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A High Growth SaaS Playbook
David Skok
ForEntrepreneurs Blog
General Partner, Matrix Partners
12 Metrics to drive success
Goals
Present a simple model to
understand a SaaS business1
2 Show what Levers a CEO can
pull to get most impact
A QUICK PREAMBLE
Search for Product/Market Fit
Scaling the Business
Search for Repeatable & Scalable
& Profitable Growth Model
The Three Phases of a Startup’s Lifecycle
Predictable, Repeatable, Scalable, Profitable Growth
Scaling the Business
Search for Product/Market Fit
Search for Repeatable & Scalable
& Profitable Growth Model
Also happens to be what Growth Round investors are looking for
The key sign that you’re getting there:
Bookings - (NOT Revenue or ARR!)
For SaaS:
Bookings = Net New ARR
(New + Expansion – Churned)
Q1 Q2 Q3 Q4 Q5 Q6 Q7
ARR with Flat Bookings ARR with Growing Bookings
Q1 Q2 Q3 Q4 Q5 Q6 Q7Q1 Q2 Q3 Q4 Q5 Q6 Q7
Net New
ARR
Expansion ARR
(Existing Customers)
Churned ARR
(Lost Customers)
New ARR
(New Customers)
The right way to measure SaaS Bookings
Key SaaS chart: 4 components of bookings
$(15.0)
$(10.0)
$(5.0)
$-
$5.0
$10.0
$15.0
$20.0
$25.0
$30.0
$35.0
Jan Feb Mar Apr May Jun
ARR Bookings
New ARR
Net New ARR
Expansion ARR
Churned ARR
Always look at a
chart that shows the
trendlines to see if
there is growth
How do we drive Net New ARR?
A Funnel
The Full SaaS Funnel
Onboard
Retain
Expand
Loyal Customers
who are advocates
The Beautiful Thing about Funnels…
Governed by very simple Math
Two Key Levers Top of Funnel Flow
(Quantity)
Conversion
Rate
Secondary Funnel Metrics
CAC
Time
Two Sales Motions
Touchless Self-Serve
• No Sales people
• Based on Free Trial
Sales People Needed
The Simple Case: Touchless Self Serve
Visitors to
Web Site
Sign up for
Free Trial
Closed
Deals
Funnel Metrics are Essential
"IF YOU CAN NOT MEASURE IT,
YOU CAN NOT IMPROVE IT."
- LORD KELVIN
The Key Metrics
VISITORS
CAMPAIGNS
TO DRIVE
TRAFFIC
TRIALS
CLOSED DEALS
CONVERSION
%
CONVERSION
%
OVERALL
CONVERSION %
Not all Lead Sources are Equal
Visitors
Trial
5%
10%
$5,000
Customer
Google Ad Words FaceBook Ads
Visitors
Trial
2%
20%
$8,000
Customer
OVERALL
CONVERSION %
(BY LEAD SOURCE)
Cost per lead
LTV
ROI by Lead Source
Fix Conversion Rates First
• Fix before spending heavily on Traffic growth
• Three starting points:
• Improve Product/Market fit
• Find the optimal Customer Segments
• Clear, Simple, Powerful, Messaging & Positioning
So Far we’ve looked at the simple case
Touchless Self-Serve
• No Sales people
• Based on Free Trial
What Happens when the sale is more complex, and
needs a sales person?
Sales People Needed
Without Sales people
Visitors to
Web Site
Closed
Deals
Simple linear relationship
Conversion
Rate
But when you add in Sales People…
Ramp
Time
Sales
Capacity
Limit
Growth comes in discontinuous units
The Unit of Growth
Sales Person
Supported by Leads & Customer Success
Sales Person
$’s
Marketing
Spend
SDR’s
Leads Customer Success,
Renewals, etc.
What Drives Bookings?
No of
Sales People Productivity per Rep
(Average)
x
PPR
Lets look at each of these in turn…
Number of Sales People
One of the most common reasons for missing plan
Didn’t hire sales people fast enough
Sales Hiring
• You will need to build an in house recruiting machine
See my blog post:
“Recruiting: the third crucial Startup Skill”
Two Metrics to Track
0
2
4
6
8
10
12
14
16
18
Q4-16 Q1-17 Q2-17 Q3-17 Q4-17
Number of Reps versus Plan
Reps Plan
$0
$500
$1,000
$1,500
$2,000
$2,500
Q4-16 Q1-17 Q2-17 Q3-17 Q4-17
Assigned Quota vs Plan & New ARR
Assigned Quota Plan Bookings
$k
Lost Bookings
due to slow
hiring
$0
$500
$1,000
$1,500
$2,000
$2,500
Q4-16 Q1-17 Q2-17 Q3-17 Q4-17
Assigned Quota vs Plan & New ARR
Assigned Quota Plan Bookings
$k $500k
Over
Assignment
of Quota
needed to
hit plan
=1/85%
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
Q4-16 Q1-17 Q2-17 Q3-17 Q4-17
Assigned Quota vs Achieved
Bookings
$k
85%
Assigned Quota
Actual Bookings
PPR: Productivity per Rep
• Quality of sales hires
• Sales Training and
Onboarding
PPR: Sales Training and Onboarding
• Sales people: one of the most expensive resources
• Yet typically little effort put in to sales training in early days
• High payback
• Worth having the founders spend time to develop & deliver a lot of the material
Monitoring PPR
Charts4
PPR over time
$100
$110
$120
$130
$140
$150
$160
$170
Q1 Q2 Q3 Q4
Average Productivity Per Rep
NewARRbooked-$k/quarter
PPR looked at by Rep Tenure
60
80
100
120
140
160
180
Q1 Q2 Q3 Q4
Average Productivity Per Rep - Grouped by Rep Tenure
6 - 12 months 12-24 months >24 months
NewARRbooked-$k/quarter
PPR by Individual Rep
Rep Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16
John 120 165 180 145 80 110 195
Mary 80 110 135 155 150 145
Fred 60 35 75 40 55
Alice 85 145 160 180 145
Joe 60 110 85 130 145
Mike 155 170 145 190
Sarah 35 45 70 45
Sue 80 145 175 165
% of Reps at Quota
30%
40%
50%
60%
70%
80%
90%
100%
Q1-16 Q2-16 Q3-16 Q4-16
% of Reps above
75% of Quota
30%
40%
50%
60%
70%
80%
90%
100%
Q1-16 Q2-16 Q3-16 Q4-16
% of Reps above
100% of Quota
Goal: 75%
Goal: 50%
Another way to look at Rep Productivity
There’s one other thing that drives PPR
Adequate Lead Flow
THE
MAGIC OF
FUNNEL
MATH
Raw Lead
Marketing
Qualified Lead
Sales Accepted
Lead
Opportunity
Closed Deal
20%
80%
25%
20%
Funnel Math
Raw Lead
Marketing
Qualified Lead
Sales Accepted
Lead
Opportunity
Closed Deal
20%
80%
25%
20%
Closed Deal1
Opportunity5
Sales Accepted
Lead
20
Marketing
Qualified Lead
25
Raw Lead125
Reverse Funnel Math
Allows us to Compute Leads required per Rep
x
No of
Closed Deals
=
Reverse Funnel
Conversion Rate
Marketing Qualified
Leads Required
This becomes the Contract between Sales & Marketing
Marketing Qualified
Leads Required Sales
Marketing
SDR’s
The Backend of the Funnel
Closed Deals
Loyal
Customers
who are
Advocates
Renew ExpandOnboard
It’s all about LTV
Top Factors affecting Renewals
• On-boarded successfully?
• Champion still at the company?
• Customer getting meaningful business benefits?
• Is the product Sticky?
Dollar Renewal Rate is King
This is also what I refer to as Negative Churn
Customer
Renewal Rate
>Dollar
Renewal Rate
Customer Churn vs $Dollar Churn
Customer 2
$5k MRR
Customer 1
$1k MRR
Customer Churn vs $Dollar Churn
Customer 2
$5k MRR
Customer 1
$1k MRR
Customer 2
$6k MRR
Customer 1 Churned
50% Customer Churn
17% $Dollar Churn
Customer Churn vs $Dollar Churn
Customer 2
$5k MRR
Customer 1
$1k MRR
Customer 1
$1k MRR
Customer 2 Churned
50% Customer Churn
83% $Dollar Churn
Negative $Dollar Churn
Customer 2
$5k MRR
Customer 1
$1k MRR
Customer 2
$7k MRR
Customer 1 Churned
50% Customer Churn
-16% $Dollar Churn
Negative Churn
Expansion
Revenue
from Existing
Customers
Revenue Lost
from Churning
Customers
>
Negative Churn – Crucial for Long Term Success
Revenue Lost with
2.5% monthly Churn
Renewals
Lost due
to Churn
YEAR 3
$3m $7m
Becomes harder
& harder to
replace this with
new bookings
Renewals
Lost due
to Churn
YEAR 6
$30m $70m
Basic
Edition
Features
Requires Variable
Pricing Axes
Users
Basic
Edition
Features
Requires Variable
Pricing Axes
Users
Depth of
Usage
Examples:
- Mailing list size
- Database size
- Amount of storage used
Basic
Edition
Features
Requires Variable
Pricing Axes
REPEATABLE, SCALABLE & PROFITABLE
Unit Economics
Two kinds of Unit Economics
• Customer Unit Economics
• Salesperson Unit Economics
Why do we care about
Unit Economics?
Cash Flow at the Customer Level
SaaS Model
-5000
-4000
-3000
-2000
-1000
0
1000
Cumulative Cash Flow
-5000
-4000
-3000
-2000
-1000
0
1000
Ten months to
recover CAC
$(5,000,000)
$-
$5,000,000
$10,000,000
$15,000,000
$20,000,000
Month1
Month7
Month13
Month19
Month25
Month31
Month37
Impact of Faster Growth on Cash Flow
Growth Rate: 2 more custs per mnth Growth Rate: 5 more custs per mnth
Growth Rate: 10 more custs per mnth
The SaaS
Cash Flow
Trough
Customer Unit Economic Best Practices
LTV CAC> 3x
Months to
recover CAC < 12/18 months
Required for Capital Efficiency
Sales Complexity
Freemium
No Touch
Self-
Service
Light Touch
Inside
Sales
High Touch
Inside
Sales
Field Sales
Field Sales
with SE’s
How I assumed the two would relate
A rough estimate of CAC versus Sales Complexity
Freemium
No Touch
Self-
Service
Light Touch
Inside
Sales
High Touch
Inside
Sales
Field Sales
Field Sales
with SE’s
$0-
$10
$50 –
$200
$1,000 -
$2,000
$3,000 -
$8,000
$25,000 –
$75,000
$75,000 –
$200,000
Rough Estimates of Cost of Customer Acquisition (CAC)
The relationship is roughly exponential
Clearly adding
Human Touch
dramatically
increases costs
Sales Complexity
CAC (logarithmic)
10x
10x
10x
Lesson:
• Remove human touch
from the sales process as much
as possible
• Customer’s usually prefer
self-service
• Lower CAC ultimately means you
can spend more on product
Low Touch Sales
The Product is
your sales person
WHAT IS YOUR TIME TO
WOW! ?
For more on this topic, see this presentation:
https://www.forentrepreneurs.com/launch-scale-2017/
LTV - Importance of Gross Margins
LTV = ARPA * GM%
Churn
This is the simple formula. If you have negative churn, please refer to this blog post:
What’s your TRUE customer lifetime value (LTV)? – DCF provides the answer
https://www.forentrepreneurs.com/ltv/
Improving Gross Margins
• Greatest cost is usually people costs in implementation and on-boarding
• Solve by:
• Simplifying the product
• On-line training courses
• Provide in-product training videos and walk-throughs
• Charge a one time fee for implementation
Salesperson Unit Economics
The Cash Flow Gap
$(25,000)
$(20,000)
$(15,000)
$(10,000)
$(5,000)
$-
$5,000
$10,000
$15,000
$20,000
$25,000
Month1
Month2
Month3
Month4
Month5
Month6
Month7
Month8
Month9
Month10
Month11
Month12
Month13
Month14
Month15
Month16
Month17
Month18
Month19
Month20
Month21
Month22
Month23
Month24
Net profit - New Sales Hire
$-
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
Month
1
Month
2
Month
3
Month
4
Month
5
Month
6
Month
7
Month
8
Month
9
Month
10
Month
11
Month
12
MRR vs Expenses – New Sales
Hire
MRR
Expenses
Cash
Gap
(Slightly later breakeven point, because Gross Profit is less than MRR)
11 months to
breakeven
The SaaS
Cash Flow Trough
$(200,000)
$(100,000)
$-
$100,000
$200,000
$300,000
$400,000
Cumulative Net Profit - New Sales
Hire
23 Months to
get back the
investment
Total amount
invested:
$110k
But a great
return on
investment
What happens when we add 2 new sales hires every month?
$(250,000)
$(200,000)
$(150,000)
$(100,000)
$(50,000)
$-
$50,000
$100,000
$150,000
Month1
Month2
Month3
Month4
Month5
Month6
Month7
Month8
Month9
Month10
Month11
Month12
Month13
Month14
Month15
Month16
Month17
Month18
Month19
Month20
Month21
Month22
Month23
Month24
Net profit
$(3,000,000)
$(2,000,000)
$(1,000,000)
$-
$1,000,000
$2,000,000
$3,000,000
$4,000,000
Cumulative Net Profit
32 Months to
get back the
investment
Total amount
invested:
$2.6m
First profitable
month: 21
Worst loss:
$190k in
month 11
Salesperson Unit Economics
• Quota:OTE (On Target Earnings) Should be > 5
• PPR:OTE Roughly > 3.5
• Months to cash flow breakeven for a new sales hire
RECRUITING
Execution requires building an
organization with great talent
Recruiting is now the
third critical startup skill
The first two skills are:
• Building a product that the market wants to buy
• Building a repeatable, scalable, profitable growth process
For more details, see this blog post: https://www.forentrepreneurs.com/recruiting/
Recruiting & Talent Metrics
• % of hires made on time
• Hiring funnel Metrics
• Candidate Acceptance rate
• Average number of candidates in the final interview stage for open positions
• Etc.
• Diversity %
• Retention by category
• Exceptional performers
• Core performers
• OK performers
• Not performing
SUMMARY
Key Metrics for SaaS Success
Simple Team Focus:
• Align the whole team around
one goal: Optimize your Funnel
• Use Metrics to drive aligment and
focus
• The end goal: build a Repeatable,
Scalable, & Profitable growth
machine
Funnel Optimization Meetings
• Start by diagramming your funnel
• Draw the micro steps for key parts
e.g. free trial
The Growth Team
Sales Marketing
Customer
Success
Product
Key Levers
1. Product/Market Fit
Key Levers
3. Conversion
Rate
2. Top of Funnel Lead Flow
4. CAC
Key Levers
5. No of
Sales People
(Recruiting)
Productivity per Rep
(Average)
6. PPR7. Enough
Leads
Key Levers
LTV
8. Pricing
9. Dollar Retention Rate
(ability to “Land & Expand”)
10. Gross Margins
Key Levers
Cash to Finance the business
11. Months to Recover CAC
Key Levers
Building a Great Organization
12. Recruiting, Onboarding & Management
Sept 11th, San Francisco
For more details on all these topics:
visit ForEntrepreneurs.com
Presentation Slides:
forentrepreneurs.com/saastock-2018

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SaaStock NYC 2018

  • 1. A High Growth SaaS Playbook David Skok ForEntrepreneurs Blog General Partner, Matrix Partners 12 Metrics to drive success
  • 2. Goals Present a simple model to understand a SaaS business1 2 Show what Levers a CEO can pull to get most impact
  • 4. Search for Product/Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model The Three Phases of a Startup’s Lifecycle
  • 5. Predictable, Repeatable, Scalable, Profitable Growth Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model
  • 6. Also happens to be what Growth Round investors are looking for
  • 7. The key sign that you’re getting there: Bookings - (NOT Revenue or ARR!) For SaaS: Bookings = Net New ARR (New + Expansion – Churned) Q1 Q2 Q3 Q4 Q5 Q6 Q7
  • 8. ARR with Flat Bookings ARR with Growing Bookings Q1 Q2 Q3 Q4 Q5 Q6 Q7Q1 Q2 Q3 Q4 Q5 Q6 Q7
  • 9. Net New ARR Expansion ARR (Existing Customers) Churned ARR (Lost Customers) New ARR (New Customers) The right way to measure SaaS Bookings
  • 10. Key SaaS chart: 4 components of bookings $(15.0) $(10.0) $(5.0) $- $5.0 $10.0 $15.0 $20.0 $25.0 $30.0 $35.0 Jan Feb Mar Apr May Jun ARR Bookings New ARR Net New ARR Expansion ARR Churned ARR Always look at a chart that shows the trendlines to see if there is growth
  • 11. How do we drive Net New ARR?
  • 13. The Full SaaS Funnel Onboard Retain Expand Loyal Customers who are advocates
  • 14. The Beautiful Thing about Funnels…
  • 15. Governed by very simple Math
  • 16. Two Key Levers Top of Funnel Flow (Quantity) Conversion Rate
  • 18. Two Sales Motions Touchless Self-Serve • No Sales people • Based on Free Trial Sales People Needed
  • 19. The Simple Case: Touchless Self Serve Visitors to Web Site Sign up for Free Trial Closed Deals
  • 20. Funnel Metrics are Essential "IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT." - LORD KELVIN
  • 21. The Key Metrics VISITORS CAMPAIGNS TO DRIVE TRAFFIC TRIALS CLOSED DEALS CONVERSION % CONVERSION % OVERALL CONVERSION %
  • 22. Not all Lead Sources are Equal Visitors Trial 5% 10% $5,000 Customer Google Ad Words FaceBook Ads Visitors Trial 2% 20% $8,000 Customer
  • 23. OVERALL CONVERSION % (BY LEAD SOURCE) Cost per lead LTV ROI by Lead Source
  • 24. Fix Conversion Rates First • Fix before spending heavily on Traffic growth • Three starting points: • Improve Product/Market fit • Find the optimal Customer Segments • Clear, Simple, Powerful, Messaging & Positioning
  • 25. So Far we’ve looked at the simple case Touchless Self-Serve • No Sales people • Based on Free Trial
  • 26. What Happens when the sale is more complex, and needs a sales person? Sales People Needed
  • 27. Without Sales people Visitors to Web Site Closed Deals Simple linear relationship Conversion Rate
  • 28. But when you add in Sales People… Ramp Time Sales Capacity Limit
  • 29. Growth comes in discontinuous units
  • 30. The Unit of Growth Sales Person
  • 31. Supported by Leads & Customer Success Sales Person $’s Marketing Spend SDR’s Leads Customer Success, Renewals, etc.
  • 32. What Drives Bookings? No of Sales People Productivity per Rep (Average) x PPR
  • 33. Lets look at each of these in turn…
  • 34. Number of Sales People One of the most common reasons for missing plan Didn’t hire sales people fast enough
  • 35. Sales Hiring • You will need to build an in house recruiting machine See my blog post: “Recruiting: the third crucial Startup Skill”
  • 36. Two Metrics to Track 0 2 4 6 8 10 12 14 16 18 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Number of Reps versus Plan Reps Plan $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k
  • 37. Lost Bookings due to slow hiring $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k $500k
  • 38. Over Assignment of Quota needed to hit plan =1/85% $0 $200 $400 $600 $800 $1,000 $1,200 $1,400 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Achieved Bookings $k 85% Assigned Quota Actual Bookings
  • 39. PPR: Productivity per Rep • Quality of sales hires • Sales Training and Onboarding
  • 40. PPR: Sales Training and Onboarding • Sales people: one of the most expensive resources • Yet typically little effort put in to sales training in early days • High payback • Worth having the founders spend time to develop & deliver a lot of the material
  • 42. PPR over time $100 $110 $120 $130 $140 $150 $160 $170 Q1 Q2 Q3 Q4 Average Productivity Per Rep NewARRbooked-$k/quarter
  • 43. PPR looked at by Rep Tenure 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Average Productivity Per Rep - Grouped by Rep Tenure 6 - 12 months 12-24 months >24 months NewARRbooked-$k/quarter
  • 44. PPR by Individual Rep Rep Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 John 120 165 180 145 80 110 195 Mary 80 110 135 155 150 145 Fred 60 35 75 40 55 Alice 85 145 160 180 145 Joe 60 110 85 130 145 Mike 155 170 145 190 Sarah 35 45 70 45 Sue 80 145 175 165
  • 45. % of Reps at Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 75% of Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 100% of Quota Goal: 75% Goal: 50%
  • 46. Another way to look at Rep Productivity
  • 47. There’s one other thing that drives PPR Adequate Lead Flow
  • 49. Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Funnel Math
  • 50. Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Closed Deal1 Opportunity5 Sales Accepted Lead 20 Marketing Qualified Lead 25 Raw Lead125 Reverse Funnel Math
  • 51. Allows us to Compute Leads required per Rep x No of Closed Deals = Reverse Funnel Conversion Rate Marketing Qualified Leads Required
  • 52. This becomes the Contract between Sales & Marketing Marketing Qualified Leads Required Sales Marketing SDR’s
  • 53. The Backend of the Funnel Closed Deals Loyal Customers who are Advocates Renew ExpandOnboard It’s all about LTV
  • 54. Top Factors affecting Renewals • On-boarded successfully? • Champion still at the company? • Customer getting meaningful business benefits? • Is the product Sticky?
  • 55. Dollar Renewal Rate is King This is also what I refer to as Negative Churn Customer Renewal Rate >Dollar Renewal Rate
  • 56. Customer Churn vs $Dollar Churn Customer 2 $5k MRR Customer 1 $1k MRR
  • 57. Customer Churn vs $Dollar Churn Customer 2 $5k MRR Customer 1 $1k MRR Customer 2 $6k MRR Customer 1 Churned 50% Customer Churn 17% $Dollar Churn
  • 58. Customer Churn vs $Dollar Churn Customer 2 $5k MRR Customer 1 $1k MRR Customer 1 $1k MRR Customer 2 Churned 50% Customer Churn 83% $Dollar Churn
  • 59. Negative $Dollar Churn Customer 2 $5k MRR Customer 1 $1k MRR Customer 2 $7k MRR Customer 1 Churned 50% Customer Churn -16% $Dollar Churn
  • 61. Negative Churn – Crucial for Long Term Success Revenue Lost with 2.5% monthly Churn Renewals Lost due to Churn YEAR 3 $3m $7m Becomes harder & harder to replace this with new bookings Renewals Lost due to Churn YEAR 6 $30m $70m
  • 64. Users Depth of Usage Examples: - Mailing list size - Database size - Amount of storage used Basic Edition Features Requires Variable Pricing Axes
  • 65. REPEATABLE, SCALABLE & PROFITABLE Unit Economics
  • 66. Two kinds of Unit Economics • Customer Unit Economics • Salesperson Unit Economics
  • 67. Why do we care about Unit Economics?
  • 68. Cash Flow at the Customer Level SaaS Model -5000 -4000 -3000 -2000 -1000 0 1000
  • 70. $(5,000,000) $- $5,000,000 $10,000,000 $15,000,000 $20,000,000 Month1 Month7 Month13 Month19 Month25 Month31 Month37 Impact of Faster Growth on Cash Flow Growth Rate: 2 more custs per mnth Growth Rate: 5 more custs per mnth Growth Rate: 10 more custs per mnth The SaaS Cash Flow Trough
  • 71. Customer Unit Economic Best Practices LTV CAC> 3x Months to recover CAC < 12/18 months Required for Capital Efficiency
  • 72. Sales Complexity Freemium No Touch Self- Service Light Touch Inside Sales High Touch Inside Sales Field Sales Field Sales with SE’s
  • 73. How I assumed the two would relate
  • 74. A rough estimate of CAC versus Sales Complexity Freemium No Touch Self- Service Light Touch Inside Sales High Touch Inside Sales Field Sales Field Sales with SE’s $0- $10 $50 – $200 $1,000 - $2,000 $3,000 - $8,000 $25,000 – $75,000 $75,000 – $200,000 Rough Estimates of Cost of Customer Acquisition (CAC)
  • 75. The relationship is roughly exponential Clearly adding Human Touch dramatically increases costs
  • 76. Sales Complexity CAC (logarithmic) 10x 10x 10x Lesson: • Remove human touch from the sales process as much as possible • Customer’s usually prefer self-service • Lower CAC ultimately means you can spend more on product
  • 77. Low Touch Sales The Product is your sales person
  • 78. WHAT IS YOUR TIME TO WOW! ? For more on this topic, see this presentation: https://www.forentrepreneurs.com/launch-scale-2017/
  • 79. LTV - Importance of Gross Margins LTV = ARPA * GM% Churn This is the simple formula. If you have negative churn, please refer to this blog post: What’s your TRUE customer lifetime value (LTV)? – DCF provides the answer https://www.forentrepreneurs.com/ltv/
  • 80. Improving Gross Margins • Greatest cost is usually people costs in implementation and on-boarding • Solve by: • Simplifying the product • On-line training courses • Provide in-product training videos and walk-throughs • Charge a one time fee for implementation
  • 82. The Cash Flow Gap $(25,000) $(20,000) $(15,000) $(10,000) $(5,000) $- $5,000 $10,000 $15,000 $20,000 $25,000 Month1 Month2 Month3 Month4 Month5 Month6 Month7 Month8 Month9 Month10 Month11 Month12 Month13 Month14 Month15 Month16 Month17 Month18 Month19 Month20 Month21 Month22 Month23 Month24 Net profit - New Sales Hire $- $5,000 $10,000 $15,000 $20,000 $25,000 $30,000 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 MRR vs Expenses – New Sales Hire MRR Expenses Cash Gap (Slightly later breakeven point, because Gross Profit is less than MRR) 11 months to breakeven
  • 83. The SaaS Cash Flow Trough $(200,000) $(100,000) $- $100,000 $200,000 $300,000 $400,000 Cumulative Net Profit - New Sales Hire 23 Months to get back the investment Total amount invested: $110k But a great return on investment
  • 84. What happens when we add 2 new sales hires every month? $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- $50,000 $100,000 $150,000 Month1 Month2 Month3 Month4 Month5 Month6 Month7 Month8 Month9 Month10 Month11 Month12 Month13 Month14 Month15 Month16 Month17 Month18 Month19 Month20 Month21 Month22 Month23 Month24 Net profit $(3,000,000) $(2,000,000) $(1,000,000) $- $1,000,000 $2,000,000 $3,000,000 $4,000,000 Cumulative Net Profit 32 Months to get back the investment Total amount invested: $2.6m First profitable month: 21 Worst loss: $190k in month 11
  • 85. Salesperson Unit Economics • Quota:OTE (On Target Earnings) Should be > 5 • PPR:OTE Roughly > 3.5 • Months to cash flow breakeven for a new sales hire
  • 87. Execution requires building an organization with great talent
  • 88. Recruiting is now the third critical startup skill The first two skills are: • Building a product that the market wants to buy • Building a repeatable, scalable, profitable growth process For more details, see this blog post: https://www.forentrepreneurs.com/recruiting/
  • 89. Recruiting & Talent Metrics • % of hires made on time • Hiring funnel Metrics • Candidate Acceptance rate • Average number of candidates in the final interview stage for open positions • Etc. • Diversity % • Retention by category • Exceptional performers • Core performers • OK performers • Not performing
  • 90. SUMMARY Key Metrics for SaaS Success
  • 91. Simple Team Focus: • Align the whole team around one goal: Optimize your Funnel • Use Metrics to drive aligment and focus • The end goal: build a Repeatable, Scalable, & Profitable growth machine
  • 92. Funnel Optimization Meetings • Start by diagramming your funnel • Draw the micro steps for key parts e.g. free trial
  • 93. The Growth Team Sales Marketing Customer Success Product
  • 95. Key Levers 3. Conversion Rate 2. Top of Funnel Lead Flow 4. CAC
  • 96. Key Levers 5. No of Sales People (Recruiting) Productivity per Rep (Average) 6. PPR7. Enough Leads
  • 97. Key Levers LTV 8. Pricing 9. Dollar Retention Rate (ability to “Land & Expand”) 10. Gross Margins
  • 98. Key Levers Cash to Finance the business 11. Months to Recover CAC
  • 99. Key Levers Building a Great Organization 12. Recruiting, Onboarding & Management
  • 100. Sept 11th, San Francisco
  • 101. For more details on all these topics: visit ForEntrepreneurs.com Presentation Slides: forentrepreneurs.com/saastock-2018