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SaaS and the New Revenue Imperative in B2B Software Companies

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Learn how marketers can influence and drive revenue for SaaS business models.

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SaaS and the New Revenue Imperative in B2B Software Companies

  1. 1. NumberOne in a Series SaaS and the New Revenue Imperative for B2B Software Companies eDynamic, Friday, February 21, 2014 0
  2. 2. 1 2 NEW REVENUE IMPERATIVE LIFETIME CUSTOMER VALUE 3 THE COST OF CHURN 4 MARKETER‟S IMPERATIVE eDynamic, Friday, February 21, 2014 1
  3. 3. 24% SUBSCRIPTION REVENUE (INCLUDING SAAS) TO GROW AT A 17.5% COMPOUNDED ANNUAL RATE, REACHING 24% OF TOTAL SOFTWARE REVENUE BY 2016 IDC, 2013 eDynamic, Friday, February 21, 2014 2
  4. 4. The Business of Software is Changing Annual Growth Although SaaS software revenues represented only 4.9 % of total revenue in 2011, it will reach 24% of total revenue by 2016. 20% 18% 17.5% 16% 14% 12% 10% 8% 6% 4% 2% 4% 3 0% License Growth eDynamic, Friday, February 21, 2014 PwC Global 100 Software Leaders, May 2013 Subscription Growth
  5. 5. How Accounting Impacts How We Market „Classic‟ software revenue recognition „New‟ software revenue recognition Evolving SaaS-based Revenue Models Licensing SaaS Upfront Recognition Subscription / Ratable Services Delivery Subscription / Ratable e.g. Computer Associate e.g. Microsoft e.g. Saleforce.com ASC 985-605 (SOP 97-2) ASC 985-605 (SOP 97-2) ASC 985-25, ASC 985-10-S99 (EITFs 00-21/08-1) (SAB 104) FASB Accounting Standards Codification (ASC) BDO, SaaS Revenue Generation Models, June 2010 eDynamic, Friday, February 21, 2014 4
  6. 6. How Accounting Impacts How We Market „New‟ software „Classic‟ software revenue revenue This is recognition recognition where 24% Evolving SaaS-based Revenue Models of your Licensing SaaS revenue will Services Delivery Upfront Recognition Subscription / Ratable be coming Subscription / Ratable from by e.g. Computer Associate e.g. Microsoft e.g. Saleforce.com 2016 ASC 985-605 ASC 985-605 ASC 985-25, ASC 985-10-S99 (SOP 97-2) (SOP 97-2) (EITFs 00-21/08-1) (SAB 104) FASB Accounting Standards Codification (ASC) BDO, SaaS Revenue Generation Models, June 2010 eDynamic, Friday, February 21, 2014 5
  7. 7. Thinking About Marketing Differently Acquisition Retention 1 2 3 4 5 6 Awareness Search Evaluate Commit Value Advocate The customer recognizes a need and looks for a solution The customer looks for a solution to satisfy their needs The customer weighs the alternative solutions available The customer commercially commits to the solution and vendor The customer realizes the value the vendor provides The customer communicate s the value to their industry peers  Has a problem to solve  Goes to a tradeshow  Reads an article  Searches Google for solutions  Visits a store  Accumulates knowledge of options  Researches vendors  Talks to peers  Engages a discussion forum  Compares pricing  Talks to references  Commits to the vendor  Value is realized  Differentiatio n is appreciated  Talks to peers  Engages in a discussion forum  Further commits to the brand eDynamic, Friday, February 21, 2014 6
  8. 8. Thinking About Marketing Differently Acquisition 1 Awareness 2 Retention 3 Search Evaluate Marketing was focused on influencing and The measuring a The single customer large event— customer the sale looks for a weighs the The customer recognizes a need and solution to looks for a satisfy their solution needs  Has a problem to solve  Goes to a tradeshow  Reads an article  Searches Google for solutions  Visits a store  Accumulates knowledge of options eDynamic, Friday, February 21, 2014 alternative solutions available  Researches vendors  Talks to peers  Engages a discussion forum 4 5 6 Commit Value Advocate The The The customer customer customer commercial realizes the communicat ly commits value the es the value to their to the vendor industry solution provides peers and vendor  Value is  Compares pricing  Talks to references  Commits to the vendor realized  Differentiatio n is appreciated  Talks to peers  Engages in a discussion forum  Further commits to the brand 7
  9. 9. Thinking About Marketing Differently Acquisition 1 Awareness 2 Retention 3 Search Evaluate Marketing was focused on influencing and The measuring a The single customer large event— customer the sale looks for a weighs the The customer recognizes a need and solution to looks for a satisfy their solution needs  Has a problem to solve  Goes to a tradeshow  Reads an article  Searches Google for solutions  Visits a store  Accumulates knowledge of options eDynamic, Friday, February 21, 2014 alternative solutions available  Researches vendors  Talks to peers  Engages a discussion forum 4 5 6 Value Commit Now it must Advocate influence a series of The The The small events— customer customer customer ongoing sales communicat commercial realizes the ly commits value the es the value to their to the vendor industry solution provides peers and vendor  Value is  Compares pricing  Talks to references  Commits to the vendor realized  Differentiatio n is appreciated  Talks to peers  Engages in a discussion forum  Further commits to the brand 8
  10. 10. Marketing in a SaaS World Revenue Generation Revenue Generation Customer Acquisition Pre-sales Demand Generation Pre-sales Sales Engagemen Enablement t eDynamic, Friday, February 21, 2014 Customer Value creation Support Facilitation After-sales Engagemen t After-sales Demand Generation 9
  11. 11. Marketing in a SaaS World Revenue Generation Customer Acquisition Our measure of success was in Customer Value influencing the creation „big sale‟ Pre-sales Demand Generation Pre-sales Sales Engagemen Enablement t eDynamic, Friday, February 21, 2014 Our familiar marketing activities After-sales Support focused on Facilitation Engagemen t acquiring new customers After-sales Demand Generation 10
  12. 12. Marketing in a SaaS World Revenue Generation Customer Acquisition Pre-sales Demand Generation Pre-sales Sales Engagemen Enablement t eDynamic, Friday, February 21, 2014 Customer Value creation Support Facilitation After-sales Engagemen t After-sales Demand Generation 11
  13. 13. Marketing in a SaaS World Revenue Generation Our measure of success is now in Customer Acquisition growing the Customer Value creation „lifetime value‟ Pre-sales Demand Generation Our broadened marketing Pre-sales activities Sales Engagemen Enablement focused on t customer value creation eDynamic, Friday, February 21, 2014 Support Facilitation After-sales Engagemen t After-sales Demand Generation 12
  14. 14. Marketing in a SaaS World Revenue Generation Revenue Generation (Customer Lifetime Value) Our measure of success is now in Customer Acquisition growing the Customer Value creation „lifetime value‟ Pre-sales Demand Generation Our broadened marketing Pre-sales activities Sales Engagemen Enablement focused on t customer value creation eDynamic, Friday, February 21, 2014 Support Facilitation After-sales Engagemen t After-sales Demand Generation 13
  15. 15. Measuring Success in the SaaS World Acquire Customers Retain Customer eDynamic, Friday, February 21, 2014 We know how to do this Customer Lifetime Value (LTV) We will learn how to do this We measure our success with this 14
  16. 16. 1 2 NEW REVENUE IMPERATIVE LIFETIME CUSTOMER VALUE 3 THE COST OF CHURN 4 MARKETER‟S IMPERATIVE eDynamic, Friday, February 21, 2014 15
  17. 17. Understanding Customer Lifetime Value (LTV) LTV can be simple or complex, but it is foundational Annual variable contribution per customer  Share of wallet  Cost to serve  Customer acquisition cost (CAC) 16 Bain & Company, Net Promoter System eDynamic, Friday, February 21, 2014
  18. 18. Understanding Customer Acquisition Costs (CAC) “A deep understanding of your Sales and Marketing investment is critical to the success of an OnDemand (SaaS) business, and requires the use of new metrics that were not part of the traditional software scorecard” Bessemer Venture Partners, Winter 2009 17 eDynamic, Friday, February 21, 2014
  19. 19. How Much Are People Spending on CAC? (Annual Contract Value) It takes over a year to recoup your CAC 18 eDynamic, Friday, February 21, 2014 Pacific Crest 2013 SaaS Survey
  20. 20. Time to Success Determined by CAC and LTV 19 SaaS Metrics 2.0 A Guide to Measuring and Improving what Matters, January 2013, David Skok eDynamic, Friday, February 21, 2014
  21. 21. Time to Success Determined by CAC and LTV 20 SaaS Metrics 2.0 A Guide to Measuring and Improving what Matters, January 2013, David Skok eDynamic, Friday, February 21, 2014
  22. 22. Time to Success Determined by CAC and LTV If the customer leaves before month 14, we lose money If we lose more customers than we keep by month 14, the companies loses money on each customer eDynamic, Friday, February 21, 2014 Recouping customer acquisition and support costs 21 SaaS Metrics 2.0 A Guide to Measuring and Improving what Matters, January 2013, David Skok
  23. 23. Field Sales is Still the Most Expensive 22 eDynamic, Friday, February 21, 2014 Pacific Crest 2013 SaaS Survey
  24. 24. Field Sales is Still the Most Expensive >$1 <$.7 5 More Digital Engagement Reduce CAC eDynamic, Friday, February 21, 2014 Pacific Crest 2013 SaaS Survey 23
  25. 25. How Marketers Can Affect Success 1 2 Reduce the CAC!  Customer break even  Revenue growth  Profitability Increase LTV duration!  Guaranteeing customer break even  Increasing MRR (Monthly Recurring Revenue)  Increasing profitability per LTV eDynamic, Friday, February 21, 2014 24
  26. 26. How Marketers Can Affect Success Drive break even sooner 1 2 Reduce the CAC!  Customer break even  Revenue growth  Profitability Increase LTV duration!  Guaranteeing customer break even  Increasing MRR (Monthly Recurring Revenue)  Increasing profitability per LTV eDynamic, Friday, February 21, 2014 25
  27. 27. 1 2 NEW REVENUE IMPERATIVE LIFETIME CUSTOMER VALUE 3 THE COST OF CHURN 4 MARKETER‟S IMPERATIVE eDynamic, Friday, February 21, 2014 26
  28. 28. Understanding Churn In a SaaS business, churn is the opposition to growth Churn can prevent growth as the customers increase 27 SaaS Metrics FAQ, Joel York, Sept. 2012 eDynamic, Friday, February 21, 2014 SaaS Metrics, Joel York, Feb. 2010
  29. 29. Churn is Primary Metric Tracked by Companies 28 2013 Totango Annual SaaS Metrics Survey eDynamic, Friday, February 21, 2014
  30. 30. Churn is Primary Metric Tracked by Companies For existing customers, c hurn is the primary metric 29 2013 Totango Annual SaaS Metrics Survey eDynamic, Friday, February 21, 2014
  31. 31. Why is the Focus Churn So Important? Churn is the primary component of the revenue equation that constantly works against you! The „ideal‟ is to have no churn Manageable churn can still lead to profit Break-even cannot be attained with unmanageable churn SaaS Profitability, Joel York, Feb. 2010 eDynamic, Friday, February 21, 2014 30
  32. 32. Churn is So Dangerous, But… 31 2013 Totango Annual SaaS Metrics Survey eDynamic, Friday, February 21, 2014
  33. 33. Churn is So Dangerous, But… Executive priorities diminish the Marketer‟s focus on reducing churn 32 2013 Totango Annual SaaS Metrics Survey eDynamic, Friday, February 21, 2014
  34. 34. Low Churn + High Upsell = Revenue Growth 33 2013 Totango Annual SaaS Metrics Survey eDynamic, Friday, February 21, 2014
  35. 35. Low Churn + High Upsell = Revenue Growth Companies with the greatest growth rates, also have the lowest churn… 34 2013 Totango Annual SaaS Metrics Survey eDynamic, Friday, February 21, 2014
  36. 36. Low Churn + High Upsell = Revenue Growth …while combined with upselling to create the strongest growth 35 2013 Totango Annual SaaS Metrics Survey eDynamic, Friday, February 21, 2014
  37. 37. 1 2 NEW REVENUE IMPERATIVE LIFETIME CUSTOMER VALUE 3 THE COST OF CHURN 4 MARKETER‟S IMPERATIVE eDynamic, Friday, February 21, 2014 36
  38. 38. The Marketers Imperative Acquisition Retention 1 2 3 4 5 6 Awareness Search Evaluate Commit Value Advocate The customer recognizes a need and looks for a solution The customer looks for a solution to satisfy their needs The customer weighs the alternative solutions available The customer commerciall y commits to the solution and vendor The customer realizes the value the vendor provides  Researches vendors  Talks to peers  Engages a discussion forum  Compares pricing  Talks to references  Commits to the vendor  Value is realized  Differentiation is appreciated The customer communicat es the value to their industry peers  Has a problem to solve  Goes to a tradeshow  Reads an article  Searches Google for solutions  Visits a store  Accumulates knowledge of options eDynamic, Friday, February 21, 2014  Talks to peers  Engages in a discussion forum  Further commits to the brand 37
  39. 39. The Marketers Imperative Acquisition Retention 1 2 3 4 5 6 Awareness Search Evaluate Commit Value Advocate The customer recognizes a need and looks for a solution The customer looks for a solution to satisfy their needs The customer weighs the alternative solutions available The customer commerciall y commits to the solution and vendor The customer realizes the value the vendor provides  Researches vendors  Talks to peers  Engages a discussion forum  Compares pricing  Talks to references  Commits to the vendor  Value is realized  Differentiation is appreciated The customer communicat es the value to their industry peers  Has a problem to solve  Goes to a tradeshow  Reads an article  Searches Google for solutions  Visits a store  Accumulates knowledge of options eDynamic, Friday, February 21, 2014  Talks to peers  Engages in a discussion forum  Further commits to the brand 38
  40. 40. The Marketers Imperative Acquisition Retention 1 2 3 4 5 6 Awareness Search Evaluate Commit Value Advocate The The The customer customer customer recognizes a looks for a weighs the need and solution to alternative looks for a satisfy their solutions solution Getting to needs „sale‟ the big available The customer commerciall y commits to the solution and vendor The customer realizes the value the vendor provides  Has a problem to solve  Goes to a tradeshow  Reads an article  Compares pricing  Talks to references  Commits to the vendor The customer communicat es the value to their industry peers  Searches Google for solutions  Visits a store  Accumulates knowledge of options eDynamic, Friday, February 21, 2014  Researches vendors  Talks to peers  Engages a discussion forum  Value is realized  Differentiatio n is appreciated  Talks to peers  Engages in a discussion forum  Further commits to the brand 39
  41. 41. The Marketers Imperative Acquisition Retention 1 2 3 4 5 6 Awareness Search Evaluate Commit Value Advocate The The The customer customer customer recognizes a looks for a weighs the need and solution to alternative looks for a satisfy their solutions solution available Getting to needsbig „sale‟ the The customer commerciall y commits to the solution and vendor The customer realizes the value the vendor provides  Has a problem to solve  Compares pricing  Talks to references  Commits to the vendor  Value is realized  Differentiation is appreciated The customer communicat es the value to their industry peers  Goes to a tradeshow  Reads an article  Searches Google for solutions  Visits a store  Accumulates knowledge of options eDynamic, Friday, February 21, 2014  Researches vendors  Talks to peers  Engages a discussion forum  Talks to peers  Engages in a discussion forum  Further commits to the brand 40
  42. 42. The Marketers Imperative Acquisition Retention 1 2 3 4 5 6 Awareness Search Evaluate Commit Value Advocate The The The customer customer customer recognizes a looks for a weighs the need and solution to alternative looks for a satisfy their solutions solution Getting to needs „sale‟ the big available The customer commerciall y commits to the solution and vendor The customer realizes the value the vendor provides  Has a problem to solve  Compares pricing  Talks to references  Commits to the vendor  Value is realized  Differentiation is appreciated The customer communicat es the value to their industry peers  Goes to a tradeshow  Reads an article  Searches Google for solutions  Visits a store  Accumulates knowledge of options  Researches vendors  Talks to peers  Engages a discussion Make the „sale‟ forum eDynamic, Friday, February 21, 2014  Talks to peers  Engages in a discussion forum  Further commits to the brand Continue the „selling‟ 41
  43. 43. Where is the Marketing in All These Number? Understand Marketing‟s „levers‟ to deliver profitability Customer acquisition continues its important—reducing CAC is now a focus Upsell and cross-sell add value to existing customers Monthly Recurring Revenue or Annual Contract Value drive revenue, but duration drives LTV eDynamic, Friday, February 21, 2014 Managing churn affects profitability and break-even 42 Why Churn is SO critical to success in SaaS, David Skok, May 2012
  44. 44. In the next presentation, we will dive into and explore how marketing can influence, and even control, these levers of profitability 43 eDynamic, Friday, February 21, 2014
  45. 45. Connect with us www.edynamic.net twitter.com/edynamic contact@edynamic.net youtube.com/1999dynamic 1-877-339-6264 facebook.com/edynamic.net 44 eDynamic, Friday, February 21, 2014

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