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Growing the company
Unit economics example for B2B SAAS
Dr Martin J Steinmann
martin@steamfab.io
@SteafFab Ventures we know that innovation can be taught and
learned. We support international startups in their quest to ...
A specific example:
You are the CEO of a B2B company
• You sell a SAAS solution with a subscription business model
• You g...
CTR Click-through-rate
CPC Cost per click
CPM Cost per thousand

impressions
PPC campaign parameters
CTR Click-through-rate
CPC Cost per click
CPM Cost per thousand

impressions
PPC campaign parameters
1.9%
$2
$38
Average v...
Top of funnel metrics look like this
• Your CTR is 2% on search ads
• 13% download the app
• Day-3 retention is 5%
• 30 da...
Funnel Metrics
# % $
Impressions CPM: $40
Clicks 2% CPC: $2
Downloads 13%
30-day 3%
Subscription 1 20%
martin@steamfab.io
Funnel Metrics
# % $
Impressions CPM: $40
Clicks 2% CPC: $2
Downloads 13%
30-day 5 3%
Subscription 1 20%
martin@steamfab.io
Funnel Metrics
# % $
Impressions CPM: $40
Clicks 2% CPC: $2
Downloads 167 13%
30-day 5 3%
Subscription 1 20%
martin@steamf...
Funnel Metrics
# % $
Impressions CPM: $40
Clicks 1,282 2% CPC: $2
Downloads 167 13%
30-day 5 3%
Subscription 1 20%
martin@...
Funnel Metrics
# % $
Impressions 64,102 CPM: $40
Clicks 1,282 2% CPC: $2
Downloads 167 13%
30-day 5 3%
Subscription 1 20%
...
Funnel Metrics
# % $
Impressions 64,102 CPM: $40
Clicks 1,282 2% CPC: $2
Downloads 167 13% $15.30
30-day 5 3% $512.80
Subs...
Funnel Metrics
# % $
Impressions 64,102 CPM: $40
Clicks 1,282 2% CPC: $2
Downloads 167 13% $15.30
30-day 5 3% $512.80
Subs...
Case A Case B
# % $ # % $
Impressions 64,102 CPM: $40 CPM: $45
Clicks 1,282 2% CPC: $2 3% CPC: $1.5
Downloads 167 13% $15....
Case A Case B
# % $ # % $
Impressions 64,102 CPM: $40 5,926 CPM: $45
Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5
Downloads 16...
Case A Case B
# % $ # % $
Impressions 64,102 CPM: $40 5,926 CPM: $45
Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5
Downloads 16...
Case A Case B
# % $ # % $
Impressions 64,102 CPM: $40 5,926 CPM: $45
Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5
Downloads 16...
Retention
Product-Market fit
Retention Curves for Android Apps
Average D3 retention is 23%
Average D30 retention is 10%
Average D90 retention < 5%
Aver...
Retention Curves for Android Apps
Average D3 retention is 23%
Average D30 retention is 10%
Average D90 retention < 5%
Aver...
Retention Curves for Android Apps
Average Retention Curve for Android Apps
1.5 million apps
our company
Retention Curves for Android Apps
Average Retention Curve for Android Apps
1.5 million apps
Bending the curve happens via
...
CAC =
Customer Acquisition Cost
Total marketing spend
New subscribers
CAC Metrics
• $267 per subscriber for campaigns
• Total headcount cost per month fully loaded: $12,000 (director and manag...
What is your
marketing budget?
Show me the data!
Monthly marketing budget
• $13,350 for campaigns (variable)
• $12,000 for headcount (somewhat fixed)
$25,350 per month for...
Cohort Analysis
Cohorts are groups of people tracked over time
oldest cohort
newest cohort
Cohorts are groups of people tracked over time
oldest cohort
newest cohort
today
Key metrics
The key metrics you need to understand are inside your product. Post
conversion user behavior drives most (all...
Making Money
One year later …..
LTV =
Long-term Value
MRR per customerΣ
LTV =
Long-term Value
Subscription price
Churn
for |x| < 1 , Infinite decreasing geometric series
Revenue metrics
• Subscription price is $19.95
• Monthly churn rate is 3%
LTV: $665 per subscriber
Average lifetime is 33 ...
Profitability metrics
• Subscription price is $19.95
• Monthly churn rate is 3%
• LTV is $665
• Average lifetime is 33 mon...
Profitability metrics
• Subscription price is $19.95
• Monthly churn rate is 3%
• LTV is $665
• Average lifetime is 33 mon...
Profitability metrics
• Subscription price is $19.95
• Monthly churn rate is 3%
• LTV is $665
• Average lifetime is 33 mon...
Capital Requirements
What is this going to cost me?
Cash-flow metrics
• Months to recover CAC: 25, monthly
cash-flow for a cohort turns positive
after 25 months
• Cumulative ...
CF break-even
month 48
martin@steamfab.io
unit economic
break-even
first cohort
martin@steamfab.io
martin@steamfab.io
Effect of churn
Max MRR =
Max MRR
New revenue per month
Churn
Max MRR =
Max MRR
New revenue per month
Churn
50 x $19.95
3%
= $33k=
LTV
$(500,000)	
	$(450,000)	
	$(400,000)	
	$(350,000)	
	$(300,000)	
	$(250,000)	
	$(200,000)	
	$(150,000)	
	$(100,000)	
	$(50,...
24 months
Unit economic
break-even
33 months
Average

life-time
48 months
Monthly cash-flow
break-even
Max capital
require...
Defining Success
Is this a business worth doing or investing in?
Business summary
• After 4 years we reach $25,000 MRR and our monthly cash flow breaks even
• We have 1,281 paying custome...
What would make this better?
Sensitivity analysis
martin@steamfab.io
$(400,000)	
	$(350,000)	
	$(300,000)	
	$(250,000)	
	$(200,000)	
	$(150,000)	
	$(100,000)	
	$(50,000)	
	$-		
	$50,000		
	$1...
$(250,000)	
	$(200,000)	
	$(150,000)	
	$(100,000)	
	$(50,000)	
	$-		
	$50,000		
	$100,000		
Month	1	
Month	3	
Month	5	
Mon...
$(1,000,000)	
	$(900,000)	
	$(800,000)	
	$(700,000)	
	$(600,000)	
	$(500,000)	
	$(400,000)	
	$(300,000)	
	$(200,000)	
	$(1...
$(300,000)	
	$(200,000)	
	$(100,000)	
	$-		
	$100,000		
	$200,000		
	$300,000		
	$400,000		
Month	1	
Month	3	
Month	5	
Mon...
All 4 improvements combined
	$(500,000)	
	$-		
	$500,000		
	$1,000,000		
	$1,500,000		
	$2,000,000		
	$2,500,000		
	$3,000...
1 & 2 & 4 combined
	$(200,000)	
	$-		
	$200,000		
	$400,000		
	$600,000		
	$800,000		
	$1,000,000		
	$1,200,000		
	$1,400,...
Our
company
Case 1
Churn
Case 2
CAC
Case 3
Capital
Case 4
Price
The one I
invest in
1&2&4
MRR $25,556 $34.314 $25,556 $51,...
Our
company
Case 1
Churn
Case 2
CAC
Case 3
Capital
Case 4
Price
The one I
invest in
1&2&4
MRR $25,556 $34.314 $25,556 $51,...
1&2&4
$51,514
5.34
12.5
$114,585
$512,326
$99,833
$1m
capital
$515,080
5.34
12.5
$1,146,714
$5,125,299
$998,333
MRR
LTV / ...
Presented by SteamFab Ventures
745 Atlantic Ave
Boston, MA
www.steamfab.io
martin@steamfab.io
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Unit economics example for B2B SaaS company

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Ever wondered how unit economics affect your growth rate? Quantitative analysis is the most essential part of successful growth hacking. Here is a specific example.

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Unit economics example for B2B SaaS company

  1. 1. Growing the company Unit economics example for B2B SAAS Dr Martin J Steinmann martin@steamfab.io
  2. 2. @SteafFab Ventures we know that innovation can be taught and learned. We support international startups in their quest to acquire customers and grow. We help you enter the U.S. market, attract a round of financing, extend the team, and acquire customers. We know how to create companies and our mission it top make you succeed. martin@steamfab.io Martin J Steinmann, Ph.D. martin@steamfab.io www.steamfab.io
  3. 3. A specific example: You are the CEO of a B2B company • You sell a SAAS solution with a subscription business model • You got $2m seed financing • You launched an MVP as a mobile app • You figured out how to attract customers • You are told that for an A-round you need $100k MRR martin@steamfab.io
  4. 4. CTR Click-through-rate CPC Cost per click CPM Cost per thousand
 impressions PPC campaign parameters
  5. 5. CTR Click-through-rate CPC Cost per click CPM Cost per thousand
 impressions PPC campaign parameters 1.9% $2 $38 Average values for search ads
  6. 6. Top of funnel metrics look like this • Your CTR is 2% on search ads • 13% download the app • Day-3 retention is 5% • 30 day retention is 3% (free tier) • 20% buy a subscription @ $19.95/mo martin@steamfab.io
  7. 7. Funnel Metrics # % $ Impressions CPM: $40 Clicks 2% CPC: $2 Downloads 13% 30-day 3% Subscription 1 20% martin@steamfab.io
  8. 8. Funnel Metrics # % $ Impressions CPM: $40 Clicks 2% CPC: $2 Downloads 13% 30-day 5 3% Subscription 1 20% martin@steamfab.io
  9. 9. Funnel Metrics # % $ Impressions CPM: $40 Clicks 2% CPC: $2 Downloads 167 13% 30-day 5 3% Subscription 1 20% martin@steamfab.io
  10. 10. Funnel Metrics # % $ Impressions CPM: $40 Clicks 1,282 2% CPC: $2 Downloads 167 13% 30-day 5 3% Subscription 1 20% martin@steamfab.io
  11. 11. Funnel Metrics # % $ Impressions 64,102 CPM: $40 Clicks 1,282 2% CPC: $2 Downloads 167 13% 30-day 5 3% Subscription 1 20% martin@steamfab.io
  12. 12. Funnel Metrics # % $ Impressions 64,102 CPM: $40 Clicks 1,282 2% CPC: $2 Downloads 167 13% $15.30 30-day 5 3% $512.80 Subscription 1 20% $2,564 martin@steamfab.io
  13. 13. Funnel Metrics # % $ Impressions 64,102 CPM: $40 Clicks 1,282 2% CPC: $2 Downloads 167 13% $15.30 30-day 5 3% $512.80 Subscription 1 20% $2,564 martin@steamfab.io 10 years to recover cost
  14. 14. Case A Case B # % $ # % $ Impressions 64,102 CPM: $40 CPM: $45 Clicks 1,282 2% CPC: $2 3% CPC: $1.5 Downloads 167 13% $15.30 15% 30-day 5 3% $512.80 15% Subscription 1 20% $2,564 1 25% martin@steamfab.io
  15. 15. Case A Case B # % $ # % $ Impressions 64,102 CPM: $40 5,926 CPM: $45 Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5 Downloads 167 13% $15.30 26.6 15% 30-day 5 3% $512.80 4 15% Subscription 1 20% $2,564 1 25% martin@steamfab.io
  16. 16. Case A Case B # % $ # % $ Impressions 64,102 CPM: $40 5,926 CPM: $45 Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5 Downloads 167 13% $15.30 26.6 15% $10 30-day 5 3% $512.80 4 15% $67 Subscription 1 20% $2,564 1 25% $267 martin@steamfab.io
  17. 17. Case A Case B # % $ # % $ Impressions 64,102 CPM: $40 5,926 CPM: $45 Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5 Downloads 167 13% $15.30 26.6 15% $10 30-day 5 3% $512.80 4 15% $67 Subscription 1 20% $2,564 1 25% $267 martin@steamfab.io
  18. 18. Retention Product-Market fit
  19. 19. Retention Curves for Android Apps Average D3 retention is 23% Average D30 retention is 10% Average D90 retention < 5% Average Retention Curve for Android Apps
  20. 20. Retention Curves for Android Apps Average D3 retention is 23% Average D30 retention is 10% Average D90 retention < 5% Average Retention Curve for Android Apps our company
  21. 21. Retention Curves for Android Apps Average Retention Curve for Android Apps 1.5 million apps our company
  22. 22. Retention Curves for Android Apps Average Retention Curve for Android Apps 1.5 million apps Bending the curve happens via activation, not notification spam
  23. 23. CAC = Customer Acquisition Cost Total marketing spend New subscribers
  24. 24. CAC Metrics • $267 per subscriber for campaigns • Total headcount cost per month fully loaded: $12,000 (director and manager) • 50 new subscribers per month CAC = $267 + $240 = $507 martin@steamfab.io remember that number
  25. 25. What is your marketing budget? Show me the data!
  26. 26. Monthly marketing budget • $13,350 for campaigns (variable) • $12,000 for headcount (somewhat fixed) $25,350 per month for 50 new subscribers martin@steamfab.io
  27. 27. Cohort Analysis
  28. 28. Cohorts are groups of people tracked over time oldest cohort newest cohort
  29. 29. Cohorts are groups of people tracked over time oldest cohort newest cohort today
  30. 30. Key metrics The key metrics you need to understand are inside your product. Post conversion user behavior drives most (all) of your success factors. It’s about the product, stupid! martin@steamfab.io
  31. 31. Making Money One year later …..
  32. 32. LTV = Long-term Value MRR per customerΣ
  33. 33. LTV = Long-term Value Subscription price Churn for |x| < 1 , Infinite decreasing geometric series
  34. 34. Revenue metrics • Subscription price is $19.95 • Monthly churn rate is 3% LTV: $665 per subscriber Average lifetime is 33 months martin@steamfab.io
  35. 35. Profitability metrics • Subscription price is $19.95 • Monthly churn rate is 3% • LTV is $665 • Average lifetime is 33 months
 • Months to recover CAC: 25 • LTV / CAC ratio: 1.3 martin@steamfab.io
  36. 36. Profitability metrics • Subscription price is $19.95 • Monthly churn rate is 3% • LTV is $665 • Average lifetime is 33 months
 • Months to recover CAC: 25 • LTV / CAC ratio: 1.3 martin@steamfab.io Profitable on a unit economic basis
  37. 37. Profitability metrics • Subscription price is $19.95 • Monthly churn rate is 3% • LTV is $665 • Average lifetime is 33 months
 • Months to recover CAC: 25 • LTV / CAC ratio: 1.3 Investor benchmark martin@steamfab.io
  38. 38. Capital Requirements What is this going to cost me?
  39. 39. Cash-flow metrics • Months to recover CAC: 25, monthly cash-flow for a cohort turns positive after 25 months • Cumulative negative cash-flow continues to accumulate • Investing more does not shorten the time to break-even, but deepens the hole Impact of faster growth on cash- flow and capital requirements Cumulativecash-flow martin@steamfab.io higher monthly investment in CAC
  40. 40. CF break-even month 48 martin@steamfab.io unit economic break-even first cohort
  41. 41. martin@steamfab.io
  42. 42. martin@steamfab.io Effect of churn
  43. 43. Max MRR = Max MRR New revenue per month Churn
  44. 44. Max MRR = Max MRR New revenue per month Churn 50 x $19.95 3% = $33k= LTV
  45. 45. $(500,000) $(450,000) $(400,000) $(350,000) $(300,000) $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow Capital required $450k martin@steamfab.io CF break-even month 48
  46. 46. 24 months Unit economic break-even 33 months Average
 life-time 48 months Monthly cash-flow break-even Max capital requirement 120 months Cumulative cash-flow break-even Timeline martin@steamfab.io } Profit Independent of investors
  47. 47. Defining Success Is this a business worth doing or investing in?
  48. 48. Business summary • After 4 years we reach $25,000 MRR and our monthly cash flow breaks even • We have 1,281 paying customers • We spent a total of $1.2m on marketing (campaigns & team) • We made $771k in total revenue • We spent $450k in capital to finance growth (ex. R&D, G&A) • Growth curve flattens out: Max MRR is $33k martin@steamfab.io
  49. 49. What would make this better? Sensitivity analysis martin@steamfab.io
  50. 50. $(400,000) $(350,000) $(300,000) $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- $50,000 $100,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow Case 1: Reduce churn rate from 3% to 1.5% martin@steamfab.io 1.5 years $100k
  51. 51. $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- $50,000 $100,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow Case 2: Cut campaign cost in half, CAC $374 martin@steamfab.io 2 years $250k
  52. 52. $(1,000,000) $(900,000) $(800,000) $(700,000) $(600,000) $(500,000) $(400,000) $(300,000) $(200,000) $(100,000) $- Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow Case 3: Grow faster - double marketing spend martin@steamfab.io ($450k)
  53. 53. $(300,000) $(200,000) $(100,000) $- $100,000 $200,000 $300,000 $400,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow Case 4: Charge more - price $29.95 per month martin@steamfab.io 2+ years $230k
  54. 54. All 4 improvements combined $(500,000) $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow martin@steamfab.io 3 years $250k
  55. 55. 1 & 2 & 4 combined $(200,000) $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow martin@steamfab.io 3 years $350k
  56. 56. Our company Case 1 Churn Case 2 CAC Case 3 Capital Case 4 Price The one I invest in 1&2&4 MRR $25,556 $34.314 $25,556 $51,072 $38,366 $103,058 $51,514 LTV / CAC 1.31 2.62 1.78 1.31 1.97 5.34 5.34 Months to break-even 25.4 25.4 18.8 25.4 16.9 12.5 12.5 Capital $446,158 $357,783 $209,580 $894,391 $247,670 $229,409 $114,585 Cumulative cash-flow $445,952 $277,634 $126,752 $894,019 $59,562 $1,025,850 $512,326 Max MRR $33,250 $66,500 $33,250 $66,500 $49,917 $199,667 $99,833 Business summary after 4 years Investor BootstrapHigh riskNo
  57. 57. Our company Case 1 Churn Case 2 CAC Case 3 Capital Case 4 Price The one I invest in 1&2&4 MRR $25,556 $34.314 $25,556 $51,072 $38,366 $103,058 $51,514 LTV / CAC 1.31 2.62 1.78 1.31 1.97 5.34 5.34 Months to break-even 25.4 25.4 18.8 25.4 16.9 12.5 12.5 Capital $446,158 $357,783 $209,580 $894,391 $247,670 $229,409 $114,585 Cumulative cash-flow $445,952 $277,634 $126,752 $894,019 $59,562 $1,025,850 $512,326 Max MRR $33,250 $66,500 $33,250 $66,500 $49,917 $199,667 $99,833 Business summary after 4 years Investor BootstrapHigh riskNo
  58. 58. 1&2&4 $51,514 5.34 12.5 $114,585 $512,326 $99,833 $1m capital $515,080 5.34 12.5 $1,146,714 $5,125,299 $998,333 MRR LTV / CAC Months to break-even Capital Cumulative cash-flow Max MRR $1m investment yields 10x martin@steamfab.io 10x 10x + $1m
  59. 59. Presented by SteamFab Ventures 745 Atlantic Ave Boston, MA www.steamfab.io martin@steamfab.io

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