short guide to saas financial goals
DESCRIPTION
This presentation includes descriptions and relations of key metrics for your SaaS growth and financial goals.TRANSCRIPT
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Short Guide To SaaS Financial Goals
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SaaS –High Level Focus
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Key SaaS Goals
ProfitabilityCashGrowth
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Profitability
Profitability: directly related to MRR.
MRR: (Monthly Recurring Revenue)
In a SaaS business, one of the most important numbers to watch is MRR. It is likely a key contributor to Profitability.
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Cash
Very critical to watch “Cash” in a SaaS business!
There can be a high cash expenditure to acquire a customer, while ongoing cash payments from customers come in small increments over a long period of time.
!! Convincing your customers for longer term contracts with advance payments can alleviate this situation.
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Growth
Growth is a critical success factor to gain market leadership.
Why? Customers prefer to buy from the market leader, The market leader gets the most discussion in the press, blogosphere, and social media. Cycle starts: positive natural reinforcement
Key Metrics: CAC
CAC: Cost to Acquire a Customer
CAC = Total cost of Sales & Marketing / No of Deals closed
Months to recover CAC: one of the best ways to look at the capital efficiency of your SaaS business is to look at how many months of revenue from a customer are required to recover your cost of acquiring that customer(CAC).
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Key Metrics: MRR
MRR: is computed by multiplying the total number of paying customers by the average amount that they pay you each month (ARPU).
Total Customers: a key metric for any SaaS company. This increases with new additions coming out the bottom of the sales funnel, and decreases by the number of customers that churn.
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Key Metrics: MRR Deepen
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Key Metrics: ARPU
ARPU- average monthly revenue per customer: One of the key ways that to grow your business is to take the average annual deal size to higher values. Examp: If you take average annual deal size from $10k, to $40k, this will grow your business by 4x.
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Key Metrics: Churn Rate
CHURN RATE: The percentage of customers who end their relationship with a company in a given period. One minus the churn rate is the retention rate.
Average Lifetime of a Customer: is computed by 1/Churn Rate. As an example, if a you have a 50% churn rate, your average customer lifetime will be 1 divided by 50%, or 2 months.
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Key Metrics: LTV
LTV: is a prediction of the net profit attributed to the entire future relationship with a customer.
The dollar value of a customer relationship, based on the present value of the projected future cash flows from the customer relationship.
LTV = ARPU x Average Lifetime of a Customer – the Cost to Serve them (COGS)LTV = ARPU / Churn Rate
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Profitability
Customer Profitability = LTV – CAC
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Key Guidelines
Profitability Graph
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References
http://www.forentrepreneurs.comhttp://en.wikipedia.org/wiki/Customer_lifetime_valuehttp://en.wikipedia.org/wiki/Arpu