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12 Key Levers of SaaS Success David Skok ForEntrepreneurs Blog General Partner, Matrix Partners
Goals Present a simple model to understand a SaaS business1 2 Show what levers a CEO can pull to get the most impact
A QUICK PREAMBLE
Search for Product/Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model The Three Ph...
Predictable, Repeatable, Scalable, Profitable Growth Scaling the Business Search for Product/Market Fit Search for Repeata...
One Sign That You’re Getting There: Bookings - (NOT Revenue or ARR!) Quarters
Simple Model for a SaaS Business
A Funnel
The Full SaaS Funnel Onboard Retain Expand Loyal Customers who are advocates
The Beautiful Thing about Funnels…
Governed by very simple Math
Two Key Levers Top of Funnel Flow (Quantity) Conversion Rate
Bookings Top of Funnel Lead Flow Conversion Rate Average Deal Size
Secondary Funnel Metrics CAC Time
Two Sales Motions Touchless Self-Serve • No Sales People • Based on Free Trial Sales People Needed
The Simple Case: Touchless Self Serve Visitors to Web Site Sign up for Free Trial Closed Deals
Funnel Metrics are Essential "IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT." - LORD KELVIN
The Key Metrics VISITORS CAMPAIGNS TO DRIVE TRAFFIC TRIALS CLOSED DEALS CONVERSION % CONVERSION % OVERALL CONVERSION %
Not All Lead Sources are Equal Visitors Trial 5% 10% $5,000 Customer Google Ad Words FaceBook Ads Visitors Trial 2% 20% $8...
OVERALL CONVERSION % (BY LEAD SOURCE) Cost per lead LTV ROI by Lead Source
Fix Conversion Rates First • Fix before spending heavily on Traffic growth • Three starting points: • Improve Product/Mark...
Funnel Conversion Rate Problems Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects ...
The Source of Most Problems Vendor-centric funnel design Suspects Suspects Suspects Suspects Suspects Suspects Suspects Su...
NOT MOTIVATED TO DO THAT THEY ARE CUSTOMERS WILL DO SOMETHING YOU ARE HOPING YOUR
IN OTHER WORDS… YOU DESIGNED YOUR FUNNEL THE WAY YOU HOPED IT WOULD WORK… BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT THE CU...
JBOSS EXAMPLE EMAIL ADDRESS BEFORE FREE DOWNLOAD
IMPACT CUT THE DOWNLOAD RATE BY MORE THAN 10X
FRICTION CONCERNS Get Inside Your Customer’s Head
MOTIVATIONS FRICTION CONCERNS Redesign, or Try to Use What Motivates Them
JBOSS EXAMPLE • Making $27,000 a month selling documentation • Solution: • Give away documentation to get their email addr...
EXAMPLE: DRIVING TRAFFIC TO YOUR WEB SITE GETTING FOUND Not going to find your site unless: - Top of Google search - Refer...
LESSONS FROM WEBSITE GRADER • Free tools drive viral spread • Low customer work required • High value delivered • Score le...
LESSONS FROM WEBSITE GRADER Shows how the product team can impact the funnel
MICROFUNNELS
Take key steps in your funnel… Free Trial
… and break them into micro-steps Free Trial Get Access to current data and import Invite Colleagues Test Feature Wow! Mom...
Identify Bottlenecks Get Access to current data and import Invite Colleagues Test Feature Wow! Moment
Fix Using the Same Analysis FRICTION CONCERNS
Get Access to current data and import Redesign Select Sample Data Invite Colleagues Test Feature Wow! Moment
Ideally we’re doing… Business Goals Decision Criteria Buying Process Customer Funnel Design
So far we’ve looked at the simple case Touchless Self-Serve • No Sales people • Based on Free Trial
What happens when the sale is more complex and needs a sales person? Sales People Needed
Without Sales People Visitors to Web Site Closed Deals Simple linear relationship Conversion Rate
But when you add in Sales People… Ramp Time Sales Capacity Limit
Growth Comes in Discontinuous Units
The Unit of Growth Sales Person
Supported by Leads & Customer Success Sales Person $’s Marketing Spend SDR’s Leads Customer Success, Renewals, etc.
What Drives Bookings? No. of Sales People Productivity per Rep (Average) x PPR
Let’s look at each of these in turn…
Number of Sales People One of the most common reasons for missing plan Didn’t hire sales people fast enough
Sales Hiring • You will need to build an in-house recruiting machine See my blog post: “Recruiting: The 3rd Crucial Startu...
Two Metrics to Track 0 2 4 6 8 10 12 14 16 18 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Number of Reps versus Plan Reps Plan $0 $500 $...
Lost Bookings due to slow hiring $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan ...
Over Assignment of Quota needed to hit plan =1/85% $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assig...
PPR: Productivity per Rep • Quality of sales hires • Sales Training and Onboarding
PPR: Sales Training and Onboarding • Sales People: One of the most expensive resources • Yet, typically little effort is p...
Monitoring PPR Charts3
PPR over time $100 $110 $120 $130 $140 $150 $160 $170 Q1 Q2 Q3 Q4 Average Productivity Per Rep NewARRbooked-$k/quarter
PPR Looked at by Rep Tenure 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Average Productivity Per Rep - Grouped by Rep Tenure 6 -...
PPR by Individual Rep Rep Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 John 120 165 180 145 80 110 195 Mary 80 110 135 155 15...
% of Reps at Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 75% of Quota 30% 40% 50% 60% 7...
There’s one other thing that drives PPR Adequate Lead Flow
THE MAGIC OF FUNNEL MATH
Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Funnel Math
Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Closed Deal1 Opportunity5 Sa...
Allows Us to Compute Leads Required per Rep x No. of Closed Deals = Reverse Funnel Conversion Rate Marketing Qualified Lea...
This Becomes the Contract Between Sales & Marketing Marketing Qualified Leads Required Sales Marketing SDR’s
The Backend of the Funnel Closed Deals Loyal Customers who are Advocates Renew ExpandOnboard It’s all about LTV
Top Factors Affecting Renewals • On-boarded successfully? • Champion still at the company? • Customer getting meaningful b...
Dollar Renewal Rate is King See my SaaStr 2016 presentation Customer Renewal Rate >Dollar Renewal Rate
SUMMARY 12 Key Levers for SaaS Success
Simple Team Focus: Optimize your Funnel
Funnel Optimization Meetings • Start by diagramming your funnel • Draw the micro steps for key parts e.g. free trial
Funnel Optimization Meetings Participants Sales Marketing Product “Sparketing!”
Key Levers 1. Product/Market Fit
Key Levers 3. Conversion Rate 2. Top of Funnel Lead Flow 4. CAC
Key Levers 5. No. of Sales People (Recruiting) Productivity per Rep (Average) 6. PPR7. Enough Leads
Key Levers LTV 8. Pricing 9. Customer Retention Rate 10. Dollar Retention Rate (Ability to “Land & Expand”)
Key Levers Cash to Finance the Business 11. Months to Recover CAC
Key Levers Building a Great Organization 12. Recruiting, Onboarding & Management
For more details on all these topics: forentrepreneurs.com Presentation Slides: forentrepreneurs.com/saastr-2017
12 Key Levers of SaaS Success
12 Key Levers of SaaS Success
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12 Key Levers of SaaS Success

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This presentation is from my talk at the 2017 SaaStr Annual Conference in San Francisco. It offers an overview of a simple model to understand a SaaS business and the key levers a CEO can pull to get the most impact. The presentation covers:

Optimizing the SaaS Funnel:
- Get inside your customer’s head
- Break down the funnel into microsteps
- Identify bottlenecks
- Use funnel math to make improvements

12 key levers within the funnel:
1) Product/Market fit
2) Top of the funnel flow
3) Conversion rate
4) CAC (customer acquisition cost)
5) Number of sales people
6) PPR (productivity per rep)
7) Getting enough leads
8) Pricing
9) Customer retention rate
10) Dollar retention rate
11) Months to recover CAC
12) Recruiting, onboarding & management

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12 Key Levers of SaaS Success

  1. 1. 12 Key Levers of SaaS Success David Skok ForEntrepreneurs Blog General Partner, Matrix Partners
  2. 2. Goals Present a simple model to understand a SaaS business1 2 Show what levers a CEO can pull to get the most impact
  3. 3. A QUICK PREAMBLE
  4. 4. Search for Product/Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model The Three Phases of a Startup’s Lifecycle
  5. 5. Predictable, Repeatable, Scalable, Profitable Growth Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model
  6. 6. One Sign That You’re Getting There: Bookings - (NOT Revenue or ARR!) Quarters
  7. 7. Simple Model for a SaaS Business
  8. 8. A Funnel
  9. 9. The Full SaaS Funnel Onboard Retain Expand Loyal Customers who are advocates
  10. 10. The Beautiful Thing about Funnels…
  11. 11. Governed by very simple Math
  12. 12. Two Key Levers Top of Funnel Flow (Quantity) Conversion Rate
  13. 13. Bookings Top of Funnel Lead Flow Conversion Rate Average Deal Size
  14. 14. Secondary Funnel Metrics CAC Time
  15. 15. Two Sales Motions Touchless Self-Serve • No Sales People • Based on Free Trial Sales People Needed
  16. 16. The Simple Case: Touchless Self Serve Visitors to Web Site Sign up for Free Trial Closed Deals
  17. 17. Funnel Metrics are Essential "IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT." - LORD KELVIN
  18. 18. The Key Metrics VISITORS CAMPAIGNS TO DRIVE TRAFFIC TRIALS CLOSED DEALS CONVERSION % CONVERSION % OVERALL CONVERSION %
  19. 19. Not All Lead Sources are Equal Visitors Trial 5% 10% $5,000 Customer Google Ad Words FaceBook Ads Visitors Trial 2% 20% $8,000 Customer
  20. 20. OVERALL CONVERSION % (BY LEAD SOURCE) Cost per lead LTV ROI by Lead Source
  21. 21. Fix Conversion Rates First • Fix before spending heavily on Traffic growth • Three starting points: • Improve Product/Market Fit • Find the Optimal Customer Segments • Clear, Simple, Powerful, Messaging & Positioning
  22. 22. Funnel Conversion Rate Problems Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects
  23. 23. The Source of Most Problems Vendor-centric funnel design Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects
  24. 24. NOT MOTIVATED TO DO THAT THEY ARE CUSTOMERS WILL DO SOMETHING YOU ARE HOPING YOUR
  25. 25. IN OTHER WORDS… YOU DESIGNED YOUR FUNNEL THE WAY YOU HOPED IT WOULD WORK… BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT THE CUSTOMER’S POINT OF VIEW
  26. 26. JBOSS EXAMPLE EMAIL ADDRESS BEFORE FREE DOWNLOAD
  27. 27. IMPACT CUT THE DOWNLOAD RATE BY MORE THAN 10X
  28. 28. FRICTION CONCERNS Get Inside Your Customer’s Head
  29. 29. MOTIVATIONS FRICTION CONCERNS Redesign, or Try to Use What Motivates Them
  30. 30. JBOSS EXAMPLE • Making $27,000 a month selling documentation • Solution: • Give away documentation to get their email address
  31. 31. EXAMPLE: DRIVING TRAFFIC TO YOUR WEB SITE GETTING FOUND Not going to find your site unless: - Top of Google search - Referred to by an influencer friction & concerns
  32. 32. LESSONS FROM WEBSITE GRADER • Free tools drive viral spread • Low customer work required • High value delivered • Score leverages competitive urge, and acts as a trigger • Builds trust through clear demonstration of expertise
  33. 33. LESSONS FROM WEBSITE GRADER Shows how the product team can impact the funnel
  34. 34. MICROFUNNELS
  35. 35. Take key steps in your funnel… Free Trial
  36. 36. … and break them into micro-steps Free Trial Get Access to current data and import Invite Colleagues Test Feature Wow! Moment
  37. 37. Identify Bottlenecks Get Access to current data and import Invite Colleagues Test Feature Wow! Moment
  38. 38. Fix Using the Same Analysis FRICTION CONCERNS
  39. 39. Get Access to current data and import Redesign Select Sample Data Invite Colleagues Test Feature Wow! Moment
  40. 40. Ideally we’re doing… Business Goals Decision Criteria Buying Process Customer Funnel Design
  41. 41. So far we’ve looked at the simple case Touchless Self-Serve • No Sales people • Based on Free Trial
  42. 42. What happens when the sale is more complex and needs a sales person? Sales People Needed
  43. 43. Without Sales People Visitors to Web Site Closed Deals Simple linear relationship Conversion Rate
  44. 44. But when you add in Sales People… Ramp Time Sales Capacity Limit
  45. 45. Growth Comes in Discontinuous Units
  46. 46. The Unit of Growth Sales Person
  47. 47. Supported by Leads & Customer Success Sales Person $’s Marketing Spend SDR’s Leads Customer Success, Renewals, etc.
  48. 48. What Drives Bookings? No. of Sales People Productivity per Rep (Average) x PPR
  49. 49. Let’s look at each of these in turn…
  50. 50. Number of Sales People One of the most common reasons for missing plan Didn’t hire sales people fast enough
  51. 51. Sales Hiring • You will need to build an in-house recruiting machine See my blog post: “Recruiting: The 3rd Crucial Startup Skill”
  52. 52. Two Metrics to Track 0 2 4 6 8 10 12 14 16 18 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Number of Reps versus Plan Reps Plan $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k
  53. 53. Lost Bookings due to slow hiring $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k $500k
  54. 54. Over Assignment of Quota needed to hit plan =1/85% $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k 85%
  55. 55. PPR: Productivity per Rep • Quality of sales hires • Sales Training and Onboarding
  56. 56. PPR: Sales Training and Onboarding • Sales People: One of the most expensive resources • Yet, typically little effort is put in to sales training in early days • High payback • Worth having the founders spend time to develop & deliver a lot of the material
  57. 57. Monitoring PPR Charts3
  58. 58. PPR over time $100 $110 $120 $130 $140 $150 $160 $170 Q1 Q2 Q3 Q4 Average Productivity Per Rep NewARRbooked-$k/quarter
  59. 59. PPR Looked at by Rep Tenure 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Average Productivity Per Rep - Grouped by Rep Tenure 6 - 12 months 12-24 months >24 months NewARRbooked-$k/quarter
  60. 60. PPR by Individual Rep Rep Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 John 120 165 180 145 80 110 195 Mary 80 110 135 155 150 145 Fred 60 35 75 40 55 Alice 85 145 160 180 145 Joe 60 110 85 130 145 Mike 155 170 145 190 Sarah 35 45 70 45 Sue 80 145 175 165
  61. 61. % of Reps at Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 75% of Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 100% of Quota
  62. 62. There’s one other thing that drives PPR Adequate Lead Flow
  63. 63. THE MAGIC OF FUNNEL MATH
  64. 64. Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Funnel Math
  65. 65. Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Closed Deal1 Opportunity5 Sales Accepted Lead 20 Marketing Qualified Lead 25 Raw Lead125 Reverse Funnel Math
  66. 66. Allows Us to Compute Leads Required per Rep x No. of Closed Deals = Reverse Funnel Conversion Rate Marketing Qualified Leads Required
  67. 67. This Becomes the Contract Between Sales & Marketing Marketing Qualified Leads Required Sales Marketing SDR’s
  68. 68. The Backend of the Funnel Closed Deals Loyal Customers who are Advocates Renew ExpandOnboard It’s all about LTV
  69. 69. Top Factors Affecting Renewals • On-boarded successfully? • Champion still at the company? • Customer getting meaningful business benefits? • Is the product Sticky?
  70. 70. Dollar Renewal Rate is King See my SaaStr 2016 presentation Customer Renewal Rate >Dollar Renewal Rate
  71. 71. SUMMARY 12 Key Levers for SaaS Success
  72. 72. Simple Team Focus: Optimize your Funnel
  73. 73. Funnel Optimization Meetings • Start by diagramming your funnel • Draw the micro steps for key parts e.g. free trial
  74. 74. Funnel Optimization Meetings Participants Sales Marketing Product “Sparketing!”
  75. 75. Key Levers 1. Product/Market Fit
  76. 76. Key Levers 3. Conversion Rate 2. Top of Funnel Lead Flow 4. CAC
  77. 77. Key Levers 5. No. of Sales People (Recruiting) Productivity per Rep (Average) 6. PPR7. Enough Leads
  78. 78. Key Levers LTV 8. Pricing 9. Customer Retention Rate 10. Dollar Retention Rate (Ability to “Land & Expand”)
  79. 79. Key Levers Cash to Finance the Business 11. Months to Recover CAC
  80. 80. Key Levers Building a Great Organization 12. Recruiting, Onboarding & Management
  81. 81. For more details on all these topics: forentrepreneurs.com Presentation Slides: forentrepreneurs.com/saastr-2017

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