1.
<ul><ul><li>SaaS Revenue Primer </li></ul></ul><ul><ul><li>Tiering Analysis </li></ul></ul><ul><ul><li>January 2009 </li></ul></ul><ul><ul><li>DevelopmentCorporate </li></ul></ul><ul><ul><li>www.developmentcorporate.com </li></ul></ul>

2.
Overview & Contents <ul><li>Contents </li></ul><ul><li>80/20 Rule </li></ul><ul><li>Tiering Analysis Example </li></ul><ul><li>Interpreting Tiering Analysis </li></ul><ul><li>20/80 Rule </li></ul><ul><li>Combining Tiering and Flux Analysis </li></ul><ul><li>Other SaaS Revenue Primer Topics </li></ul>Copyright 2009 Development Corporate www.developmentcorporate.com Not all customers are the same. Tiering analysis helps companies to segment their customers by size and contribution so that marketing, sales, & support strategies and resources can be optimally aligned

3.
80/20 Rule Copyright 2009 Development Corporate www.developmentcorporate.com <ul><li>Pareto principle - the idea that by doing 20% of work you can generate 80% of the advantage of doing the entire job. Or in terms of quality improvement, a large majority of problems (80%) are produced by a few key causes (20%). </li></ul><ul><li>SaaS Translation </li></ul><ul><ul><li>20% of your customers generate 80% of your revenues </li></ul></ul><ul><li>Tiering Analysis </li></ul><ul><ul><li>Segments customers into tiers based on scale of annual revenues </li></ul></ul><ul><ul><li>Enables your firm to design differentiated strategies to address each segment </li></ul></ul>Vilfredo Pareto Inventor Pareto Analysis 1906

4.
Tiering Analysis Example <ul><li>Annual Revenue Tier = Total revenues from customer for 2008 </li></ul><ul><li>Customer count = number of customers in that tier </li></ul><ul><li>2008 revenues = Total revenues for customers in tier </li></ul><ul><li>Customer Distribution </li></ul><ul><ul><li>% Customers = % of total customers represented in tier </li></ul></ul><ul><ul><li>Cumulative % of Customers = Cumulative % of customers in this and higher tiers </li></ul></ul><ul><li>Revenue Distribution </li></ul><ul><ul><li>% of Revenue = % of total revenue represented in tier </li></ul></ul><ul><ul><li>Cumulative % of Revenue = Cumulative % of revenues in this and higher tiers </li></ul></ul>Copyright 2009 Development Corporate www.developmentcorporate.com

5.
Interpreting Tiering Analysis <ul><li>11.49% of customers accounted for 83.77% of total revenues </li></ul><ul><li>82.51% of customers accounted for less than 16.5% of revenues </li></ul><ul><li>A little more than half of the revenue is concentrated 94 accounts </li></ul><ul><ul><li>Focused marketing, sales, and customer service resources in these accounts could generate significant value </li></ul></ul><ul><li>Over half of the customers accounted for only 1.38% of total revenues </li></ul><ul><ul><li>How profitable could these customers be? </li></ul></ul><ul><ul><li>How much resource is associated with selling, supporting, billing, and collecting from these customers? </li></ul></ul>Copyright 2009 Development Corporate www.developmentcorporate.com

6.
20/80 Rule Copyright 2009 Development Corporate www.developmentcorporate.com <ul><li>Focusing on low value customers can yield as many benefits as investing in high value customers </li></ul><ul><li>Low value customers typically consume a disproportionate share of a company’s resources </li></ul><ul><li>Consider a ‘bottom-dweller’ program </li></ul><ul><ul><li>Convert customers from month to month to prepaid annual subscriptions </li></ul></ul><ul><ul><li>Price annual subscription at 2.5x average annual spend for lowest tier customers </li></ul></ul><ul><ul><li>Expect 55% to 70% customer count attrition </li></ul></ul><ul><ul><li>Remaining customers should generate about same total revenues </li></ul></ul><ul><ul><li>Administrative costs dramatically reduced: </li></ul></ul><ul><ul><ul><li>1 invoice instead of 12. 1 cash application instead of 12 </li></ul></ul></ul><ul><ul><ul><li>Significantly fewer customers requiring customer service </li></ul></ul></ul>

7.
Tiering Analysis Combined with Flux Analysis Copyright 2009 Development Corporate www.developmentcorporate.com

8.
Interpreting Tiering/Flux Analysis Copyright 2009 Development Corporate www.developmentcorporate.com <ul><li>Flux Analysis was covered in a prior presentation </li></ul><ul><li>Flux analysis examines changes in customer behavior </li></ul><ul><ul><li>Attrit = Cancelled business in this period </li></ul></ul><ul><ul><li>Decline = Revenues lower this period vs prior </li></ul></ul><ul><ul><li>Flat = No change in revenue </li></ul></ul><ul><ul><li>Growth = Revenues higher this period vs prior </li></ul></ul><ul><ul><li>New = New customer this period </li></ul></ul><ul><li>Looks at both units (# of customers) and value (revenue) </li></ul><ul><li>Helps companies to better understand the dynamics inside of their customer base </li></ul><ul><li>Avoids broad generalizations </li></ul><ul><li>In this data set: </li></ul><ul><ul><li>New customers are nowhere near offsetting the # and $ of attritting customers </li></ul></ul><ul><ul><li>All of the attrition is focused on the lowest revenue tier </li></ul></ul><ul><ul><li>The scale of year over year decline in tier #3 deserves investigation </li></ul></ul><ul><ul><li>The relative scale of growth in the top 2 tiers is problematic </li></ul></ul>

9.
Other SaaS Revenue Analysis Topics Copyright 2009 Development Corporate www.developmentcorporate.com <ul><li>Here are some other topics that will be covered in this series: </li></ul><ul><li>Customer Tiering Analysis </li></ul><ul><ul><li>How to segment/profile SaaS customers into significant tiers </li></ul></ul><ul><li>Pricing Analysis </li></ul><ul><ul><li>Not all customers pay the same price. What customers are paying what rates and how does it relate to their tier / flux behavior </li></ul></ul><ul><li>MoneyWheel Analysis </li></ul><ul><ul><li>What are the repeatable sales transactions exist in your current as well as prospective customer base? </li></ul></ul>

10.
DevelopmentCorporate Copyright 2009 Development Corporate www.developmentcorporate.com DevelopmentCorporate is a strategic corporate development advisory firm for enterprise and mid-market technology companies. We assist management teams, board of directors, and investors in updating their merger, acquisition, and divestiture strategies and then we provide tactical support for the implementation of those strategies. We also provide support for strategic initiatives such market assessments, competitive intelligence updates, product/service portfolio analysis, etc. Finally, we have significant experience in guiding large scale organizations through corporate restructurings to either take advantage of new market opportunities or respond to changes in market conditions. www.developmentcorporate.com