Successfully reported this slideshow.

SaaS Model & Metrics - How to build a successful software business

9

Share

Loading in …3
×
1 of 54
1 of 54

SaaS Model & Metrics - How to build a successful software business

9

Share

Download to read offline

Most software today is migrating to SaaS (Software as a Service), a vastly different business model. So how will you navigate its complexities? This presentation will give you a detailed look at key metrics for understanding and optimizing a SaaS business, and how these metrics can be used to drive SaaS success.

Most software today is migrating to SaaS (Software as a Service), a vastly different business model. So how will you navigate its complexities? This presentation will give you a detailed look at key metrics for understanding and optimizing a SaaS business, and how these metrics can be used to drive SaaS success.

More Related Content

Related Books

Free with a 14 day trial from Scribd

See all

Related Audiobooks

Free with a 14 day trial from Scribd

See all

SaaS Model & Metrics - How to build a successful software business

  1. 1. SaaS Model & Metrics How to build a successful software business Brian Hutchins - Product Owner, ScrollMotion
  2. 2. What is SaaS?
  3. 3. What is SaaS? • Software as a Service • Subscription Model - Users purchase a subscription instead a perpetual license (usually monthly). • Originated with web-based software companies like Salesforce and Google. • Being adopted by traditional software companies. Adobe has converted 4M Photoshop users. • Today, SaaS is everywhere (Netflix, Google Docs, Tinder) and a popular starting point for many new ventures.
  4. 4. Why SaaS? Product Perspective • Enables product to be “Lean” & “Agile” • Lean Methodology • Product develop philosophy: build, measure, learn, build, measure, learn, … • Agile Development • Software development approach: prioritized, incremental development.
  5. 5. Why SaaS? Product Perspective • Responsive to customer needs • Responsive to changing technology • Product cycles every 18 months 2 weeks
  6. 6. Why SaaS? User Perspective • Limited commitment • Try it. Use it. Love it? Cancel anytime.
  7. 7. How? • Find Product / Market Fit • Find Repeatable & Scalable Sales Model • Scale the Business
  8. 8. How? • Find Product / Market Fit • Find Repeatable & Scalable Sales Model • Scale the Business Nothing new here!
  9. 9. Important Difference Cash Flow
  10. 10. Traditional Cash Flow 1 unit sold Chart - David Skok / Matrix Partners
  11. 11. SaaS Cash Flow 1 unit sold Chart - David Skok / Matrix Partners
  12. 12. Negative Cash Flow Chart - David Skok / Matrix Partners
  13. 13. Cumulative Cash Flow Chart - David Skok / Matrix Partners
  14. 14. Cumulative Cash Flow Chart - David Skok / Matrix Partners Scary Awesome
  15. 15. When your SaaS business is losing money at an increasing rate… how can you tell if the business is going to work eventually?
  16. 16. CAC LTV Costs & Value Cost to Aquire a Customer Customer Lifetime Value
  17. 17. CAC LTV Viable SaaS Business < Cost to Aquire a Customer Customer Lifetime Value
  18. 18. CAC LTV Viable SaaS Business Why do so many entrepreneurs get this wrong? CAC < Cost to Aquire a Customer Customer Lifetime Value
  19. 19. Key Metrics • Conversion Rate • CAC • Churn Rate • LTV • $Churn Rate • CHI
  20. 20. Acquisition Retention & Monetization • Conversion Rate • CAC • Churn Rate • LTV • $Churn Rate • CHI Key Metrics Know How
  21. 21. • Conversion Rate • CAC • Churn Rate • LTV • $Churn Rate • CHI Key Metrics
  22. 22. CAC Cost to acquire a customer Unique to each business Company A Website SEM Ad Buys PR Marketing Person
  23. 23. CAC Company A Website SEM Ad Buys PR Marketing Person Company B Website SEM Ad Buys PR Marketing Person Sales Team Sales Engineers
  24. 24. CAC Spectrum Chart - David Skok / Matrix Partners
  25. 25. CAC Spectrum Chart - David Skok / Matrix Partners
  26. 26. CAC LTVCAC < KEY IDEA: Minimize CAC Viable SaaS Business
  27. 27. Churn Rate Definition: Percentage of customers leaving your service during a given time period.
  28. 28. Customer Churn Rate User 2 User 3 User 1 User 2 User 3 Paid Subscriptions Month 0 Company A’s SaaS Offering Paid Subscriptions Month 1
  29. 29. Customer Churn Rate User 2 User 3 33% Customer ChurnUser 1 User 2 User 3 Paid Subscriptions Month 0 Company A’s SaaS Offering Paid Subscriptions Month 1
  30. 30. Churn Rate Churn Rate <= 5% per month GOOD Churn Rate > 5% per month WORK to IMPROVE
  31. 31. Effect of Churn Rate on Cohort Chart - David Skok / Matrix Partners
  32. 32. Customer Lifetime 1 Churn Customer Lifetime =
  33. 33. Customer Lifetime 1 0.05 Customer Lifetime = If Churn is 5% monthly: = 20 months
  34. 34. Customer Lifetime Chart - David Skok / Matrix Partners
  35. 35. Customer Lifetime vs. Churn Churn Rate Months Chart - David Skok / Matrix Partners
  36. 36. Customer Lifetime Value LTV = Avg Monthly Profit per Customer x Customer Lifetime LTV = Avg Monthly Profit per Customer x 1 Churn
  37. 37. LTV Avg Monthly Profit per Customer = $1000 Customer Lifetime = 20 months Churn = 5% LTV = $1000 * 20 = $20,000 LTV = $1000 * 1 / 0.5 = $20,000 Chart - David Skok / Matrix Partners
  38. 38. LTV vs Churn Churn Rate LTV Chart - David Skok / Matrix Partners
  39. 39. CAC LTVCAC < KEY IDEA: Reducing Churn Increases LTV Viable SaaS Business
  40. 40. Dollar Churn Rate
  41. 41. Dollar Churn Rate User 2 User 3 Company A’s SaaS Offering Paid Subscriptions Month 1 $1 $2User 1 User 2 User 3 Paid Subscriptions Month 0 $3
  42. 42. Dollar Churn Rate User 2 User 3 Paid Subscriptions Month 1 $1 $2 33% Customer Churn 33% Dollar Churn User 1 User 2 User 3 Paid Subscriptions Month 0 $3 Company A’s SaaS Offering
  43. 43. Dollar Churn Rate User 2 Company A’s SaaS Offerings Paid Subscriptions Month 1 Basic Gold$1 $3 User 3 $4 User 1 User 2 User 3 Paid Subscriptions Month 0 $3
  44. 44. Dollar Churn Rate User 2 User 1 User 2 User 3 Paid Subscriptions Month 0 Paid Subscriptions Month 1 Basic $3 33% Customer Churn -33% Dollar Churn Gold$1 $3 User 3 $4 Company A’s SaaS Offerings
  45. 45. Impact of Negative $Churn Chart - David Skok / Matrix Partners $250k
  46. 46. CAC LTVCAC < KEY IDEA: Selling to your existing customers has a big impact LTV Viable SaaS Business
  47. 47. Actual LTV Average Recurring Profit per Customer * Gross Profit $ Churn LTV =
  48. 48. CHI (1) Vital force in Taoism that animates the body (2) Customer Health Indicators (3) Customer Happiness Index
  49. 49. CHI • Customers make a decision about your service every pay period • Your customer must find continuing value in your product • Wouldn’t it be great to predict customer satisfaction & engagement that correlates to retention? • CHI is a measure of customer engagement
  50. 50. CHI • Simple: Customer Usage • Sophisticated: Specific user behaviors correlating to purchase and retention • Example: Facebook • Simple: User opens FB daily — DAU • Sophisticated: User likes - OK, posts - Better uses Messager-Best! — Better measure of engagement and value
  51. 51. CAC LTVCAC < KEY IDEA: CHI helps reduce CAC and increase LTV Viable SaaS Business
  52. 52. LTVCAC < SaaS Benchmarks • LTV > 3x CAC • Months to recover CAC < 12 Months
  53. 53. Summary • Be Lean & Agile • Use SaaS metrics • Minimize CAC, Maximize LTV • Happy customers don’t churn • Happy customers buy more stuff LTVCAC <
  54. 54. Acknowledgements • David Skok • Best SaaS blog • http://www.forentrepreneurs.com/ • Christof Janz • SaaS business template • http://christophjanz.blogspot.com/ • Totango - Customer Success Analytics Company • SaaS benchmarks • http://www.totango.com/

×