SaaS Metrics Report

February 2016

About The Research

The SaaS Metrics Report isbased on an annually conducted survey started in 2011.

This year’s report lookedat responses from over300 SaaS professionals.

AboutTotango

Totango is the leader in customer success management for SaaSbusinesses.

Totango helps companiesimprove customer health, boost revenue, and manage their customer success operations.

ExecutiveSummary

Summary of the topfindings from the latestSaaS Metrics Survey.

Customer retention cost, customer health, and customer lifetime value are the new frontier in SaaS metrics

The SaaS industry continues to be a challenged by high churn rates

Spending on customer retention is growing

SaaS companies continue to invest in tracking more metrics on their existing customers. The top new metrics companies plan to track in 2016 are customer retention cost, customer health, and customer lifetime value.

More than two-thirds of the surveyed SaaS companies experienced annual churn rates of 5% or higher. Additionally, almost the same number saw an increase or no change in churn since the previous year.

More than half of the companies surveyed increased their spending on customer retention last year. Spending on staffing increased at a faster clip compared to spending on technology or programs, suggesting that companies are still more focused on building out their teams vs. putting in place the infrastructure to scale customer retention operations.

Upsell and expansion sales are a missed opportunity for SaaS vendorsFor the large majority of SaaS companies surveyed (81%), only 20% or less of new revenue came from existing customers in the form of upsell and expansion sales.

SaaS company growth rates are strongly influenced by customer retention and upsellFor the third year in a row, the survey indicates that the fastest growing SaaS companies have a significantly better record on churn and upsell, underscoring the critical role of managing revenue from existing customers in the SaaS business model.

ParticipantProfile

Job Function

Job Title

Marketing

Customer Success/Account Mgmt

Sales

Customer Support

Products

Operations

Other

C-Level

VP

Director

Manager

Other

ParticipantProfile

11%

46%

11%

4%

8%

10%

10%

20%

12%

28%

32%

10%

ParticipantProfile

Customer Success Team Size

1-5 Person

6-20 Person

20+ Person

No Team

44%

30%

18%

8%

Revenue Distribution

0

20

40

60

80

100

120

<$1 M $1-10 M $10-50 M $50-100 M >$100 M

55

108

70

19

46

Annual Revenue

Num

ber o

f Com

pani

es

12 respondents did not complete this question

Annual Revenue Growth

ParticipantProfile

Num

ber o

f Com

pani

es

0

20

40

60

80

0

20

40

60

80

Num

ber o

f Com

pani

es

0-10% 10-25% 25-50% 50-75% 75-100% >100%

0-10% 10-25% 25-50% 50-75% 75-100% >100%

58

8070

2921

52

44

69 65

2519

33

All Respondents (310)

Annual Revenue GrowthExcluding Companies < $1 Million Revenue (255 respondents)

Survey Results& Analysis

The State ofSaaS Metrics

For the third year in a row, 50% or more respondents indicated that they are satisfiedwith the state of their businessmetrics.

That said, after a sizable jumpin 2013, satisfaction has not improved significantly, with only a slight upward trendfor executives who are “very pleased” with their company’smetrics.

Satisfaction with SaaS Metrics

Not satisfied and learned to live with it

Not satisfied and investing to improve it

Good enough

Very pleased

27%

2011 2012 2013 2014 2015

34%

25%

15%

37%

32%

14%

17%

15%

31%

35%

19%

15%

35%

30%

20%

11%

33%

31%

25%

Level of Executive Priority and Funding

High priority

Medium priority

Low priority

Focus on NewVersus ExistingCustomers

Customer acquisitioncontinues to be a higherpriority for SaaS companiescompared to managing revenue from existingcustomers.

The emphasis on renewalshas increased marginally overthe last two years, thoughupsells and add-on sales havenot received increased priorityand funding.

New Customer Acquisition

Existing Customer Renewals

Upsell/Add-on Sales

89% 9%

59%

46%

27%

41% 13%

14%

2%

46%

49%

50%

54%

58%

Which Metrics Do You Track?

Website unique visitors

The MetricsCompaniesTrack

The percentage of respondents tracking customer acquisition metrics has not changed substantially over time.

By contrast, tracking of metricson existing customers, especially churn, add-on/expansion sales, and Net Promoter Score, hasseen an upward trend overthe last few years.

# of new trial or free signups

Conversion rates (free to paying)

Customer acquisition cost

Churn

Product usage statistics

Add-on/expansion sales

Revenue per user

Net Promoter Score (NPS)

Customer Lifetime Value (CLV)

Customer health

Customer retention cost

84%

66%

56%

56%

80%

63%

84%

35%

Customeracquisitionmetrics

Metricson existingcustomers

54%

46%

37%

45%

46%

55%

22%

37%

The MetricsCompanies PlanTo Track

Survey results show thatrespondents are mostly planning to add metricson existing customers to their internal processes.

Annual trends suggest thatmetrics such as customer retention cost, customer health, and customer lifetimevalue are the next big metricsrespondents plan to track.

Which Metrics Do You Plan To Track?

Customer acquisition cost

Conversion rates (free to paying)

# of new trial or free signups

Website unique visitors

Customer retention cost

Customer health

Customer Lifetime Value (CLV)

Net Promoter Score (NPS)

Add-on/expansion sales

Product usage statistics

Revenue per user

Churn 17%

32%

30%

34%

10%

Customeracquisitionmetrics

Metricson existingcustomers

13%

CustomerAcquisition andRetention Costs

A significantly higher numberof companies measure and track customer acquisition costs compared to customerretention costs.

However, 55% of respondentsplan on tracking customer retention cost in the future,making it the #1 new metricmost companies plan tomeasure.

Retention Cost vs. Acquisition Cost

CustomerAcquisition

Cost

CustomerRetention

Cost

56%

37%

55%

Currently track

Plan to track

35%

Annual Spendon CustomerRetention

More than half the companiessurveyed increased theirspending on customerretention last year.

Spending on staffing increasedat a faster clip compared tospending on systems andtechnology or retentionprograms (e.g. customercommunity, nurture campaigns,etc.). This suggests thatcompanies are still more focused on building out theirteams vs. putting in place theinfrastructure to scalecustomer retention.

How Did Your Spend on Customer RetentionChange This Year?

Increased spend

No change in spend

Decreased spend

24%69% 7%

39%58%

40%52% 8%

2%

People & staffing

Systems & technology

Retention programs

22%58% 20%

31%46% 23%

39%33% 28%

39%26% 35%

23%21% 56%

39%30% 31%

33%35% 32%

25%47% 28%

30%47% 23%TrackingCustomer Health

For the respondents whomeasure customer health,the top drivers of healthare product usage and engagement, CRM metrics, and service utilization (e.g. licenses used vs purchased).

The frequency with which companies recalculatecustomer health varieswidely, with the majoritydoing so on a weekly or monthly basis.

What Is Included In Your Definition OfCustomer Health?

Usage and engagement

CRM metrics (support tickets)

Service utilization

Customer satisfaction/NPS

Executive sponsor relationship

CSM risk assessment

Business impact/ROI

Use of support/training material

Other metrics

Included

Not included, but will be in the future

Do Not Include

How Often Do You Recalculate Customer Health?

Daily (As it happens)

Weekly

Monthly

Quarterly

Annually

21%

29%

16%

29%

5%

New BusinessFrom Free Trialsor Freemium

The number of companiesdepending on free trials andfreemium to acquire newbusiness continues a steady5-year decline.

Of the companies that havethese programs, less thanhalf derive more than 25%of new business throughfree trial and freemium.

What Percentage of New Business Comes FromFree Trials and Freemium?

17%

16%

38%

18%

11%

0-10%

10-25%

26-50%

>50%

No Freemium/Free Trial

How does yourcompanymeasure churn?

Most SaaS companiescontinue to measure churnby the number of customerslost, followed closely bychurn based on revenue.

Even as new technologiesmake it easier to analyzechurn, less than one quarter of respondents calculatechurn at a more granularlevel based on productdowngrades or numberof users/licenses lost.

How Do You Measure Churn?

By # of Customers

By Revenue

By # Users/Licenses

By Product Downgrade

69%

62%

22%

16%

ChurnRates

Only 32% of respondentsexperienced an annual churn rate of 5% or less, while almost one-fifth had churn exceeding 15%.

Survey responses suggestmixed results in controllingchurn. While slightly overone-third report a decreasein churn over last year, 30%of respondents saw anincrease in churn and thebalance 34% saw nosignificant change.

Annualized Revenue Churn Rate

0-5% churn

5-10% churn

10-15% churn

>15% churn

32%

32%

17%

19%

36%

34%

30% Increased

No change

Decreased

Has your churn rate increased or decreasedin the last year?

Churn byCompany Growth

Retaining customers is a vitalcomponent of high-growthSaaS businesses.

This is supported by surveyresults showing that thefastest growing companies (>75% YoY revenue increase)also had the lowest churn rates.

Low Churn (<5%)

Medium Churn (5-10%)

High Churn (>10%)

High Growth

Medium Growth

Low Growth

39%

27%

34%

30%

40%

30%

29%

29%

42%

High Growth = >75% YoY rev increaseMedium Growth = 25-75% YoY rev increaseLow Growth = <25% YoY rev increase

Revenue BoostFrom ExistingCustomers

Boosting revenue fromexisting customers remainsa growth opportunity for mostcompanies. For the largemajority of respondents (81%),20% or less of new revenuecame from existing customers.

This is also highlighted by survey results showing that only 14% of respondents saw a significant jump in the contract value of existing customers.

Year-Over-Year Revenue Increase FromExisting Customers

>81% upsell

61-80% upsell

41-60% upsell

21-40% upsell

1-20% upsell

No increase

Decline

9%

26%

44%

13%

3% 2% 3%

5-10%

10-15%

15-20%

>20%

0-5%

% of New Revenue From Upsells/Add-on Sales (vs Revenue From New Customers)

23%

30%19%

19%

9%

Upsells andAdd-on Sales byCompany Growth

Upsells and add-on sales area key growth driver for SaaScompanies.

This is supported by survey results showing that the fastest growing companies(>75% YoY revenue increase)also had higher upsellsand add-on sales.

Low Upsell (<20%)

Medium Upsell (20-40%)

High Upsell (>40%)

High Growth

Medium Growth

Low Growth

48%

17%

35%

42%

38%

20%

76%

3%

21%

High Growth = >75% YoY rev increaseMedium Growth = 25-75% YoY rev increaseLow Growth = <25% YoY rev increase

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