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Progress!  ork   inW                       SaaS Math            What I’ve learned about Subscription Economics            ...
ContentsGlossary and BasicsUseful documents and dashboardsWhat business are you in?
Glossary and basicsPlease Note: Some of the terms used here I have given myown names based on how we use and calculate the...
Really basic...SaaS is a subscription to your software or serviceIt’s not something new. It’s not necessarily better.
What’s bad.Instead of paying you now, customers will pay you over aperiod of maybe several years.Cashflow is often a problem.
What’s good.Predictable: Once you get some data, you can easily estimateyour revenue for the months to come.Customers will...
Glossary of KPIs
Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.
Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Mont...
Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Mont...
Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Mont...
Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Mont...
Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Mont...
What to watch
What to watchYou want to grow faster than you churn. Or you die.
What to watchYou want to grow faster than you churn. Or you die.Increasing AIV is often very profitable. Decreasing churn(i...
What to watchYou want to grow faster than you churn. Or you die.Increasing AIV is often very profitable. Decreasing churn(i...
Create a dashboardPreferably automated based on real invoicing, but can alsobe a Google Doc. Keep it simple.Take the extra...
Our dashboardFor each month since the dawn of time (feb 2010): Month   # Customers   Amount invoiced   % Churn   % Average...
Once you get this...
Once you get this...Make a spreadsheet showing how much sales, development,support and marketing costs you.
Once you get this...Make a spreadsheet showing how much sales, development,support and marketing costs you.Break it down p...
Once you get this...Make a spreadsheet showing how much sales, development,support and marketing costs you.Break it down p...
You will find that...
You will find that...Sales will always be expensive. This is why decreasing churnand increasing AIV is good.
You will find that...Sales will always be expensive. This is why decreasing churnand increasing AIV is good.Development cos...
You will find that...Sales will always be expensive. This is why decreasing churnand increasing AIV is good.Development cos...
What business are you in?      http://chaotic-flow.com/media/saas-sales-models.pdf
What business are you in?
What business are you in?Self-Service: Generally low price point. Customers mustbe willing and able to service themselves.
What business are you in?Self-Service: Generally low price point. Customers mustbe willing and able to service themselves....
What business are you in?Self-Service: Generally low price point. Customers mustbe willing and able to service themselves....
What business are you in?
What business are you in?The average Internet entrepreneur dreams of a self-serviceSaaS model. More often than not however...
What business are you in?The average Internet entrepreneur dreams of a self-serviceSaaS model. More often than not however...
What business are you in?The average Internet entrepreneur dreams of a self-serviceSaaS model. More often than not however...
What business are you in?The average Internet entrepreneur dreams of a self-serviceSaaS model. More often than not however...
Pro tips:
Pro tips:Don’t get too mathematical.
Pro tips:Don’t get too mathematical.Fifty or so customers are not something to draw statisticalconclusions from....
Pro tips:Don’t get too mathematical.Fifty or so customers are not something to draw statisticalconclusions from.... Unders...
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SaaS Math - What I’ve learned about Subscription Economics

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A quick and basic introduction to the concepts of Software as a Service Economics.

Transcript of "SaaS Math - What I’ve learned about Subscription Economics "

  1. 1. Progress! ork inW SaaS Math What I’ve learned about Subscription Economics Co-founder at Kundo twitter.com/bjornlilja
  2. 2. ContentsGlossary and BasicsUseful documents and dashboardsWhat business are you in?
  3. 3. Glossary and basicsPlease Note: Some of the terms used here I have given myown names based on how we use and calculate them. Forthe industry standard, please check out this document atBessemer Venture Partners:www.bvp.com/sites/default/files/bvps_10_laws_of_cloud_saas_winter_2010_release.pdf
  4. 4. Really basic...SaaS is a subscription to your software or serviceIt’s not something new. It’s not necessarily better.
  5. 5. What’s bad.Instead of paying you now, customers will pay you over aperiod of maybe several years.Cashflow is often a problem.
  6. 6. What’s good.Predictable: Once you get some data, you can easily estimateyour revenue for the months to come.Customers will probably (?) pay you more for a goodproduct over time then they would up front.
  7. 7. Glossary of KPIs
  8. 8. Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.
  9. 9. Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Monthly Reoccurring Revenue. Your total billings each month.
  10. 10. Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Monthly Reoccurring Revenue. Your total billings each month.CL: Customer Lifetime. How many months a customer will stay on average.
  11. 11. Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Monthly Reoccurring Revenue. Your total billings each month.CL: Customer Lifetime. How many months a customer will stay on average.LTV: Customer LifeTime Value. Simply calculated as AIV x CL.
  12. 12. Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Monthly Reoccurring Revenue. Your total billings each month.CL: Customer Lifetime. How many months a customer will stay on average.LTV: Customer LifeTime Value. Simply calculated as AIV x CL.Churn: The percentage of customers that end their business with you every month.
  13. 13. Glossary of KPIsAIV: Average Invoice Value per customer: How much you bill each customer (onaverage) every month.MRR: Monthly Reoccurring Revenue. Your total billings each month.CL: Customer Lifetime. How many months a customer will stay on average.LTV: Customer LifeTime Value. Simply calculated as AIV x CL.Churn: The percentage of customers that end their business with you every month.CAC: Customer Acquisition Cost. The amount of money spent on acquiring a newcustomer.
  14. 14. What to watch
  15. 15. What to watchYou want to grow faster than you churn. Or you die.
  16. 16. What to watchYou want to grow faster than you churn. Or you die.Increasing AIV is often very profitable. Decreasing churn(increasing CL) is great, but much harder.
  17. 17. What to watchYou want to grow faster than you churn. Or you die.Increasing AIV is often very profitable. Decreasing churn(increasing CL) is great, but much harder.CLV determines the maximum amount you can spend onacquiring a customer. For a bootstrapped company however,it’s needs to be much lower.
  18. 18. Create a dashboardPreferably automated based on real invoicing, but can alsobe a Google Doc. Keep it simple.Take the extra time to graph this, it gets much more visible!
  19. 19. Our dashboardFor each month since the dawn of time (feb 2010): Month # Customers Amount invoiced % Churn % Average churn (6 Average AIV CL CLV month MA) (6 month MA)
  20. 20. Once you get this...
  21. 21. Once you get this...Make a spreadsheet showing how much sales, development,support and marketing costs you.
  22. 22. Once you get this...Make a spreadsheet showing how much sales, development,support and marketing costs you.Break it down per customer. This will show how much you spendon acquiring a new customer (CAC) and what will happen to yourmargins when you scale.
  23. 23. Once you get this...Make a spreadsheet showing how much sales, development,support and marketing costs you.Break it down per customer. This will show how much you spendon acquiring a new customer (CAC) and what will happen to yourmargins when you scale.Example: https://docs.google.com/spreadsheet/ccc?key=0AsqT_MU9t2DodFo1bG1fSkNPVlF1VHE2eWE2ODJ6LXc#gid=0
  24. 24. You will find that...
  25. 25. You will find that...Sales will always be expensive. This is why decreasing churnand increasing AIV is good.
  26. 26. You will find that...Sales will always be expensive. This is why decreasing churnand increasing AIV is good.Development costs per customer will decrease, making thingsmuch more profitable with scale.
  27. 27. You will find that...Sales will always be expensive. This is why decreasing churnand increasing AIV is good.Development costs per customer will decrease, making thingsmuch more profitable with scale.Support costs will increase, but slowly if you use moderntools.
  28. 28. What business are you in? http://chaotic-flow.com/media/saas-sales-models.pdf
  29. 29. What business are you in?
  30. 30. What business are you in?Self-Service: Generally low price point. Customers mustbe willing and able to service themselves.
  31. 31. What business are you in?Self-Service: Generally low price point. Customers mustbe willing and able to service themselves.Transactional: Higher prices but increasing CAC: nlineOnline demos or even meetings required to get the deal?
  32. 32. What business are you in?Self-Service: Generally low price point. Customers mustbe willing and able to service themselves.Transactional: Higher prices but increasing CAC: nlineOnline demos or even meetings required to get the deal?Enterprise: Very high price point and very few dealsrequired per time unit. Sales costs less of an issue.
  33. 33. What business are you in?
  34. 34. What business are you in?The average Internet entrepreneur dreams of a self-serviceSaaS model. More often than not however, it turns out to bemore of of a Transactional or even Enterprise model.
  35. 35. What business are you in?The average Internet entrepreneur dreams of a self-serviceSaaS model. More often than not however, it turns out to bemore of of a Transactional or even Enterprise model.Can your product really scale to get the benefits of the self-service model?
  36. 36. What business are you in?The average Internet entrepreneur dreams of a self-serviceSaaS model. More often than not however, it turns out to bemore of of a Transactional or even Enterprise model.Can your product really scale to get the benefits of the self-service model? B2C: Often Self-Service
  37. 37. What business are you in?The average Internet entrepreneur dreams of a self-serviceSaaS model. More often than not however, it turns out to bemore of of a Transactional or even Enterprise model.Can your product really scale to get the benefits of the self-service model? B2C: Often Self-Service B2B: More often Transactional or Enterprise
  38. 38. Pro tips:
  39. 39. Pro tips:Don’t get too mathematical.
  40. 40. Pro tips:Don’t get too mathematical.Fifty or so customers are not something to draw statisticalconclusions from....
  41. 41. Pro tips:Don’t get too mathematical.Fifty or so customers are not something to draw statisticalconclusions from.... Understand your business: Is growing the customer base orincreasing AIV your primary strategy? (Of course, you needto do both)
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