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SaaSEconomics 101September 2011
SaaS:
Software as a Service
Unit Economics
Unit Velocity
“Be Patient for Growth but Impatient for Profit”
- Clay Christenson
Unit Economics
Total Marketing Expense (Programs, Salary, etc.)
+ Total Sales Expense (Commission, Promotions, etc.)
Total Customers Acquired
COCA
COCA
COCA is ~$5,000
COGS
COGS
~$175 per Customer
COGS
MRR~$500 per Customer
MRR
COCA Payback
17 Months to be Profitable on a New Customer
This is why Churn is so Important
7% Churn = 15 Months
5% Churn = 20 Months
3% Churn = 33 Months
2% Churn = 50 Months
1% Churn = 100 Months
17 Month COCA Payoff
LTV
Average MRR
* Gross Margin
/ Churn Rate
Lifetime Total Value
Unit EconomicsOK but not Great
COCA LTV LTV -
COCA
Return $5k LTV:COC
A
A $1,000 $4,000 $3,000 $15,000 4
B $5,000 $10,000 $5,000 $5,000 2
A
B
Unit EconomicsOK but not Great
3 12
Scaling Unit Economics
1 Customer
1 Sales Rep
2 Sales Rep
HubSpot
Unit Economics
Unit Velocity
UPSELL
HubSpot
Source: Goldman Sachs
Public Markets Value Upsell – Why?
Hypothesis #1: Unit Economics
Hypothesis #1: Unit Economics
Hypothesis #2: Growth Imperative
Total MRR
NewSales MRR
ChurnTotal MRR
Q1 Q2
Dependent on Install Base Size
Independent of Install Base Size
Total MRR
Up-Sell
NewSales MRR
ChurnTotal MRR
Q1 Q2
Dependent on Install Base Size
Independent of Install Base Size
Get existing customers to pay more for what they’re already using
–E.g. SFDC customers buying more seats
Sell existing customers new products
–E.g. CTCT selling email customers their survey tools
2 Approaches to Upsell
