Churn is a natural part of life and you’re going to need to work with it to prevent it getting out of hand. Every company defines churn differently and comparing companies is often like comparing apples to oranges. David Spitz (Managing Director, Pacific Crest Securities/KeyBanc Capital Markets) explains which metrics really matter.

1. DAVID SPITZ
HEAD OF SAAS INVESTMENT BANKING
PACIFIC CREST SECURITIES
TECHNOLOGY SPECIALISTS OF KEYBLANK CAPITAL MARKETS
#saastrannual
Measure Your Success and
Tell Your Story Using SaaS
Metrics

2. Measure Your Success and Tell Your Story Using SaaS Metrics
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SAAS BUSINESS
MODEL FOR
DUMMIES

3. Measure Your Success and Tell Your Story Using SaaS Metrics
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WHAT
CONSTITUTES
“GOOD” OR
“ACCEPTABLE”
CHURN?

4. Measure Your Success and Tell Your Story Using SaaS Metrics
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SAMPLE SAAS
“RETENTION” METRICS
AT IPO
Note: (1) Renewal rate per Wall Street analysts’ estimates at IPO
Source: Company filings
* Indicates that this company’s metrics does not include the benefit of upsets and expansions

5. Measure Your Success and Tell Your Story Using SaaS Metrics
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6. Measure Your Success and Tell Your Story Using SaaS Metrics
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PUBLIC SAAS COMPANY CHURN
CALCULATIONS ARE COMPLEX!
* Indicates that this company’s metrics does not include the benefit of upsets and expansions

7. Measure Your Success and Tell Your Story Using SaaS Metrics
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PUBLIC SAAS COMPANY CHURN
CALCULATIONS ARE COMPLEX!
www.pacific-crest.com/saas-reporting-metrics

8. Measure Your Success and Tell Your Story Using SaaS Metrics
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CHURN &
RETENTION
METRICS

9. Measure Your Success and Tell Your Story Using SaaS Metrics
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PRIVATE SAAS COMPANY
NET DOLLAR RETENTION
RATES
PCS SaaS Survey Results
Source: 2016 Pacific Crest Private SaaS Company Survey Results, 240 respondents

10. Measure Your Success and Tell Your Story Using SaaS Metrics
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BUT BE
CAREFUL USING
THESE
NUMBERS TO
CALCULATE

11. Measure Your Success and Tell Your Story Using SaaS Metrics
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UNIT LEVEL
ECONOMICS

12. Measure Your Success and Tell Your Story Using SaaS Metrics
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BE REALISTIC
(NOT
FORMULAIC)
ABOUT LONG-
DOES 5% GROSS
CHURN TODAY
REALLY IMPLY A

13. Measure Your Success and Tell Your Story Using SaaS Metrics
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CAC RATIO COMPARISONS
FOR PRIVATE SAAS
COMPANIES
PCS SaaS Survey Results
Source: 2016 Pacific Crest Private SaaS Company
Response: New ACV from New Customer: 174, Upsells to Existing Customer: 127, Expansions: 131, Renewals: 137 | Excludes companies <$2.5MM in Revenues

14. Measure Your Success and Tell Your Story Using SaaS Metrics
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DON’T LOSE
SIGHT OF
FUNDAMENTAL
ECONOMICS

15. Measure Your Success and Tell Your Story Using SaaS Metrics
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SALES
EFFICIENCY
METRICS

16. Measure Your Success and Tell Your Story Using SaaS Metrics
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CAC PAYBACK PERIOD FOR
PRIVATE SAAS COMPANIESPCS SaaS Survey Results
Note: CAC Payback Period defined as # of months of subscription gross profit required to recover the fully-loaded cost of acquiring a customer; calculated by
dividing self-reported CAC ratio by subscription gross margin
Source: 2016 Pacific Crest Private SaaS Company | 165 respondents | Excludes Companies <$2.5MM in Revenues

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CASE STUDY: NETSUITE CAPITAL
CONSUMPTION AND ARR
LIFECYCLE
Note: (1) Calculated by annualizing subscription revenue in calendar Q4 of respective year; 2004 – 2008 assumes subscription revenue accounts for 80% of total
revenue; Quarterly data not available for 2004 and 2005. Includes nine acquisitions since 2008
(2) Assumes cumulative capital burned at the end of 2005 is equivalent to cumulative net capital consumed at the end of 2005 (additional paid-in capital plus preferred
stock, treasury stock and debt less cash and investments and aggregate share repurchases)
(3) Calculated as cash flow from operations less capital expenditures

18. Measure Your Success and Tell Your Story Using SaaS Metrics
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Note:(1) Calculated as additional paid-in capital plus preferred stock, treasury stock and debt less cash and investments and aggregate share repurchases for the
quarter ending prior to IPO
(2) Annualized most recent quarter subscription or equivalent revenue prior to IPO
(3) Cumulative net capital generated pre-IPO was $17M for ServiceNow and $41M for Veeva

19. Measure Your Success and Tell Your Story Using SaaS Metrics
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CAPITAL & TIME REQUIRED
TO REACH ARR
MILESTONES
PCS SaaS Survey Results
Source: 2016 Pacific Crest Private SaaS Company Survey Results, 240 respondents

20. Measure Your Success and Tell Your Story Using SaaS Metrics
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“THE RULE OF
40%”

21. Measure Your Success and Tell Your Story Using SaaS Metrics
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THE RULE OF 40% - PUBLIC
SAAS
Source: Capital IQ, as of 1/27/16

22. Measure Your Success and Tell Your Story Using SaaS Metrics
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THE RULE OF 40% - PRIVATE
SAAS
Source: 2016 Pacific Crest Private SaaS Company Survey Results, 77 respondents | Includes companies $15MM+ in revenues
PCS SaaS Survey Results

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VALUATION AS A FUNCTION
OF {GROWTH +
PROFITABILITY}
Source: Capital IQ, as of 1/27/16

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CLOSING
THOUGHTS• SaaS metrics rule...
...but be careful not to believe your own b-------
• Investors love “Unit Level Economics”...
...but rate of capital consumption / generation
governs long-term success
• The public market clearly rewards “The Rule of
40%+” performers... ...but high growth is much more
important than profitability

25. Measure Your Success and Tell Your Story Using SaaS Metrics
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DISCLOSURESKeyBanc Capital Markets is a trade name under which corporate and investment banking
products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member
NYSE/FINRA/SIPC (“KBCMI”), and KeyBank National Association (“KeyBank N.A.”), are
marketed. Pacific Crest Securities is a division of KBCMI. Securities products and services are
offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also
be employees of KeyBank N.A.. Banking products and services are offered by KeyBank N.A..
This document has been prepared by Pacific Crest Securities, a division of KeyBanc Capital
Markets Inc., herein known as “PCS”. The material contained herein is based on data from
sources considered to be reliable, however PCS does not guarantee or warrant the accuracy or
completeness of the information. This document is for informational purposes only. Neither the
information nor any opinion expressed constitutes an offer, or the solicitation of an offer, to buy or
sell any security. This document may contain forward-looking statements, which involve risk and
uncertainty. Actual results may differ significantly from the forward-looking statements. This report
is not intended to provide personal investment advice and it does not take into account the
specific investment objectives, financial situation and the specific needs of any person or entity.
This communication is intended solely for the use by the recipient. The recipient agrees not to
forward or copy the information to any other person outside their organization without the express
written consent of PCS.