saas metrics for startups

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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