400.

Post for Nelio External Featured Image
Post for Nelio External Featured Image.

Assuming we have a churn rate of 3.3% per month (40% annual), that already implies that about 420 users must be logged monthly.

Based on this experience, we can assume we’ll have the required number of users by the end of the year. Sure, the numbers are ambitious (it’s almost 4 times the numbers), but given the quality of Nelio Content and the marketing efforts we’ll be applying, I really think it’s feasible.

Number of Visitors to Our Website

Continuing with our inverted sales funnel, now let’s look at how we’ve calculated the number of visitors to our website. Again, we base the calculations on our own experience.

Currently, as I have already mentioned, we offer the free Nelio External Featured Image plugin without having its own website (beyond the page in the WordPress Plugins directory). If we want to see the report in Google Analytics showing us all visits that have been made to this entry (Behavior » Content Site » All Pages, and then select what interests us), we see that the number of visits that this post has had per month has been between 292 (January 2015) and 1,382 (March 2016); that is, an average about 930 visits per month.

Monthly visits to the Nelio External Featured Image entry.
Google Analytics report showing monthly visits to the Nelio External Featured Image entry.

If we look at the origin of these visits (by adding to the same report the secondary dimension, Acquisition » Source/Medium), we see that 87% come from organic searches on Google and 4% come directly from the WordPress directory.

Details of the origin of the visits to External Featured Image post.
Google Analytics report showing details of the origin of the visits to External Featured Image post.
Details of the origin of the visits to External Featured Image entry
Details of the origin of the visits to External Featured Image post.

Returning to the conversion numbers, if the average number of visits per month is 930, and active new users is 420, we can conclude that in the case of Nelio External Featured Image:

The conversion rate of visitors to the post which becomes users of the free service = 45%

Nice, huh? Unfortunately, this reasoning is faulty—there’s probably plenty of users who installed and activated our plugin without visiting our website ever. How? Well, just answer this question: if a user needs a plugin like ours, what does he do? He’ll probably look for it in Google or in the WordPress directory. Once he founds the plugin (note I said “the plugin“, not “our website”) and after reading the reviews and looking at the number of active installs, he’ll probably decide to give it a try and install and use it in his own WordPress installation.

This is one of the problems we, plugin developers, face when working with WordPress. In fact, Chris Lema discussed this issue recently in The Problem in WordPress – Musings Plugins & SaaS. There’s a channel (the WordPress directory) we don’t control—it clearly contributes to the conversion of “visitors” into “users”, but we don’t have any data about it.

Taking these facts into account, the question we must answer first is: how many users decided to use Nelio External Featured Image because of our website, and how many of them because of the information available in the WordPress directory?

With Nelio External Featured Image, a plugin with over 9,000 active users and positive reviews, it looks like the WordPress directory plays an important role in convincing future users. Perhaps 7 or 8 out of 10 users installed Nelio EFI because of it. But what about a brand new plugin, with (almost?) no active installations? I don’t think the WordPress directory is that important in these situations—whenever I encounter a plugin with few active installations, I usually like to look for as much information about it as possible before installing it. That is, I’d like to take a look at the plugin‘s website.

So, back to Nelio Content, I think that a conservative assumption is: Only 2 out of 10 users who install Nelio Content do so by looking at the WordPress directory solely. Therefore, any other user of our plugin installs it because of the information they found on our website. This is:

20% of our free trial users didn’t see Nelio Content‘s website
80% of our free trial users saw Nelio Content‘s website

As we saw a few paragraphs above, we need 1,571 new free trial users in the sixth month. After narrowing down the number of users that converted because of our site (80% of 1,571, or 1,257), we can address the original question: how many visitors do we need to have on our website? This obviously depends on the conversion rate of our website which, again, we don’t know. Based on our experience with Nelio A/B Testing, a conservative number would be:

The conversion rate of visitors to Nelio Content’s website that happens to become users of the free service = 10%

Therefore, if we want to have 1,571 new users on the sixth month after launch and only 80% of them converts because of our site, we’ll need:

80% × 1,571 × 10% = 12,570 visits per month.

As we did in each step of the process, let’s go back to reflect on this issue. Does this figure make sense? Can we reach this number of visits per month in 6 months?

Although we know that on paper it stands up under scrutiny, it’s essential to have a figure. So we added a new row to our above table to set goals for ourselves for the number of visits to our new product website:

Details of the funnel: visits to the website, free and pro plan subscriptions
Details of the funnel: visits to the website, free users, and paying customers.

As you can see from the table above, getting this volume of visits in six months seems a very ambitious objective.

Marketing KPIs of Nelio Content
Marketing KPIs 6 months after the launch of Nelio Content

In fact, these numbers were one of the key determinants for the decision to merge our blogs. Now comes the hardest part of the funnel: knowing the impact that we have to make with our marketing campaigns.

Impact of Marketing Campaigns

A great article on how to create your marketing strategy and analyse how good it is is the Beginner’s Guide to Web Data Analysis: Ten Steps to Love and Success by Avinash Kaushik. In order to propose the Acquisition Channel Portfolio for Nelio Content we used the Google Analytics diagram from our split testing service we currently have:

Traffic acquisition portfolio for Nelio Content
Traffic acquisition portfolio for Nelio Content.

Now, with this proposal we can already extend the table above to learn about the impact that it will have on all our marketing campaigns.

Impact we should get from our marketing campaigns
The impact we should get from our marketing campaigns

According to the above table, for example, if we do a series of email campaigns in the first month, 77 visits to the site must come from such campaigns. In the sixth month, this number should have increased to 842.


We believe that this initial estimate of KPIs is sufficient to continue working on our marketing plan.

Nelio Content Marketing KPIs table.
Nelio Content Marketing KPIs table.

Perhaps we could have been much more sophisticated in this whole process, but you know that we’re not experts and we learn little by little. We’d like to know in more detail about how other startups, marketing agencies, or any other type of company make an estimate of their KPIs. So any comments or suggestions on the matter will be very welcome!

Keep reading the next post in this series: Buyer Persona.

Featured Image: Porsche by Raúl A.-

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