SaaS Math - MaRS Best Practices Series
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Transcript of SaaS Math - MaRS Best Practices Series
Tuesday, May 24th
© Mark MacLeod 2011
SaaS MathMark MacLeod
Real Ventures
© Mark MacLeod 2011
Introduction
CFO
AdvisorInvestor
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Agenda
Why I love SaaSMetrics 101Pricing MagicValuationQ & A
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Why I love SaaSand by “I”, I mean Investors
$ 21B Market
20% Growth
Certainty Premium
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SaaS Metrics 101
“In God we trust, all others bring data” W. Edwards Deming
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Metrics for Pirates
Source: Metrics for Pirates - 500 Hats
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Metrics 101:Where to focus, when...
1st battle - Acquisition
Release early, even if it sucks
Talk to users!
Test messaging, channels
Measure every action
© Mark MacLeod 2011
Metrics 101:Where to focus, when...
Ultimate battle: Retention
Churn Rate is the most important metric for SaaS businesses
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What to measurePart 1 - The Funnel
Source: http://www.forentrepreneurs.com/saas-metrics/
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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
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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
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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.)
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What to measureReferral
K Factor - Viral Coefficient
Understand change in each key driver
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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
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What to measurePart 1I - Per User Economics
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Per User EconomicsElements:
Revenue Per Month (ARPU) * Life of a User*
Margin %
Less
Cost of Acquisition (CAC)=
Customer Lifetime Value (CLTV)
© Mark MacLeod 2011
Impact of Churn
Source: http://www.forentrepreneurs.com/saas-metrics/
At $5/ month
Lifetime Revenue
Low - $100High - $500
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Customer Acquisition Costs (CAC)Elements:Staff Costs (salaries)SEM, paid programsPRTravel, conferences, etc.
Calculation Methods: Basic: No salaries Loaded: With Salaries
Gross: Before churnNet: After churn
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CAC
How Much should you spend?Depends on churnTarget 6 months’ revenue or lessBe willing to spend up to marginal CLTV
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How To MeasureCustom Built
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How To MeasureOff the Shelf
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Example
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Example
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Pricing
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Elements of Your Pricing Decision
Value Proposition - Hard ($) vs. Soft (time)
Positioning
Target customer - Consumer, Business
Comparables
How you sell?
Acquisition Cost
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Pricing Examples
$ 10 $ 20 $ 49 $ 24
$ 20 $ 30 $ 250 $ 25 ++
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Freemium
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Freemium
Necessary Conditions:
Large market
Incremental Cost to serve = $0
Clear upgrade Path
Funding $
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Freemium
Why freemium?
Reduce barriers to try
Disrupt the market
Network effects
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Freemium
Freemium Types
Direct: Premium version
Indirect: Access the user base (ads, subscriptions)
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Case Study: Freshbooks
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Case Study: Mint.com
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Annual Prepay
Offer Discounts for Prepayment
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SaaS Valuations
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Early Stage ValuationsNot Numbers Driven
Factors:
Team
Track Record
Traction
Opportunity Size
Deal Competition
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Late Stage Valuations
Source: Software Equity Group, L.L.C
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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
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q & a
Questions?
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thank you
mark macleodtwitter: @startupcfo
blog: startupcfo.caweb: realventures.com
about.me/markmacleod