"SaaS Metrics, how does to leverage the subscription economy?" by Patrick Campbell, CEO at Price Intelligently

How Growth is Changing The Family - Berlin 2017

#TFBERLIN Brought to you by your friends at@PriceIntel

We live in a world where acquisition, as we know it,

is dead.


Who in the world are you?


ProfitWell

SaaS pricing software and tech enabled

services

Free financial metrics for subscription

businesses

Price Intelligently

Happy customers big and small

#TFBerlin Brought to you by your friends at@PriceIntel

We’ve seen inside more software companies than anyone else on the

planet.


The market is saturated, and unit economics just aren’t

what they used to be…


Competition is now rampant.


Q: How many competitors did you have in your first year of business?

A: Companies started more than a year ago had far fewer competitors in their space than companies started today.

N = 1432 software founders and executives

Aver

age

# o

f Com

petit

ors i

n th

eir f

irst

year

of b

usin

ess

0

3

5

8

10

5 years old 3 years old 1 year old

9.7

4.82.6


Q: How many competitors do you have now?

A: Older companies increased competition over time, likely due to attracting new entrants, as well as decreased barrier to entry


Curr

ent A

vera

ge N

umbe

r of C

ompe

titor

s

0

3

7

10

13

5 years old 3 years old 1 year old

10.2511.7512.15


The relative value of features is declining. All software is going to $0.


N = Varies by line, but minimum of 10,000 customer respondents per line

WTP

as %

of W

TP 4

Yea

rs A

go

0%

30%

60%

90%

120%

4 Years Ago 3 Years Ago 2 Years Ago 1 Year Ago Today

Core Features Single Sign On Integrations Analytics

Q: How has software willingness to pay (WTP) evolved over time?

A: Software willingness to pay has declined significantly over the past few years due to increased options and higher demands.


CAC is steadily increasing over time.


Q: How has customer acquisition cost (CAC) evolved over time?

A: Customer acquisition cost has increased significantly over the years due to market saturation of marketing vying for consumer attention.

Blen

ded

CAC

as %

of b

lend

ed C

AC 4

Ye

ars A

go

-15%

0%

15%

30%

45%

60%

4 Years Ago 3 Years Ago 2 Years Ago 1 Year Ago Today

B2B B2C

N = 437 companies per line


We make matters worse by focusing on the wrong fundamentals.


Q: Which pillar of your business is the most important to your growth?

A: Founders and software executives overwhelmingly put their support behind acquisition based growth.


% o

f tot

al re

spon

dent

s

0%

25%

50%

75%

100%

More logos Making more money per customer Keeping customers around longer


There are clear winners and losers in this environment.


Q: What was the growth focus of companies that died in the past couple of years?

A: Of 90 companies that died in the past 3 years, the majority of them were focused on acquisition based growth.

N = 90 companies that went out of business or were fire sold in the past 36 months

% o

f Com

pani

es

0%

25%

50%

75%

100%

Less than $10M ARR $10.01M to $25M ARR $25.01M+ ARR

Primarily Acquisition Growth Balanced Growth


Q: How does growth compare between acquisition based companies and their balanced counterparts?

A: Acquisition based growth companies grow at a smaller rate than those with a balanced growth approach (growth from all three pillars of growth).

N = Minimum of 512 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This, along with a dampening model was used to control for outlier spikes in growth rate.

YoY

Gro

wth

Rat

e

0%

14%

28%

41%

55%

2012 2013 2014 2015

Primarily Acquisition Growth Balanced Growth


Q: If we improve each area of a software business equally, what’s the relative impact on revenue?

A: Monetization and retention based growth far outpaces acquisition based growth.

% im

pact

on

reve

nue

0%

2%

5%

7%

9%

12%

14%

Acquisition Monetization Retention

3.32%

N = Data from 734 software companies




% im

pact

on

reve

nue

0%

2%

5%

7%

9%

12%

14%


6.71%3.32%





% im

pact

on

reve

nue

0%

2%

5%

7%

9%

12%

14%


6.71%

12.7%

3.32%





% im

pact

on

reve

nue

0%

3%

6%

9%

12%

15%

18%


9.32%

15.89%

2.35%6.71%

12.7%

3.32%

2008 - 2012 2013 - 2016



The root cause is we don’t know our buyers.


Q: What are quantified buyer personas?

A: Quantified buyer personas are data driven profiles of the customers you’re targeting or choosing to ignore.

Table Stakes Tony • Valued features: • SFDC Integration • Chrome extension

• Least valued features • Analytics • API access

• WTP = ~$10/month • CAC = ~$22 • LTV: $160

Advanced Arnie • Valued features: • Analytics • API Access

• Least valued features • Chrome extension • Premium support

• WTP = ~$25/month • CAC = ~$56 • LTV: $325


Q: Which single category describes your buyer personas internally?

A: When asked, SaaS founders and executives indicated that their company’s buyer personas weren’t well defined or centralized.

% o

f res

pond

ents

0%

20%

40%

60%

80%

100%

Thought about them Central document Quantified buyer personas

6.6%36.6%

56.8%

N = 1,647 SaaS Founders and Executives


Q: How many customer development conversations (non-sales) are you having per month?

A: SaaS founders and executives indicated that their companies are primarily only talking to less than 10 customers in a cust dev capacity per month.

% o

f res

pond

ents

0%

20%

40%

60%

80%

100%

10 or less 11 to 25 26 to 50 51+

3.9%10.1%17.7%

68.3%



Q: How many experiments are you running per month (including marketing experiments)?

A: SaaS founders and executives indicated that their companies are overwhelmingly running less than 10 experiments per month.

% o

f res

pond

ents

0%

20%

40%

60%

80%

100%

0 1 to 3 4 to 10 11+

2.7%12.1%37.8%47.8%



The is should be scary.


Point of Conversion

Offer Product #1

Justify price #1 Offer Product #1

Justify price #1

Offer Product #1

Justify price #1

Drive Customer #1 Drive Customer #2 Drive Customer #3

Buyers are the central tenet of your business


Too many of us build first, and find our true customer later. That doesn’t work.


How do we quantify our buyer personas?


Let’s walk through an example….


ProfitWell: Eating our own dog food


“Ohhh…you’re like…”


Stop building. Start talking.


For the love of God. Talk to your customer.


Cool? Awesome - here’s how to do that.


Q: How do we collect the right data to quantify our buyer personas and set our pricing up correctly?

A: The data collection isn’t rocket science at a high level, but the devil, as per usual, is in the details.

1

2

3

Buyer Personas and Design

1

Data Collection And Segmentation

2

Data Consolidation And Analysis

3


Startup Steve • Valued features: • •

• Least valued features • •

• WTP = ~$X/month • CAC = ~$XX • LTV: $XXX

Miderprise Marty • Valued features: • •

• Least valued features • •


Customer development process


Details: What’s our experimental design look like?


Our Experimental design - the details• We want to focus on a core research question and then expand out utilizing three types of data:

• Demographic data

• Feature value/relative preference data

• Pricing data1

2

3Your Customer Development Toolkit

Price Sensitivity Analysis Proven model for gauging customer’s willingness to pay and price sensitivity

Experimental Design Properly segmenting and breaking down the data.

Relative Preference AnalysisStatistical methodology to measure preferences for features, intention, and value propositions


What do people value?


Q: Why do traditional survey collection methods fail?

A: We’re bad at collecting the right data, because we don’t focus enough on forcing decisions or asking the right questions.

1

2

3

“Please rank the following features on a scale from 1 to 10”

Depth of your metrics

Beautiful Design

Actionability from your metrics

Accuracy of your metrics

0 0.25 0.5 0.75 1


Q: How should we ask a preference or value questions?

A: Utilize a methodology that forces the respondent to make a decision. We believe that the Max Diff methodology gets you the best bang for your buck.

1

2

3


Q: What type of feedback will you get with max diff?

A: When utilizing Max Diff, you get both rank order and magnitude, which allows you to save yourself from costly false positives on preferences.

1

2

3




1

2

3




1

2

3


Startup Steve • Valued features: • Price • Design

• Least valued features • Actionability • Depth


Miderprise Marty • Valued features: • Accuracy • Uptime

• Least valued features • Price • Design




How much are people willing to pay?


Our Experimental design - the details• We want to focus on a core research question and then expand out utilizing three types of data:

• Demographic data

• Feature value/relative preference data

• Pricing data1

2

3Your Customer Development Toolkit

Price Sensitivity Analysis Proven model for gauging customer’s willingness to pay and price sensitivity

Experimental Design Properly segmenting and breaking down the data.

Relative Preference AnalysisStatistical methodology to measure preferences for features, intention, and value propositions


Core pricing questions - taking advantage of human psychology• Human beings think about value as a spectrum. We can take advantage of this phenomenon by asking

pricing questions in a ranged manner:

• At what (monthly) price point does [PRODUCT] become too expensive that you’d never consider purchasing it?

• At what (monthly) price point does [PRODUCT] start to become expensive, but you’d still consider purchasing it?

• At what (monthly) price point does [PRODUCT] a really good deal?

• At what (monthly) price point does [PRODUCT] too cheap that you question the quality of it?

1

2

3


Q: Why is asking in ranges the most effective way to ask pricing questions?

A: Ranged questions allow your to get the best answers from respondents, but also ensure you’re able to properly segment and measure elasticity.

1

2

3




1

2

3

WTP for a SaaS Metrics SolutionW

TP

$0

$75

$150

$225

$300

Size of Company (MRR)

$0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+




• WTP = ~$50/month • CAC = ~$XX • LTV: $XXX



• WTP = ~$150-200/month • CAC = ~$XX • LTV: $XXX





• WTP = ~$50/month • CAC = ~$500-$600 • LTV: $600



• WTP = ~$150-200/month • CAC = ~$3000 • LTV: $1500





1

2

3

WTP for a Churn Reduction SolutionW

TP

$0

$1,250

$2,500

$3,750

$5,000


$0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+




1

2

3

WTP for a Rev Rec SolutionW

TP

$0

$1,000

$2,000

$3,000

$4,000


$0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+


Putting it all together.


Q: How do you start to put this all together?

A: This is where you earn your paycheck on making hedged decisions based on your research question.

1

2

3

Low CAC with constant value

Creates the Requirement

Path to Share of Wallet

ProfitWell Financial metrics for the subscription economy

100% accurate SaaS metrics for free

integrating 1-click with your billing system

Central fulcrum to cust success, sales, finance, marketing e-team, and

rest of stakeholders

Allows interface to clearly point to

problems and reinforce value of paid add-ons


Start small. You can always test more.


12 hours.


12 hours. $2,089.


Implement a customer development process.


[email protected]


mailto:[email protected]

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"SaaS Metrics, how does to leverage the subscription economy?" by Patrick Campbell, CEO at Price Intelligently