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