SaaS Math                       Mark MacLeod                           Real Ventures© Mark MacLeod 2011
Introduction                                 CFO                                       Advisor                      Invest...
Agenda                      Why I love SaaS                      Metrics 101                      Pricing Magic           ...
Why I love SaaS                      and by “I”, I mean Investors          $ 21B Market          20% Growth          Certa...
SaaS Metrics 101              “In God we trust, all others bring data”                                                W. E...
Metrics for Pirates                       Source: Metrics for Pirates - 500 Hats© Mark MacLeod 2011
Metrics 101:              Where to focus, when...         1st battle - Acquisition         Release early, even if it sucks...
Metrics 101:              Where to focus, when...                             Ultimate battle: Retention                  ...
What to measure     Part 1 - The Funnel                      Source: http://www.forentrepreneurs.com/saas-metrics/© Mark M...
What to measure     Acquisition  Week over week Growth in:       New Unique Visitors (Absolute)   New Users  Conversion Ra...
What to measure     Activation Week over week Growth in:        New Activated Users Conversion Rates:  New User to Active ...
What to measure     Retention - Active      Cohort Analyses: 30 / 60 / 90 days      Churn - 30 / 60 / 90      Change in ch...
What to measure     Referral      K Factor - Viral Coefficient      Understand change in each key driver© Mark MacLeod 2011
What to measure     Revenue      Conversion to Paid      ARPU & Changes in ARPU      Cohort Analyses: 30 / 60 / 90 days   ...
What to measure     Part 1I - Per User Economics© Mark MacLeod 2011
Per User Economics               Elements:                  Revenue Per Month (ARPU) * Life of a User                     ...
Impact of Churn                                                                              At $5/ month                 ...
Customer Acquisition Costs (CAC)          Elements:          Staff Costs (salaries)          SEM, paid programs          P...
CAC     How Much should you spend?     Depends on churn     Target 6 months’ revenue or less     Be willing to spend up to...
How To Measure       Custom Built© Mark MacLeod 2011
How To Measure       Off the Shelf© Mark MacLeod 2011
How To Bill© Mark MacLeod 2011
Example© Mark MacLeod 2011
Example© Mark MacLeod 2011
Pricing© Mark MacLeod 2011
Elements of Your Pricing Decision       Value Proposition - Hard ($) vs. Soft (time)       Positioning       Target custom...
Pricing Examples       $ 10           $ 20            $ 24                             $ 49            $ 20      $ 30    $...
Freemium© Mark MacLeod 2011
Freemium        Necessary Conditions:         Large market         Incremental Cost to serve = $0         Clear upgrade Pa...
Freemium        Why freemium?        Reduce barriers to try        Disrupt the market        Network effects© Mark MacLeod...
Freemium        Freemium Types         Direct: Premium version         Indirect: Access the user base (ads, subscriptions)...
Case Study: Freshbooks© Mark MacLeod 2011
Case Study: Mint.com© Mark MacLeod 2011
Annual Prepay        Offer Discounts for Prepayment© Mark MacLeod 2011
SaaS Valuations© Mark MacLeod 2011
Early Stage Valuations        Not Numbers Driven        Factors:         Team         Track Record         Traction       ...
Late Stage Valuations                      Source: Software Equity Group, L.L.C© Mark MacLeod 2011
Winning at SaaS   Keep it Simple - Focus on a single benefit   Talk to users   Measure everything   Don’t be afraid to char...
q&a                      Questions?© Mark MacLeod 2011
thank you                            mark macleod                      twitter: @startupcfo                           blog...
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Saas Math

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My presentation on SaaS Math given at MaRS in Toronto

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Saas Math

  1. 1. SaaS Math Mark MacLeod Real Ventures© Mark MacLeod 2011
  2. 2. Introduction CFO Advisor Investor© Mark MacLeod 2011
  3. 3. Agenda Why I love SaaS Metrics 101 Pricing Magic Valuation Q &A© Mark MacLeod 2011
  4. 4. Why I love SaaS and by “I”, I mean Investors $ 21B Market 20% Growth Certainty Premium© Mark MacLeod 2011
  5. 5. SaaS Metrics 101 “In God we trust, all others bring data” W. Edwards Deming© Mark MacLeod 2011
  6. 6. Metrics for Pirates Source: Metrics for Pirates - 500 Hats© Mark MacLeod 2011
  7. 7. 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
  8. 8. Metrics 101: Where to focus, when... Ultimate battle: Retention Churn Rate is the most important metric for SaaS businesses© Mark MacLeod 2011
  9. 9. What to measure Part 1 - The Funnel Source: http://www.forentrepreneurs.com/saas-metrics/© Mark MacLeod 2011
  10. 10. What to measure Acquisition Week 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© Mark MacLeod 2011
  11. 11. What to measure Activation Week over week Growth in: New Activated Users Conversion Rates: New User to Active User Changes in conversion rates Which sources work best? Performance vs Target© Mark MacLeod 2011
  12. 12. What to measure Retention - 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.)© Mark MacLeod 2011
  13. 13. What to measure Referral K Factor - Viral Coefficient Understand change in each key driver© Mark MacLeod 2011
  14. 14. What to measure Revenue Conversion 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© Mark MacLeod 2011
  15. 15. What to measure Part 1I - Per User Economics© Mark MacLeod 2011
  16. 16. Per User Economics Elements: Revenue Per Month (ARPU) * Life of a User * Margin % Less Cost of Acquisition (CAC) = Customer Lifetime Value (CLTV)© Mark MacLeod 2011
  17. 17. Impact of Churn At $5/ month Lifetime Revenue Low - $100 High - $500 Source: http://www.forentrepreneurs.com/saas-metrics/© Mark MacLeod 2011
  18. 18. Customer Acquisition Costs (CAC) Elements: Staff Costs (salaries) SEM, paid programs PR Travel, conferences, etc. Calculation Methods: Basic: No salaries Loaded: With Salaries Gross: Before churn Net: After churn© Mark MacLeod 2011
  19. 19. CAC How Much should you spend? Depends on churn Target 6 months’ revenue or less Be willing to spend up to marginal CLTV© Mark MacLeod 2011
  20. 20. How To Measure Custom Built© Mark MacLeod 2011
  21. 21. How To Measure Off the Shelf© Mark MacLeod 2011
  22. 22. How To Bill© Mark MacLeod 2011
  23. 23. Example© Mark MacLeod 2011
  24. 24. Example© Mark MacLeod 2011
  25. 25. Pricing© Mark MacLeod 2011
  26. 26. Elements of Your Pricing Decision Value Proposition - Hard ($) vs. Soft (time) Positioning Target customer - Consumer, Business Comparables How you sell? Acquisition Cost© Mark MacLeod 2011
  27. 27. Pricing Examples $ 10 $ 20 $ 24 $ 49 $ 20 $ 30 $ 250 $ 25 ++© Mark MacLeod 2011
  28. 28. Freemium© Mark MacLeod 2011
  29. 29. Freemium Necessary Conditions: Large market Incremental Cost to serve = $0 Clear upgrade Path Funding $© Mark MacLeod 2011
  30. 30. Freemium Why freemium? Reduce barriers to try Disrupt the market Network effects© Mark MacLeod 2011
  31. 31. Freemium Freemium Types Direct: Premium version Indirect: Access the user base (ads, subscriptions)© Mark MacLeod 2011
  32. 32. Case Study: Freshbooks© Mark MacLeod 2011
  33. 33. Case Study: Mint.com© Mark MacLeod 2011
  34. 34. Annual Prepay Offer Discounts for Prepayment© Mark MacLeod 2011
  35. 35. SaaS Valuations© Mark MacLeod 2011
  36. 36. Early Stage Valuations Not Numbers Driven Factors: Team Track Record Traction Opportunity Size Deal Competition© Mark MacLeod 2011
  37. 37. Late Stage Valuations Source: Software Equity Group, L.L.C© Mark MacLeod 2011
  38. 38. 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© Mark MacLeod 2011
  39. 39. q&a Questions?© Mark MacLeod 2011
  40. 40. thank you mark macleod twitter: @startupcfo blog: startupcfo.ca web: realventures.com about.me/markmacleod© Mark MacLeod 2011
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