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SaaS Metrics - How to stay on top of your SaaS business performance

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About the talk
SaaS businesses are different from traditional software companies.
From one hand they are much more complex to monitor and there are much more aspects of it to measure than bookings and expenses.
From the other hand SaaS culture and technology provide an opportunity for executives to measure and optimize what is really important for the company's success.

In this presentation Eldad will review the key metrics of a SaaS business and help answer the following questions:
What KPIs should I monitor? Where should I put my focus in order to improve results? Is the company business model viable? What is the impact of planned changes on results?The review an analysis is based on Eldad's experience from working at Incapsula as well as a number of publications and blogs on this topic.

About Eldad Chai
VP Products at Incapsula, responsible for the company's product strategy and execution. Prior to that, as Director of Sales, Eldad was leading all sales activities and driving the company's growth.

Before joining Incapsula, he was Product Manager at Imperva's (NYSE: IMPV) award-winning Web Application Firewall, where he led the development and launch of its innovative ThreatRadar technology.
About Incapsula
A cloud-based Application Delivery Service that makes websites and applications safer, faster and more reliable.
Incapsula, an Imperva (NYSE: IMPV) company, offers organizations, large or small, enterprise-grade web application security, DDoS mitigation, performance optimization and load balancing via a global worldwide delivery network.

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SaaS Metrics - How to stay on top of your SaaS business performance

  1. 1. SaaS Metrics Eldad Chai, VP Products, Incapsula
  2. 2. Hello! Eldad Chai Product, startups, security Incapsula Security, performance, availability for websites as a service This presentation How to measure a SaaS business Theory and real life
  3. 3. How are SaaS different? Product companies SaaS companies Sell contracts Add subscriptions Track average selling price Track lifetime value Count units Count customers Onetime deals Recurringvs. one time Measure close rates Measure renewalandchurn rates Backward looking Forward looking
  4. 4. The SaaS business model Annual Recurring Revenue (ARR) Annual Contract Value (ACV) Or in short… Get new customers Keep them for as long as you can
  5. 5. SaaS key metrics Monthly Recurring Revenue (MRR)Growth ChurnValue/fit Cost to Acquire Customer (CAC)Growth efficiency Average Revenue Per Account (ARPA)Expansion Life Time Value (LTV)Predictions First 2-3 years Scaling up phase
  6. 6. Should PMs care? Collect Analyze Define Execution Product Market analysis Win/Loss Competitive Feedback Feature requests Business goals
  7. 7. Should PMs care? Collect Analyze Define Execution Product Market analysis Win/Loss Competitive Feedback Feature requests Business goals Monitor KPIs
  8. 8. Should PMs care? SaaS provides a platform for analysis Almost any change you make can be quantified It is a CRIMEnot to tap into that power Model and optimize Conversion flows Churn flows Upgrade paths Engagement New features …
  9. 9. Monthly Recurring Revenue (MRR) This month’s MRR Last month’s MRR Churned MRR Net new MRR New deals Upgrades and cross sales
  10. 10. Churn Can be measured for MRR/ARR or customers You should probably do both 푛푢푚푏푒푟표푓푐푢푠푡표푚푒푟푠푙푒푎푣푖푛푔 푡표푡푎푙푛푢푚푏푒푟표푓푐푢푠푡표푚푒푟푠(푤ℎ표푐표푢푙푑ℎ푎푣푒푙푒푓푡)
  11. 11. How churn kills growth Annual net new ARR = $50K Annual churn = 20% 0% 20% 40% 60% 80% 100% 120% $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 YoY ARR YEAR ARR ANNUAL GROWTH
  12. 12. What can cause churn? Not enough value or lack of market fit Bugs, instability or poor service Not sticky Hard adoption Pricing is not structured right
  13. 13. How to reduce churn Churn should be a focus area from day one Monitor customer engagement seriously Be sticky (with features or contracts) Negative churn $0 $100,000 $200,000 $300,000 $400,000 $500,000 $600,000 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 MRR MONTH 2% chrun -2% churn
  14. 14. Churn advanced analysis Free vs. SMB vs. Enterprise Cohort analysis
  15. 15. Cost to acquire customer (CAC) CAC is different for every source (don’t look at averages) Months to recover CAC LTV:CAC 푚푎푟푘푒푡푖푛푔푎푛푑푠푎푙푒푠푒푥푝푒푛푠푒푠 푛푢푚푏푒푟표푓푐푢푠푡표푚푒푟푠푎푑푑푒푑
  16. 16. Average recurring revenue per account (ARPA) You want to see this one grow Also keep track of only new customers 푀푅푅 푛푢푚푏푒푟표푓푐푢푠푡표푚푒푟푠
  17. 17. Life time value (LTV) Predicts how much revenue will each customer bring in 퐴푅푃퐴 푐푢푠푡표푚푒푟푐ℎ푢푟푛푟푎푡푒
  18. 18. Industry standards Benchmarks LTV > 3 x CAC Timeto break even < 12 months Monthly churn < 2%
  19. 19. Industry standards
  20. 20. SaaS magic number (Josh James) QRR = Quarterly Recurring Revenue Expenses = Total Sales and Marketing Expense for last quarter (푄푅푅−푄푅푅−1)×4 퐸푥푝푒푛푠푒푠−1 Check yourself Step on it! Looking for investors? 0.75 1.5
  21. 21. Growth levers Churn Product Sales metrics Upsell and cross sale Funnel metrics
  22. 22. Funnel modeling Marketing activity Visit Trial Customer •You need 50 new accounts to meet this quarter's targets •How many visits to the website do you need? •What kind of marketing activities should you execute on? •Is the problem at sales or at marketing?
  23. 23. Funnel modeling 200 PPC 400 PR 400 Webinars 100*1/10%= 1000 50*1/50%= 100 50 •Don’t over analyze •At the minimum track leads/trials (MQLs) and opportunities (SQLs) •Understand the conversion rates •Work backwards to set targets for the teams •Recalibrate every quarter (sliding window) 50% conversion 10% conversion
  24. 24. Questions? eldad.chai@gmail.com @zitzkin
  25. 25. References (well… at least some of them) https://blog.paymill.com/saas-metrics/ http://chaotic-flow.com/saas-metrics-joels-magic-number-for-saas-companies/ http://larsleckie.blogspot.co.il/2008/03/magic-number-for-saas-companies.html http://www.slideshare.net/chrija1/9-worst-practices-in-saas-metrics http://labs.openviewpartners.com/what-are-key-performance-indicators-6-saas-metrics-that-really-matter/ http://www.forentrepreneurs.com/saas-metrics/ http://www.forentrepreneurs.com/saas-metrics-2/ http://chaotic-flow.com/media/saas-metrics-guide-to-saas-financial-performance.pdf http://andrewchen.co/2013/05/06/the-critical-metrics-for-each-stage-of-your-saas-business-guest-post-by-lars-lofgren-of-kissmetrics/ http://christophjanz.blogspot.co.il/ http://www.forentrepreneurs.com/2014-saas-survey-1/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+forentrepreneurs+%28For+Entrepreneurs%29 http://www.slideshare.net/Zuora/zuora-always-on20123-saas-metrics-that-matter-12301579?ref=http://www.zuora.com/top3saasmetrics/ https://blog.kissmetrics.com/saas-operating-metrics/ http://www.forentrepreneurs.com/why-churn-is-critical-in-saas/ http://www.forentrepreneurs.com/multi-axis-pricing-a-key-tool-for-increasing-saas-revenue/ http://www.forentrepreneurs.com/saas-metrics-2-definitions/ https://blog.kissmetrics.com/5-metrics-for-saas/ http://blog.clientheartbeat.com/customer-churn-rate/

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