Understanding what metrics are relevant to your startup, and why, can be a daunting task. In this meetup we will discuss what metrics matter for a SaaS company or project. What investors are looking for in the metrics you track and why do they think they are important. What is CAC and LTC, why is CHURN critical? We will also review how to calculate these important metrics, what equations will give you the right answer, and what tools make sense to use for your business.
Presenter: Lecole Cole, Founder & CEO, Skydera
4. Terms The terminology we will cover in this meetup:
LTV -- the Lifetime Value of a typical customer
CAC -- the cost to acquire a typical customer
MRR/ARR-- Monthly/Annual Recurring Revenue
ACV/TCV -- Annual/Total Contract Value
Churn -- customer retention or the lose of customers
Cohort -- a group of customers grouped together with something
in common (month joined)
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5. What are
our
goals?
By measuring we can answer a few questions about our SaaS
companies :
Is my business financially viable?
What is working well, and what needs to be improved?
What levers should management focus on to drive the business?
Should the CEO hit the accelerator, or the breaks?
What is the impact on cash and profit/loss of hitting the
accelerator?
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6. What are
our
goals?
What are
the keys
to
success?
The 3 Keys to Success in SaaS:
Acquiring Customers
Retaining Customers *
Monetizing Customers
* The most important to a SaaS business
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7. Cash
Flow
With SaaS companies primarily operating on a subscription basis,
cash flow can pose a problem. Acquiring customers require a large up
front investment potential causing a cash flow trough.
High CAC
Months to recover CAC
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8. Cash
Flow
Cash
Flow
Trough
Understanding and preparing for this situation is important to the
survival of a SaaS business.
Months to recover CAC
The impact of a single customer steepens as you add new
customers
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9. Cash
Flow
Cash
Flow
Trough
The
effects
of the
Trough
The more customers you add the deeper this trough gets.
Requires more investment
Investors and Board members must understand economics and
want to continue to invest in the business
As you get to covering your CAC, your revenue growth will
steepen
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10. Unit
Economics
Can I make more from my customers than it costs me to acquire
them?
LTV
LTV can also be expressed by:
But a truly accurate picture of LTV would be.
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14. Two kinds of SaaS business
Monthly Contracts MRR (Monthly Recurring Revenue)
Annual Contracts ARR (Annual Recurring Revenue)
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15. SaaS
Bookings
Three Contributing Elements:
What happened with new customers added in the month:
New MRR (or ACV)
What happened in the installed base of customers:
Churned MRR (or ACV)
Expansion MRR (or ACV)
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17. Churn The importance of Customer Retention (Churn) :
Early on Churn does not matter much
As the customer base grows Churn can have a dramatic effect on
growth.
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18. Churn
Negative
Churn
The Power of Negative Churn
There are two ways to get expansion revenue:
Use a pricing scheme that has a variable axis, such as the
number of seats used, the number of leads tracked, etc. That
way, as your customers expand their usage of your product, they
pay you more.
Upsell/Cross-sell them to more powerful versions of your
product, or additional modules.
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19. Churn
Negative
Churn
Example
The Power of Negative Churn
We are losing 3% of our revenue every month, and you can see
that with a constant bookings rate of $6k per month, the revenue
reaches $140k after 40 months
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20. Churn
Negative
Churn
Example
The Power of Negative Churn
With a negative churn rate of 3%, we reach $450k in revenue
(more then 3x greater), and the growth in revenues is increasing,
not flattening.
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21. More on
Churn
Cohort Analysis
Since churn is such a critical element for success in a SaaS
company, it is an area that requires deeper exploration to
understand. Cohort Analysis is one of the important techniques
that we use to gain insight.
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