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SaaS Metrics for Startups

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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

Published in: Internet
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SaaS Metrics for Startups

  1. 1. SaaS Startup Metrics [why, how, what to measure] Big Data Silicon Valley 1 / 24
  2. 2. If You Cannot Measure It, You Cannot Improve It -- Lord Kelvin 2 / 24
  3. 3. Ok. So what should I measure and why? 3 / 24
  4. 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) 4 / 24
  5. 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? 5 / 24
  6. 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 6 / 24
  7. 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 7 / 24
  8. 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 8 / 24
  9. 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 9 / 24
  10. 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. 10 / 24
  11. 11. Unit Economics Is your SaaS business viable? 11 / 24
  12. 12. Unit Economics Is your SaaS business viable? 12 / 24
  13. 13. Unit Economics Example Unit Economics in Action: HubSpot Example? 13 / 24
  14. 14. Two kinds of SaaS business Monthly Contracts MRR (Monthly Recurring Revenue) Annual Contracts ARR (Annual Recurring Revenue) 14 / 24
  15. 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) 15 / 24
  16. 16. SaaS Bookings Tracking MRR Tracking MRR separate give insight into what needs to be tweaked : 16 / 24
  17. 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. 17 / 24
  18. 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. 18 / 24
  19. 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 19 / 24
  20. 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. 20 / 24
  21. 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. 21 / 24
  22. 22. Q & A 22 / 24
  23. 23. Citations Great content from: SaaS Metrics 2.0, (www.forentrepreneurs.com) 23 / 24
  24. 24. That's all folks (for now)! 24 / 24

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