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SaaS Math - MaRS Best Practices Series
 

SaaS Math - MaRS Best Practices Series

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Getting your pricing and metrics right is critical for any start-up, but doubly so for a recurring-revenue business. In this session, we explore key customer metrics for new ventures, including ...

Getting your pricing and metrics right is critical for any start-up, but doubly so for a recurring-revenue business. In this session, we explore key customer metrics for new ventures, including acquisition, activation, conversion, churn and referrals. We look at pricing in general and freemium in particular. Finally, we examine valuations for software-as-a-service (SaaS) companies and how they compare with companies using traditional software license models.

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    SaaS Math - MaRS Best Practices Series SaaS Math - MaRS Best Practices Series Presentation Transcript

    • Tuesday, May 24th
    • SaaS Math Mark MacLeod Real Ventures© Mark MacLeod 2011
    • Introduction CFO Advisor Investor© Mark MacLeod 2011
    • Agenda Why I love SaaS Metrics 101 Pricing Magic Valuation Q &A© Mark MacLeod 2011
    • Why I love SaaS and by “I”, I mean Investors $ 21B Market 20% Growth Certainty Premium© Mark MacLeod 2011
    • SaaS Metrics 101 “In God we trust, all others bring data” W. Edwards Deming© Mark MacLeod 2011
    • 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 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© Mark MacLeod 2011
    • What to measure Part 1 - The Funnel Source: http://www.forentrepreneurs.com/saas-metrics/© Mark MacLeod 2011
    • 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
    • What to measure Activation 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© Mark MacLeod 2011
    • 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
    • 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 Churn - 30 / 60 / 90 Change in churn Reasons for cancellation Exit interview? Upgrade % Source of paid users© Mark MacLeod 2011
    • What to measure Part 1I - Per User Economics© Mark MacLeod 2011
    • 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
    • Impact of Churn At $5/ month Lifetime Revenue Low - $100 High - $500 Source: http://www.forentrepreneurs.com/saas-metrics/© Mark MacLeod 2011
    • Customer Acquisition Costs (CAC) Elements: Staff Costs (salaries) SEM, paid programs PR Travel, conferences, etc. Calculation Methods: Basic: No salaries Loaded: With Salaries Gross: Before churn Net: After churn© Mark MacLeod 2011
    • CAC How Much should you spend? Depends on churn Target 6 months’ revenue or less Be willing to spend up to marginal CLTV© Mark MacLeod 2011
    • How To Measure Custom Built© Mark MacLeod 2011
    • How To Measure Off the Shelf© Mark MacLeod 2011
    • Example© Mark MacLeod 2011
    • Example© Mark MacLeod 2011
    • Pricing© Mark MacLeod 2011
    • Elements of Your Pricing Decision Value Proposition - Hard ($) vs. Soft (time) Positioning Target customer - Consumer, Business Comparables How you sell? Acquisition Cost© Mark MacLeod 2011
    • Pricing Examples $ 10 $ 20 $ 24 $ 49 $ 20 $ 30 $ 250 $ 25 ++© Mark MacLeod 2011
    • Freemium© Mark MacLeod 2011
    • Freemium Necessary Conditions: Large market Incremental Cost to serve = $0 Clear upgrade Path Funding $© Mark MacLeod 2011
    • Freemium Why freemium? Reduce barriers to try Disrupt the market Network effects© Mark MacLeod 2011
    • Freemium Freemium Types Direct: Premium version Indirect: Access the user base (ads, subscriptions)© Mark MacLeod 2011
    • 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 Opportunity Size Deal Competition© Mark MacLeod 2011
    • 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 charge Service, service, service© Mark MacLeod 2011
    • q&a Questions?© Mark MacLeod 2011
    • thank you mark macleod twitter: @startupcfo blog: startupcfo.ca web: realventures.com about.me/markmacleod© Mark MacLeod 2011