SaaS Startup Metrics[why, how, what to measure]
Big Data Silicon Valley
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If You Cannot Measure It, You CannotImprove It -- Lord Kelvin
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Ok. So what should I measure and why?
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Terms The terminology we will cover in this meetup:
LTV -- the Lifetime Value of a typical customer
CAC -- the cost to acquire a typical customer
MRR/ARR-- Monthly/Annual Recurring Revenue
ACV/TCV -- Annual/Total Contract Value
Churn -- customer retention or the lose of customers
Cohort -- a group of customers grouped together with somethingin common (month joined)
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What are
our
goals?
By measuring we can answer a few questions about our SaaS
companies :
Is my business financially viable?
What is working well, and what needs to be improved?
What levers should management focus on to drive the business?
Should the CEO hit the accelerator, or the breaks?
What is the impact on cash and profit/loss of hitting the
accelerator?
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What areourgoals?
What arethe keystosuccess?
The 3 Keys to Success in SaaS:
Acquiring Customers
Retaining Customers *
Monetizing Customers
* The most important to a SaaS business
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Cash
Flow
With SaaS companies primarily operating on a subscription basis,
cash flow can pose a problem. Acquiring customers require a large up
front investment potential causing a cash flow trough.
High CAC
Months to recover CAC
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CashFlow
CashFlowTrough
Understanding and preparing for this situation is important to thesurvival of a SaaS business.
Months to recover CAC
The impact of a single customer steepens as you add newcustomers
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CashFlow
CashFlowTrough
Theeffectsof theTrough
The more customers you add the deeper this trough gets.
Requires more investment
Investors and Board members must understand economics andwant to continue to invest in the business
As you get to covering your CAC, your revenue growth willsteepen
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UnitEconomics
Can I make more from my customers than it costs me to acquirethem?
LTV
LTV can also be expressed by:
But a truly accurate picture of LTV would be.
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UnitEconomics
Is your SaaS business viable?
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UnitEconomics
Is your SaaS business viable?
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Unit
Economics
Example
Unit Economics in Action: HubSpot Example?
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Two kinds of SaaS businessMonthly Contracts MRR (Monthly Recurring Revenue)
Annual Contracts ARR (Annual Recurring Revenue)
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SaaSBookings
Three Contributing Elements:
What happened with new customers added in the month:
New MRR (or ACV)
What happened in the installed base of customers:
Churned MRR (or ACV)
Expansion MRR (or ACV)
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SaaSBookings
TrackingMRR
Tracking MRR separate give insight into what needs to be tweaked :
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Churn The importance of Customer Retention (Churn) :
Early on Churn does not matter much
As the customer base grows Churn can have a dramatic effect ongrowth.
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Churn
NegativeChurn
The Power of Negative Churn
There are two ways to get expansion revenue:
Use a pricing scheme that has a variable axis, such as thenumber of seats used, the number of leads tracked, etc. Thatway, as your customers expand their usage of your product, theypay you more.
Upsell/Cross-sell them to more powerful versions of yourproduct, or additional modules.
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Churn
NegativeChurn
Example
The Power of Negative Churn
We are losing 3% of our revenue every month, and you can seethat with a constant bookings rate of $6k per month, the revenuereaches $140k after 40 months
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Churn
NegativeChurn
Example
The Power of Negative Churn
With a negative churn rate of 3%, we reach $450k in revenue(more then 3x greater), and the growth in revenues is increasing,not flattening.
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More onChurn
Cohort Analysis
Since churn is such a critical element for success in a SaaScompany, it is an area that requires deeper exploration tounderstand. Cohort Analysis is one of the important techniquesthat we use to gain insight.
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Q & A
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Citations Great content from:
SaaS Metrics 2.0, (www.forentrepreneurs.com)
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That's all folks (for now)!
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