SaaS Metrics - How to stay on top of your SaaS business performance
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Transcript of SaaS Metrics - How to stay on top of your SaaS business performance
SaaS MetricsEldad Chai, VP Products, Incapsula
Hello!
Eldad Chai
Product, startups, security
Incapsula
Security, performance, availability for websites as a service
This presentation
How to measure a SaaS business
Theory and real life
How are SaaS different?
Product companies SaaS companies
Sell contracts Add subscriptions
Track average selling price Track life time value
Count units Count customers
One time deals Recurring vs. one time
Measure close rates Measure renewal and churn rates
Backward looking Forward looking
The SaaS business model
Annual Recurring Revenue (ARR)
Annual Contract Value (ACV)
Or in short…
Get new customers
Keep them for as long as you can
SaaS key metrics
Monthly Recurring Revenue (MRR) Growth
Churn Value/fit
Cost to Acquire Customer (CAC) Growth efficiency
Average Revenue Per Account (ARPA) Expansion
Life Time Value (LTV) Predictions
First 2-3
yearsScalin
g up
ph
ase
Should PMs care?
Collect Analyze Define Execution Product
Market analysis Win/Loss
Competitive
FeedbackFeature requests
Business goals
Should PMs care?
Collect Analyze Define Execution Product
Market analysis Win/Loss
Competitive
FeedbackFeature requests
Business goals
Monitor KPIs
Should PMs care?
SaaS provides a platform for analysis
Almost any change you make can be quantified
It is a CRIME not to tap into that power
Model and optimize Conversion flows Churn flows Upgrade paths Engagement New features …
Monthly Recurring Revenue (MRR)
This month’s MRR
Last month’s MRR
Churned MRR
Net new MRR
New deals
Upgrades and cross sales
Churn
Can be measured for MRR/ARR or customers
You should probably do both
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑙𝑒𝑎𝑣𝑖𝑛𝑔
𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 (𝑤ℎ𝑜 𝑐𝑜𝑢𝑙𝑑 ℎ𝑎𝑣𝑒 𝑙𝑒𝑓𝑡)
How churn kills growth
Annual net new ARR = $50K
Annual churn = 20%
0%
20%
40%
60%
80%
100%
120%
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Yo
Y
AR
R
YEAR
ARR
ANNUAL GROWTH
What can cause churn?
Not enough value or lack of market fit
Bugs, instability or poor service
Not sticky
Hard adoption
Pricing is not structured right
How to reduce churn
Churn should be a focus area from day one
Monitor customer engagement seriously
Be sticky (with features or contracts)
Negative churn
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35
MR
R
MONTH
2% chrun
-2% churn
Churn advanced analysis
Free vs. SMB vs. Enterprise
Cohort analysis
Cost to acquire customer (CAC)
CAC is different for every source (don’t look at averages)
Months to recover CAC
LTV:CAC
𝑚𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑎𝑛𝑑 𝑠𝑎𝑙𝑒𝑠 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑎𝑑𝑑𝑒𝑑
Average recurring revenue per account (ARPA)
You want to see this one grow
Also keep track of only new customers
𝑀𝑅𝑅
𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠
Life time value (LTV)
Predicts how much revenue will each customer bring in
𝐴𝑅𝑃𝐴
𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟 𝑐ℎ𝑢𝑟𝑛 𝑟𝑎𝑡𝑒
Industry standards
Benchmarks
LTV > 3 x CAC
Time to break even < 12 months
Monthly churn < 2%
Industry standards
SaaS magic number (Josh James)
QRR = Quarterly Recurring Revenue
Expenses = Total Sales and Marketing Expense for last quarter
(𝑄𝑅𝑅 − 𝑄𝑅𝑅−1) ×4
𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠−1
Check yourself Step on it! Looking for investors?
0.75 1.5
Growth levers
Churn
Product
Sales metrics
Upsell and cross sale
Funnel metrics
Funnel modeling
Marketing activity
Visit Trial Customer
• You need 50 new accounts to meet this quarter's targets
• How many visits to the website do you need?
• What kind of marketing activities should you execute on?
• Is the problem at sales or at marketing?
Funnel modeling
200 PPC
400 PR
400 Webinars
100*1/10%=1000
50*1/50%=100
50
• Don’t over analyze
• At the minimum track leads/trials (MQLs) and opportunities (SQLs)
• Understand the conversion rates
• Work backwards to set targets for the teams
• Recalibrate every quarter (sliding window)
50% conversion
10% conversion
@zitzkin
References (well… at least some of them)
https://blog.paymill.com/saas-metrics/
http://chaotic-flow.com/saas-metrics-joels-magic-number-for-saas-companies/
http://larsleckie.blogspot.co.il/2008/03/magic-number-for-saas-companies.html
http://www.slideshare.net/chrija1/9-worst-practices-in-saas-metrics
http://labs.openviewpartners.com/what-are-key-performance-indicators-6-saas-metrics-that-really-matter/
http://www.forentrepreneurs.com/saas-metrics/
http://www.forentrepreneurs.com/saas-metrics-2/
http://chaotic-flow.com/media/saas-metrics-guide-to-saas-financial-performance.pdf
http://andrewchen.co/2013/05/06/the-critical-metrics-for-each-stage-of-your-saas-business-guest-post-by-lars-lofgren-of-kissmetrics/
http://christophjanz.blogspot.co.il/
http://www.forentrepreneurs.com/2014-saas-survey-1/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+forentrepreneurs+%28For+Entrepreneurs%29
http://www.slideshare.net/Zuora/zuora-always-on20123-saas-metrics-that-matter-12301579?ref=http://www.zuora.com/top3saasmetrics/
https://blog.kissmetrics.com/saas-operating-metrics/
http://www.forentrepreneurs.com/why-churn-is-critical-in-saas/
http://www.forentrepreneurs.com/multi-axis-pricing-a-key-tool-for-increasing-saas-revenue/
http://www.forentrepreneurs.com/saas-metrics-2-definitions/
https://blog.kissmetrics.com/5-metrics-for-saas/
http://blog.clientheartbeat.com/customer-churn-rate/