1.
[ ]THE SAAS BUSINESS MODEL AND METRICS

2.
Metrics? Why?
"IF YOU CAN NOT MEASURE IT,
YOU CAN NOT IMPROVE IT."
- LORD KELVIN

3.
Highly sensitive to small
changes in a few key metrics
SaaS Businesses

4.
Understanding these unlocks the Levers for Growth

5.
SaaS Valuations: Driven by Growth + Profitability
Growth Rate (% YoY) + Operating Profit (% of Revenue)
Enterprise Value
Gross Profit
Sometimes known as
the ”Rule of 40” as
the ideal is that the
sum of these two
numbers is greater
than 40
Note: the industry norm is to look
at Enterprise Value as a multiple of
Revenue, which yields a similar
graph, but with a wider dispersion
(lower correlation coefficient).
Credit goes to Jared Sleeper of
Matrix Partners for using Gross
Profit instead of Revenue to get a
better predictor of Enterprise Value

6.
PROFITABLESCALABLEREPEATABLE
KEY STARTUP GROWTH GOALS
Easy to say, but hard to achieve

7.
Implies a
CASH
GENERATING
MACHINE

8.
The key indicator
Bookings - (Not Revenue or ARR)
Q1 Q2 Q3 Q4 Q5 Q6 Q7

9.
ARR with Flat Bookings ARR with Growing Bookings
Q1 Q2 Q3 Q4 Q5 Q6 Q7Q1 Q2 Q3 Q4 Q5 Q6 Q7

10.
Net New
ARR
Expansion ARR
(Existing Customers)
Churned ARR
(Lost Customers)
New ARR
(New Customers)
The right way to measure SaaS Bookings

11.
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

12.
Simple Model for a
SaaS Business

13.
A Funnel

14.
The Full SaaS Funnel
Onboard
Retain
Expand
Loyal Customers
who are advocates

15.
The Beautiful Thing about Funnels…

16.
Governed by very simple Math

17.
Bookings Math Lead Flow
x Conversion
Rate
x Average
Deal Size

18.
Example: Touchless Self Serve
Visitors to
Web Site
Sign up for
Free Trial
Closed
Deals

19.
The Key Metrics
VISITORS
CAMPAIGNS
TO DRIVE
TRAFFIC
TRIALS
CLOSED DEALS
CONVERSION
%
CONVERSION
%
OVERALL
CONVERSION %

20.
OVERALL
CONVERSION %
(BY LEAD SOURCE)
Cost per lead
LTV
ROI by Lead Source

21.
When Sales Touch
is also needed…
MARKETING
SALES

22.
Sales People…
Ramp
Time
Sales
Capacity
Limit

23.
Growth comes in discontinuous units

24.
Bookings
No of
Sales People Productivity per Rep
(Average)
x
PPR

25.
No of Sales People
One of the most common reasons for missing plan
Didn’t hire sales people fast enough

26.
PPR
Quality of
Sales Hires
Onboarding
& Training

27.
Monitoring PPR
$100
$110
$120
$130
$140
$150
$160
$170
Q1 Q2 Q3 Q4
Average Productivity Per Rep
NewARRbooked-$k/quarter

28.
Productivity Per Rep (PPR)
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

29.
% 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

30.
Is our Funnel Profitable?

31.
Unit Economics
Cost to Acquire a Customer Lifetime Value of a Customer
CACCAC LTVLTV

32.
A Viable Business Model
CA
C
CAC LTVLTV<

33.
LTV – depends on customer lifetime
LTV
Customer
Lifetime
1
Churn
=

34.
Customer Churn vs $ Dollar Churn
Customer 2
$5k MRR
Customer 1
$1k MRR

35.
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

36.
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

37.
Negative $Dollar Churn
Customer 2
$5k MRR
Customer 1
$1k MRR
Customer 2
$7k MRR
Customer 1 Churned
50% Customer Churn
-16% $Dollar Churn

38.
Negative Churn
Expansion
Revenue
from Existing
Customers
Revenue Lost
from Churning
Customers
>

39.
Basic
Edition
Features
Requires Variable
Pricing Axes

40.
Users
Basic
Edition
Features
Requires Variable
Pricing Axes

41.
Users
Depth of
Usage
Examples:
- Mailing list size
- Database size
- Amount of storage used
Basic
Edition
Features
Requires Variable
Pricing Axes

42.
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

43.
Impact of Negative Churn
$400k vs $150k
ending ARR

44.
Traditional way to measure if a business is doing well
GAAP:
GENERALLY
ACCEPTED
ACCOUNTING
PRINCIPLES

45.
DOESN’T WORK
FOR SAAS

46.
What’s so different about SaaS?
$(7,000)
$(6,000)
$(5,000)
$(4,000)
$(3,000)
$(2,000)
$(1,000)
$-
$1,000
Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month
10
Month
11
Month
12
Cash Flow for a Single Deal
CAC (Cost to acquire the customer) Subscription payments * GM%

47.
Cash Impact of a typical deal
$(7,000)
$(6,000)
$(5,000)
$(4,000)
$(3,000)
$(2,000)
$(1,000)
$-
$1,000
$2,000
$3,000
Month
1
Month
2
Month
3
Month
4
Month
5
Month
6
Month
7
Month
8
Month
9
Month
10
Month
11
Month
12
Month
13
Month
14
Month
15
Month
16
Month
17
Month
18
Negative Cash Flow

48.
If cash flow is bad for one
customer, what happens
when we grow, and add
many more customers?

49.
Cumulative Cash Flow adding 5 customers/month
$(3,000,000)
$(2,000,000)
$(1,000,000)
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
Month1
Month3
Month5
Month7
Month9
Month11
Month13
Month15
Month17
Month19
Month21
Month23
Month25
Month27
Month29
Month31
Month33
Month35
Month37
Month39
Month41
Month43
Month45
Month47
Month49
Month51
Month53
Month55
Month57
Month59

50.
The SaaS Cash Flow Trough
$(3,000,000)
$(2,000,000)
$(1,000,000)
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
$5,000,000
$6,000,000
$7,000,000
Month1
Month3
Month5
Month7
Month9
Month11
Month13
Month15
Month17
Month19
Month21
Month23
Month25
Month27
Month29
Month31
Month33
Month35
Month37
Month39
Month41
Month43
Month45
Month47
Month49
Month51
Month53
Month55
Month57
Month59

51.
Impact of faster growth
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
2 more
Customers/Month
5 more
Customers/Month
10 more
Customers/Month

52.
Impact of faster growth
$(10,000,000)
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
2 more
Customers/Month
5 more
Customers/Month
10 more
Customers/Month
Cash Flow Trough
gets deeper

53.
“The thing that surprises many investors &
boards of directors about the SaaS model is
that, even with perfect execution, an
acceleration of growth will often be
accompanied by a squeeze on profitability and
cash flow.”
Ron Gill, CFO at Netsuite

54.
When your SaaS business
is losing money at an
increasing rate, how can
you tell if the business is
going to work eventually?

55.
Guidelines for SaaS success
LTV CAC> 3x
Months to
recover CAC < 12-18 months
Required for Capital Efficiency

56.
Months to recover CAC can dictate acquisition spending
If we make $10k from the customer in the first 12 months…
We can afford to spend up to $10k to acquire them

57.
The Power of Unit Economics applied to Segments
Brad Coffey, HubSpot
“When we started this analysis, we had 12 reps selling directly into the VSB market and 4 reps selling through Value Added Resellers (VARs). When we
looked at the math we realized we had a LTV:CAC ratio of 1.5 selling direct, and a LTV:CAC ratio of 5 selling through the channel.
0
1
2
3
4
5
VSB VARs
LTV:CAC
0
3
6
9
12
VSB VARs
No of Reps

58.
12 Months Later
Brad Coffey, HubSpot
The solution was obvious. Twelve months later we had flipped our approach – keeping just 2 reps selling direct and 25 reps selling through the channel.
This dramatically improved our overall economics in the segment and allowed us to continue growing.”
0
3
6
9
12
VSB VARs
No of Reps
0
5
10
15
20
25
VSB VARs
No of Reps
0
5
10
15
20
25
VSB VARs
No of Reps

59.
Salesperson Unit Economics

60.
Salesperson Unit Economics
CA
C
OTE LTVQuota<
4-6x
On Target Earnings

61.
Annual up-front payment
Instead of Monthly

62.
Impact of a year’s payment in advance
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
$25,000,000
$30,000,000
$35,000,000
$40,000,000
Month1
Month3
Month5
Month7
Month9
Month11
Month13
Month15
Month17
Month19
Month21
Month23
Month25
Month27
Month29
Month31
Month33
Month35
Cumulative Cashflow comparision -
monthly payments vs year in advance
Eliminates the
cash flow trough,
and means $35m
more cash in this
scenario

63.
CONCLUSION

64.
Key Metrics and Levers
• Bookings
• Lead flow x Funnel conversion rates x Average deal size
• Bookings when there are Sales Reps
• No of Reps x PPR (Productivity per Rep)
• Customer Happiness / Retention / Churn
• Unit Economics
• Months of Cash collected up front

65.
The Three Keys to success in SaaS
Acquiring
Customers
Retaining
Customers
Monetizing
Customers

66.
9 Step Model to get to Repeatable, Scalable,
Profitable
Search for
Product/Market Fit
Search for Repeatable & Scalable
& Profitable Growth Model
Test
Hypothesis
Prove the
Value
Prove it can
be sold
Find
Repeatable
Sales Motion
Prove non-
Founders
can sell
Make it
Scalable
Ensure
Customer
Success
Make it
Profitable
Hit the Gas
and Scale
Scale the
org & its
processes
Etc.
1 2 3 4 5 6 7 8 9 10 11
Scaling the
Business

67.
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