The Economy of Hugs

Why The Best SaaS Companies

Treat Every Day Like Valentine's

“We surveyed 306 companies to gather benchmark data with regard to growing a successful SaaS business.”

-- David Skok, Matrix Partners

(Don’t worry we’ll explain)

CAC ACV LTV DRRImportant Acronyms & Lingo

(Don’t worry we’ll explain)

Cut the crap!Just tell me why the best SaaS companies treat every day like Valentine's.

SaaS companies invest big $$

to acquire new friends...

go on dates...and get hugs.

CAC = Cost of Acquiring Customers

In this sense

hugsare the universal currency of SaaS companies...

Of course, not all friends are equal.

SaaS companies carefully

measure the number of

hugs per friend, per year.

ACV = Annual Contract Value

They also measure hugs received over lifetime.

LTV= Life Time Value

$@!t happens.So SaaS companies also measure breakups...

Churn

…and total annual hugs minus breakups.

DRR = Dollar Retention Rate

Ultimately, SaaS companies have 3 types of friends:

•  Friends with Benefits

•  Friends with Costs

•  Friends with Biggest Benefits

Friends with benefits stick around and give many hugs over time.

LTV > 3X CAC

Friends with costs give few hugs and leave early.

LTV < 3X CAC

Friends with biggest benefits not only stick around...but they give more hugs the longer they stay.

LTV > 10 X CAC

So, it's all about the hugs!

And that's why the best SaaS companies treat every day like Valentines.

Happy Valentine’s Day

Don’t forget to hug your customers!

Follow me @matthewjhoward