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2015 SaaS Industry Survey Results for Marketers

2015 SaaS Industry Survey Results: Keeping Score & Measuring Success for Modern Software Marketers

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2015 SaaS Industry Survey Results for Marketers

  1. 1. 2015 SaaS Industry Survey Results: Follow me @matthewjhoward Keeping Score & Measuring Success for Modern Software Marketers December 9, 2015
  2. 2. 1. Data, Data, Data (See Handout) 2. Context Setting (Elephant in the Room) 3. Story Time (Because we’re marketers) 4. Back to the Data (How do you stack up?) 4 Things
  3. 3. Software eats the world. Data dominates all. Transparency rules. Nothing is immune.
  4. 4. Software + data leads to automation, transparency, and disruption in all things including… The other elephant in the room! B2B marketing.
  5. 5. B2B marketing disruption answers to different names… REVOPS #SMARKETING #GROWTHHACKING
  6. 6. RevOps happens when product, marketing and sales use software tools to work together in a non-stop, continuous effort that spans the entire funnel from target personas, to suspects, to prospects, to customers.
  7. 7. Looks like this…
  8. 8. RevOps is like DevOps… Automated by software Driven by data Measured in real time Authentically collaborative Designed by engineers
  9. 9. “For the fourth year in a row, we surveyed 305 companies to gather benchmark data with regard to growing a successful SaaS business.” -- David Skok, Matrix Partners
  10. 10. Demographics of 305 Companies • Median revenue = $4M (82% < $25M) • Median employees = 47 (range of 2 to 1,200) • Median customer count = 300 (72% < 1,000) • Median ACV = $21k (21% < $5K and 17% > $100K) • Sales Model = 41% primarily direct, 21% primarily inside • Headquarters = 70% in U.S.
  11. 11. CAC ACV LTV DRR ETC Data, Data, Data Ratios, Acronyms, and Lingo…
  12. 12. I am going to put a story out there: if you like it, you can take it. If you don't, send it right back. -Ron Burgundy
  13. 13. SaaS marketers are like single people who treat every day like Valentine’s…  Spend heavily on dates to find new friends (customers)  Seek hugs and love ($) in return  Diligently maximize benefits from existing friends (upsell)
  14. 14. Hugs & Love are the universal currency of SaaS. In this sense,
  15. 15. Of course, not all friends are equal.
  16. 16. Therefore… SaaS Marketers carefully measure spend to acquire new friends. CAC = Cost of Acquiring Customers
  17. 17. And they measure number of hugs per friend, per year. ACV = Annual Contract Value
  18. 18. And hugs received over lifetime. LTV = Life Time Value
  19. 19. They measure dating efficiency two different ways… CAC/ACV (lower is better) $1 CAC generates $2 ACV = 0.5 / 6 month payback ACV/CAC (higher is better) Generate $1,000,000 ACV from $500,000 CAC investment = 2.0 sales efficiency
  20. 20. $@!t happens. So SaaS marketers also measure breakups... Churn
  21. 21. …and total annual hugs minus breakups. DRR = Dollar Retention Rate
  22. 22. Ultimately, SaaS marketers have 3 types of friends: • Friends with Benefits • Friends with Costs • Friends with Biggest Benefits
  23. 23. Friends with benefits stick around and give many hugs over time. LTV > 3X CAC
  24. 24. Friends with costs give few hugs and leave early. LTV < 3X CAC
  25. 25. Friends with biggest benefits not only stick around... but they give more hugs the longer they stay. LTV > 10 X CAC
  26. 26. 4 rules of SaaS dating: 1. Target wisely 2. Spend accordingly 3. Measure carefully 4. Love the ones you’re with
  27. 27. Define your strategy and take aim with the most efficient dating models. 1. Target Wisely. Web driven sales players allocate 65% to marketing. Inside sales models allocate 38% spend to marketing.
  28. 28. 2. Spend Accordingly. Top performers grow >35% and spend >40% of revenue on dates because they have solid payback and abundant access to capital. Others spend less. Note: Public players with >$100m spend 44% on revenue on dating.
  29. 29. 3. Measure Carefully  SMB dating  Spend $1.18  Acquire $1 of new ACV  CAC/ACV Ratio = 14 months  Sales Efficiency = 0.84  One year contracts  Lower churn  Moderate upsell Note: Hubspot spend $15k to acquire $24k. CAC/ACV = 7 months. Sales Efficiency = 1.6. Both metrics 2X better than median above. 5 year contract means LTV = 8X CAC  Enterprise dating  Spend $1.50  Acquire $1 of new ACV  CAC/ACV Ratio = 18 months  Sales Efficiency = 0.66  Multi-year contracts  Lowest churn  Highest upsell Note: Spend $90k to acquire $60k in ACV. CAC/ACV = 18 months. Sales efficiency = 0.66. 5 year contract means LTV = 3X CAC  Consumer dating  Spend $0.50  Acquire $1 of new ACV  CAC/ACV Ratio = 6 months  Sales Efficiency = 2.0  Month-to-month  Higher churn  Lower upsell Sample: Spend $60 to acquire $180. CAC/ACV = 6 months. Sales Efficiency = 2. 2 year contract means LTV = 6X CAC
  30. 30. Top performers are fanatical about farming and have a higher % of new ACV from upsells. 4. Love the Ones You’re With… Players with >$40m in revenue generate 37% of new ACV from upsells.
  31. 31.  Spend $0.28  Acquire $1.00 of up-sell  Median CAC/ACV = 3 months  Sales Efficiency = 3.5 Up-Sales Cost 24% of New Sales Renewals Cost 11% of New Sales  Spend $0.13  Acquire $1.00 of renewals  Median CAC/ACV = 1 month  Sales Efficiency = 7.6
  32. 32. So, it's all about the hugs! And that's why SaaS marketers treat every day like Valentines.
  33. 33. Now back to the data!
  34. 34. Insight 2015 median growth is up from 37% reported in 2013 and 42% reported in 2014.
  35. 35. Insight Since many of the fastest growers are among the smallest companies. Eliminating them brings median growth rates down 10% points.
  36. 36. Insight Companies in the $5-$7.5 M range are among the fastest growers – with the median much greater than the median of companies half their size.
  37. 37. Insight Highlighted range represents the 33% to 67% percentile of data. Companies >$2.5m and < $10m are fastest growers.
  38. 38. Insight There appears to be no relationship between median contract size and growth other than a bump-up for the $100K- $250K group which could be skewed by sparse data.
  39. 39. Insight Compared to last year, inside sales is becoming more popular as primary distribution model.. Median growth among field sales dominated companies slightly lagged inside sales dominated companies by 6% points, but led internet sales by 8% points. Channel sales dominated companies grew significantly faster, though the data is sparse. Mixed also performed well.
  40. 40. Insight Companies with mixed/balanced target customer strategies are growing the fastest. Otherwise, at least for companies >$2.5MM in revenues, there aren’t significant differences.
  41. 41. Insight Field sales remains the most popular way to sell, with 41% of participants employing it as their primary mode of distribution. NOTE: this is a surprise to David Skok, because most of his companies employ inside sales.
  42. 42. Insight In this year’s results, we see noticeably more companies using inside sales. Analyzed by contract value, field sales dominates for companies with median deals over $50K ACV and more or less disappears when median deal sizes are below $15K ACV. There’s meaningful bifurcation among the $15K-$25K and $25K-$50K groups.
  43. 43. Insight The median sales efficiency metric of $1.18 is notably higher than previous surveys. $1.07 and $0.92 were reported in the 2014 and 2013, respectively. Note: CAC in this case is measured as the cost to acquire a dollar of ACV. Alternatively you can measure “months to recover CAC” – i.e. if it costs you a dollar to acquire a dollar of ACV, then it will take you 12 months to recover that CAC. For the median of $1.18 to acquire a dollar of ACV, that means it will take 12 x 1.18 = 14.16 (or 14 months to recover.) 14 months to recover
  44. 44. Insight It’s is a MUCH cheaper to mine revenue from existing customers via upsells and renewals. The median CAC per $1 of AVC upsells is $0.28, or about 24% of CAC to acquire $1 of ACV from a new customer. The median CAC per $1 of ACV renewals is $0.13, or 11% of the CAC to acquire $1 of AVC from a new customer.
  45. 45. Insight As expected, field sales has the most expensive CAC at $1.14, followed by inside sales at $0.90. Channel and online distribution have significantly lower CACs at $0.66 and $0.42, respectively. Compared to previous years, all modes have shown increases except Internet, which is down from $0.54 to $0.42.
  46. 46. Insight Overall, the median SaaS company devotes 31% of their CAC to Marketing expenses, with the remaining 69% allocated to Sales expense. However, Inside Sales- and Internet Sales-driven companies have a much greater reliance on Marketing, with 38% and 65% of their CAC budgets devoted to Marketing, respectively.
  47. 47. Insight Field Sales-dominated companies have 20% longer CAC payback periods than those primarily using Inside Sales, which in turn have approximately 20% longer CAC payback periods than those relying primarily on Internet Sales.
  48. 48. Insight The median respondent gets 16% of new ACV sales from upsells; larger companies rely more heavily on upsells. This is largely consistent with prior years’ results.
  49. 49. Insight Almost across the board, the fastest growers tended to have noticeably more reliance on upsells.
  50. 50. Insight Professional services play a minor role for most, with the median SaaS company booking proserv revenues on new deals equivalent to 18% of first year subscription contract value. Median P.S. margins are approx. 20%.
  51. 51. Insight Compared with previous surveys, attach rates ticked up significantly across the board (2014 survey: Enterprise 18%, SMB 8%, VSB 6%, Mixed 9%). As expected, companies which are focused mainly on enterprise sales have higher levels of professional services.
  52. 52. Insight Median subscription gross margins are 78% (nearly identical when removing the smallest companies from the group). These numbers are virtually unchanged from the 2014, 2013 and 2012 results.
  53. 53. Insight Approximately 30% of companies derive some amount of new ACV from “freemium” strategies, though virtually no one drives their business on it.. “Try Before You Buy” is much more commonly used: 60% derive revenues through this strategy, and 30% derive the majority of their new ACV through “Try Before You Buy”. These results are very consistent with previous years.
  54. 54. Insight The median reported sales commission rate is 9% of ACV – which is consistent overall with prior year results.
  55. 55. Insight The survey results indicate that median sales commission rates are only slightly higher for Field Sales versus Inside Sales.
  56. 56. Insight In 2014, “Elephant hunters” (>$250k median ACV) had materially lower commission rates (7%). We note that the 2015 results are consistent with results from two years ago. There was a high degree of consistency in commission rates across contract sizes.
  57. 57. Insight The most significant changes this year include: 1) Upsells: this year just 45% paid full commission rates on upsells, vs. 58% in last year’s group; 2) This year just 32% paid no additional commission on longer term contracts vs. 42% in last year’s group. Not surprisingly, commissions on renewals are typically deeply discounted, with a median rate of 2%. Upsells command a median rate of 8%, and nearly half of the companies pay full commissions on upsells.
  58. 58. Insight One natural question to ask is whether companies which pay higher commissions on renewals experience lower churn. The following chart suggests that there is little correlation between commissions on renewals and gross churn.
  59. 59. Insight Companies offering 7% or greater commissions on renewals have experienced the highest growth rate.