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- 1. A High Growth SaaS Playbook David Skok ForEntrepreneurs Blog General Partner, Matrix Partners 12 Metrics to drive success
- 2. Goals Present a simple model to understand a SaaS business1 2 Show what Levers a CEO can pull to get most impact
- 3. A QUICK PREAMBLE
- 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. Predictable, Repeatable, Scalable, Profitable Growth Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model
- 6. Also happens to be what Growth Round investors are looking for
- 7. The key sign that you’re getting there: Bookings - (NOT Revenue or ARR!) For SaaS: Bookings = Net New ARR (New + Expansion – Churned) Q1 Q2 Q3 Q4 Q5 Q6 Q7
- 8. ARR with Flat Bookings ARR with Growing Bookings Q1 Q2 Q3 Q4 Q5 Q6 Q7Q1 Q2 Q3 Q4 Q5 Q6 Q7
- 9. Net New ARR Expansion ARR (Existing Customers) Churned ARR (Lost Customers) New ARR (New Customers) The right way to measure SaaS Bookings
- 10. Key SaaS chart: 4 components of bookings $(15.0) $(10.0) $(5.0) $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 Jan Feb Mar Apr May Jun ARR Bookings New ARR Net New ARR Expansion ARR Churned ARR Always look at a chart that shows the trendlines to see if there is growth
- 11. How do we drive Net New ARR?
- 12. A Funnel
- 13. The Full SaaS Funnel Onboard Retain Expand Loyal Customers who are advocates
- 14. The Beautiful Thing about Funnels…
- 15. Governed by very simple Math
- 16. Two Key Levers Top of Funnel Flow (Quantity) Conversion Rate
- 17. Secondary Funnel Metrics CAC Time
- 18. Two Sales Motions Touchless Self-Serve • No Sales people • Based on Free Trial Sales People Needed
- 19. The Simple Case: Touchless Self Serve Visitors to Web Site Sign up for Free Trial Closed Deals
- 20. Funnel Metrics are Essential "IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT." - LORD KELVIN
- 21. The Key Metrics VISITORS CAMPAIGNS TO DRIVE TRAFFIC TRIALS CLOSED DEALS CONVERSION % CONVERSION % OVERALL CONVERSION %
- 22. 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
- 23. OVERALL CONVERSION % (BY LEAD SOURCE) Cost per lead LTV ROI by Lead Source
- 24. 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
- 25. So Far we’ve looked at the simple case Touchless Self-Serve • No Sales people • Based on Free Trial
- 26. What Happens when the sale is more complex, and needs a sales person? Sales People Needed
- 27. Without Sales people Visitors to Web Site Closed Deals Simple linear relationship Conversion Rate
- 28. But when you add in Sales People… Ramp Time Sales Capacity Limit
- 29. Growth comes in discontinuous units
- 30. The Unit of Growth Sales Person
- 31. Supported by Leads & Customer Success Sales Person $’s Marketing Spend SDR’s Leads Customer Success, Renewals, etc.
- 32. What Drives Bookings? No of Sales People Productivity per Rep (Average) x PPR
- 33. Lets look at each of these in turn…
- 34. Number of Sales People One of the most common reasons for missing plan Didn’t hire sales people fast enough
- 35. Sales Hiring • You will need to build an in house recruiting machine See my blog post: “Recruiting: the third crucial Startup Skill”
- 36. 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
- 37. 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
- 38. Over Assignment of Quota needed to hit plan =1/85% $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Achieved Bookings $k 85% Assigned Quota Actual Bookings
- 39. PPR: Productivity per Rep • Quality of sales hires • Sales Training and Onboarding
- 40. PPR: Sales Training and Onboarding • Sales people: one of the most expensive resources • Yet typically little effort put in to sales training in early days • High payback • Worth having the founders spend time to develop & deliver a lot of the material
- 41. Monitoring PPR Charts4
- 42. PPR over time $100 $110 $120 $130 $140 $150 $160 $170 Q1 Q2 Q3 Q4 Average Productivity Per Rep NewARRbooked-$k/quarter
- 43. 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
- 44. 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
- 45. % 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 Goal: 75% Goal: 50%
- 46. Another way to look at Rep Productivity
- 47. There’s one other thing that drives PPR Adequate Lead Flow
- 48. THE MAGIC OF FUNNEL MATH
- 49. Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Funnel Math
- 50. 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
- 51. Allows us to Compute Leads required per Rep x No of Closed Deals = Reverse Funnel Conversion Rate Marketing Qualified Leads Required
- 52. This becomes the Contract between Sales & Marketing Marketing Qualified Leads Required Sales Marketing SDR’s
- 53. The Backend of the Funnel Closed Deals Loyal Customers who are Advocates Renew ExpandOnboard It’s all about LTV
- 54. Top Factors affecting Renewals • On-boarded successfully? • Champion still at the company? • Customer getting meaningful business benefits? • Is the product Sticky?
- 55. Dollar Renewal Rate is King This is also what I refer to as Negative Churn Customer Renewal Rate >Dollar Renewal Rate
- 56. Customer Churn vs $Dollar Churn Customer 2 $5k MRR Customer 1 $1k MRR
- 57. Customer Churn vs $Dollar Churn Customer 2 $5k MRR Customer 1 $1k MRR Customer 2 $6k MRR Customer 1 Churned 50% Customer Churn 17% $Dollar Churn
- 58. Customer Churn vs $Dollar Churn Customer 2 $5k MRR Customer 1 $1k MRR Customer 1 $1k MRR Customer 2 Churned 50% Customer Churn 83% $Dollar Churn
- 59. Negative $Dollar Churn Customer 2 $5k MRR Customer 1 $1k MRR Customer 2 $7k MRR Customer 1 Churned 50% Customer Churn -16% $Dollar Churn
- 60. Negative Churn Expansion Revenue from Existing Customers Revenue Lost from Churning Customers >
- 61. Negative Churn – Crucial for Long Term Success Revenue Lost with 2.5% monthly Churn Renewals Lost due to Churn YEAR 3 $3m $7m Becomes harder & harder to replace this with new bookings Renewals Lost due to Churn YEAR 6 $30m $70m
- 62. Basic Edition Features Requires Variable Pricing Axes
- 63. Users Basic Edition Features Requires Variable Pricing Axes
- 64. Users Depth of Usage Examples: - Mailing list size - Database size - Amount of storage used Basic Edition Features Requires Variable Pricing Axes
- 65. REPEATABLE, SCALABLE & PROFITABLE Unit Economics
- 66. Two kinds of Unit Economics • Customer Unit Economics • Salesperson Unit Economics
- 67. Why do we care about Unit Economics?
- 68. Cash Flow at the Customer Level SaaS Model -5000 -4000 -3000 -2000 -1000 0 1000
- 69. Cumulative Cash Flow -5000 -4000 -3000 -2000 -1000 0 1000 Ten months to recover CAC
- 70. $(5,000,000) $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 Month1 Month7 Month13 Month19 Month25 Month31 Month37 Impact of Faster Growth on Cash Flow Growth Rate: 2 more custs per mnth Growth Rate: 5 more custs per mnth Growth Rate: 10 more custs per mnth The SaaS Cash Flow Trough
- 71. Customer Unit Economic Best Practices LTV CAC> 3x Months to recover CAC < 12/18 months Required for Capital Efficiency
- 72. Sales Complexity Freemium No Touch Self- Service Light Touch Inside Sales High Touch Inside Sales Field Sales Field Sales with SE’s
- 73. How I assumed the two would relate
- 74. A rough estimate of CAC versus Sales Complexity Freemium No Touch Self- Service Light Touch Inside Sales High Touch Inside Sales Field Sales Field Sales with SE’s $0- $10 $50 – $200 $1,000 - $2,000 $3,000 - $8,000 $25,000 – $75,000 $75,000 – $200,000 Rough Estimates of Cost of Customer Acquisition (CAC)
- 75. The relationship is roughly exponential Clearly adding Human Touch dramatically increases costs
- 76. Sales Complexity CAC (logarithmic) 10x 10x 10x Lesson: • Remove human touch from the sales process as much as possible • Customer’s usually prefer self-service • Lower CAC ultimately means you can spend more on product
- 77. Low Touch Sales The Product is your sales person
- 78. WHAT IS YOUR TIME TO WOW! ? For more on this topic, see this presentation: https://www.forentrepreneurs.com/launch-scale-2017/
- 79. LTV - Importance of Gross Margins LTV = ARPA * GM% Churn This is the simple formula. If you have negative churn, please refer to this blog post: What’s your TRUE customer lifetime value (LTV)? – DCF provides the answer https://www.forentrepreneurs.com/ltv/
- 80. Improving Gross Margins • Greatest cost is usually people costs in implementation and on-boarding • Solve by: • Simplifying the product • On-line training courses • Provide in-product training videos and walk-throughs • Charge a one time fee for implementation
- 81. Salesperson Unit Economics
- 82. The Cash Flow Gap $(25,000) $(20,000) $(15,000) $(10,000) $(5,000) $- $5,000 $10,000 $15,000 $20,000 $25,000 Month1 Month2 Month3 Month4 Month5 Month6 Month7 Month8 Month9 Month10 Month11 Month12 Month13 Month14 Month15 Month16 Month17 Month18 Month19 Month20 Month21 Month22 Month23 Month24 Net profit - New Sales Hire $- $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 MRR vs Expenses – New Sales Hire MRR Expenses Cash Gap (Slightly later breakeven point, because Gross Profit is less than MRR) 11 months to breakeven
- 83. The SaaS Cash Flow Trough $(200,000) $(100,000) $- $100,000 $200,000 $300,000 $400,000 Cumulative Net Profit - New Sales Hire 23 Months to get back the investment Total amount invested: $110k But a great return on investment
- 84. What happens when we add 2 new sales hires every month? $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- $50,000 $100,000 $150,000 Month1 Month2 Month3 Month4 Month5 Month6 Month7 Month8 Month9 Month10 Month11 Month12 Month13 Month14 Month15 Month16 Month17 Month18 Month19 Month20 Month21 Month22 Month23 Month24 Net profit $(3,000,000) $(2,000,000) $(1,000,000) $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 Cumulative Net Profit 32 Months to get back the investment Total amount invested: $2.6m First profitable month: 21 Worst loss: $190k in month 11
- 85. Salesperson Unit Economics • Quota:OTE (On Target Earnings) Should be > 5 • PPR:OTE Roughly > 3.5 • Months to cash flow breakeven for a new sales hire
- 86. RECRUITING
- 87. Execution requires building an organization with great talent
- 88. Recruiting is now the third critical startup skill The first two skills are: • Building a product that the market wants to buy • Building a repeatable, scalable, profitable growth process For more details, see this blog post: https://www.forentrepreneurs.com/recruiting/
- 89. Recruiting & Talent Metrics • % of hires made on time • Hiring funnel Metrics • Candidate Acceptance rate • Average number of candidates in the final interview stage for open positions • Etc. • Diversity % • Retention by category • Exceptional performers • Core performers • OK performers • Not performing
- 90. SUMMARY Key Metrics for SaaS Success
- 91. Simple Team Focus: • Align the whole team around one goal: Optimize your Funnel • Use Metrics to drive aligment and focus • The end goal: build a Repeatable, Scalable, & Profitable growth machine
- 92. Funnel Optimization Meetings • Start by diagramming your funnel • Draw the micro steps for key parts e.g. free trial
- 93. The Growth Team Sales Marketing Customer Success Product
- 94. Key Levers 1. Product/Market Fit
- 95. Key Levers 3. Conversion Rate 2. Top of Funnel Lead Flow 4. CAC
- 96. Key Levers 5. No of Sales People (Recruiting) Productivity per Rep (Average) 6. PPR7. Enough Leads
- 97. Key Levers LTV 8. Pricing 9. Dollar Retention Rate (ability to “Land & Expand”) 10. Gross Margins
- 98. Key Levers Cash to Finance the business 11. Months to Recover CAC
- 99. Key Levers Building a Great Organization 12. Recruiting, Onboarding & Management
- 100. Sept 11th, San Francisco
- 101. For more details on all these topics: visit ForEntrepreneurs.com Presentation Slides: forentrepreneurs.com/saastock-2018
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