saas math - mars best practices series

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Page 1: SaaS Math - MaRS Best Practices Series

Tuesday, May 24th

Page 2: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

SaaS MathMark MacLeod

Real Ventures

Page 3: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Introduction

CFO

AdvisorInvestor

Page 4: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Agenda

Why I love SaaSMetrics 101Pricing MagicValuationQ & A

Page 5: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Why I love SaaSand by “I”, I mean Investors

$ 21B Market

20% Growth

Certainty Premium

Page 6: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

SaaS Metrics 101

“In God we trust, all others bring data” W. Edwards Deming

Page 7: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Metrics for Pirates

Source: Metrics for Pirates - 500 Hats

Page 8: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Metrics 101:Where to focus, when...

1st battle - Acquisition

Release early, even if it sucks

Talk to users!

Test messaging, channels

Measure every action

Page 9: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Metrics 101:Where to focus, when...

Ultimate battle: Retention

Churn Rate is the most important metric for SaaS businesses

Page 10: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

What to measurePart 1 - The Funnel

Source: http://www.forentrepreneurs.com/saas-metrics/

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© Mark MacLeod 2011

What to measureAcquisitionWeek over week Growth in:

New Unique Visitors (Absolute)

New Users

Conversion Rates:

UV to Sign-Up

Changes in conversion rates

New vs. Returning

Which traffic sources work?

Performance vs. Target

Page 12: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

What to measureActivation

Week over week Growth in:

New Activate Users

Conversion Rates:

New User to Active User

Changes in conversion rates

Which sources work best?

Performance vs Target

Page 13: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

What to measureRetention - Active

Cohort Analyses: 30 / 60 / 90 days

Churn - 30 / 60 / 90

Change in churn

Stratify Users

Profile “Power” Users

Specific engagement metrics (comments, likes, etc.)

Page 14: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

What to measureReferral

K Factor - Viral Coefficient

Understand change in each key driver

Page 15: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

What to measureRevenueConversion to Paid

ARPU & Changes in ARPU

Cohort Analyses: 30 / 60 / 90 days

Churn - 30 / 60 / 90

Change in churn

Reasons for cancellation

Exit interview?

Upgrade %

Source of paid users

Page 16: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

What to measurePart 1I - Per User Economics

Page 17: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Per User EconomicsElements:

Revenue Per Month (ARPU) * Life of a User*

Margin %

Less

Cost of Acquisition (CAC)=

Customer Lifetime Value (CLTV)

Page 18: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Impact of Churn

Source: http://www.forentrepreneurs.com/saas-metrics/

At $5/ month

Lifetime Revenue

Low - $100High - $500

Page 19: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Customer Acquisition Costs (CAC)Elements:Staff Costs (salaries)SEM, paid programsPRTravel, conferences, etc.

Calculation Methods: Basic: No salaries Loaded: With Salaries

Gross: Before churnNet: After churn

Page 20: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

CAC

How Much should you spend?Depends on churnTarget 6 months’ revenue or lessBe willing to spend up to marginal CLTV

Page 21: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

How To MeasureCustom Built

Page 22: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

How To MeasureOff the Shelf

Page 23: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Example

Page 24: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Example

Page 25: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Pricing

Page 26: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Elements of Your Pricing Decision

Value Proposition - Hard ($) vs. Soft (time)

Positioning

Target customer - Consumer, Business

Comparables

How you sell?

Acquisition Cost

Page 27: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Pricing Examples

$ 10 $ 20 $ 49 $ 24

$ 20 $ 30 $ 250 $ 25 ++

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© Mark MacLeod 2011

Freemium

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© Mark MacLeod 2011

Freemium

Necessary Conditions:

Large market

Incremental Cost to serve = $0

Clear upgrade Path

Funding $

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© Mark MacLeod 2011

Freemium

Why freemium?

Reduce barriers to try

Disrupt the market

Network effects

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© Mark MacLeod 2011

Freemium

Freemium Types

Direct: Premium version

Indirect: Access the user base (ads, subscriptions)

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© Mark MacLeod 2011

Case Study: Freshbooks

Page 33: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Case Study: Mint.com

Page 34: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Annual Prepay

Offer Discounts for Prepayment

Page 35: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

SaaS Valuations

Page 36: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Early Stage ValuationsNot Numbers Driven

Factors:

Team

Track Record

Traction

Opportunity Size

Deal Competition

Page 37: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Late Stage Valuations

Source: Software Equity Group, L.L.C

Page 38: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

Winning at SaaS

Keep it Simple - Focus on a single benefit

Talk to users

Measure everything

Don’t be afraid to charge

Service, service, service

Page 39: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

q & a

Questions?

Page 40: SaaS Math - MaRS Best Practices Series

© Mark MacLeod 2011

thank you

mark macleodtwitter: @startupcfo

blog: startupcfo.caweb: realventures.com

about.me/markmacleod