Matthew Tribe, Consulting CFO, Equity Venture Partners

1. THE METRICS THAT REALLY MATTER:
An operational framework for running your subscription
business
Matthew Tribe, Consulting CFO

2. It’s time for a new framework of cross-functional
accountability in our growing subscription
economy.

3. Tech companies are trying to make big ideas
and big plans a reality.

4. Tech companies are trying to make big ideas
and big plans a reality.
• Today’s companies are continuously evolving.

5. Tech companies are trying to make big ideas
and big plans a reality.
• Today’s companies are continuously evolving.
• Retrospective, isolated measures are not enough.

6. Tech companies are trying to make big ideas
and big plans a reality.
• Today’s companies are continuously evolving.
• Retrospective, isolated measures are not enough.
• Are we on track to achieve the goals of our business plan?

7. Tech companies are trying to make big ideas
and big plans a reality.
• Today’s companies are continuously evolving.
• Retrospective, isolated measures are not enough.
• Are we on track to achieve the goals of our business plan?
We need new metrics that measure our progress on forward-looking plans
and incorporate cohesive measures of the critical elements of our business.

8. The four key metrics are:

9. The four key metrics are:
1.) Efficient customer acquisition and ARR growth

10. The four key metrics are:
1.) Efficient customer acquisition and ARR growth
2.) Churn measurement and management

11. The four key metrics are:
1.) Efficient customer acquisition and ARR growth
2.) Churn measurement and management
3.) Net recurring profit margin

12. The four key metrics are:
1.) Efficient customer acquisition and ARR growth
2.) Churn measurement and management
3.) Net recurring profit margin
4.) The "golden metric" unique to your business

13. Month 1 2 3 6 9 12
Customers
Opening - 12 24 69 126 199
New 12 13 15 19 26 34
Churned (0.25) (1) (1) (2) (3) (5)
Closing 12 24 38 86 148 228
Cohort Revenue
Month 1 1,175 1,151 1,126 1,053 979 906
Month 2 1,293 1,266 1,185 1,104 1,023
Month 3 1,422 1,333 1,244 1,155
Month 6 1,892 1,774 1,656
Month 9 2,519 2,361
Month 12 3,352
Revenue 1,175 2,443 3,813 8,646 14,835 22,830
COGS 353 733 1,144 2,594 4,451 6,849
Gross Profit 823 1,710 2,669 6,052 10,385 15,981
MOM Growth - 108% 56% 25% 18% 15%
Sales and Marketing (3,375) (3,544) (3,721) (4,307) (4,986) (5,772)
Product (900) (945) (992) (1,149) (1,330) (1,539)
G&A (225) (236) (248) (287) (332) (385)
Expenses (4,500) (4,725) (4,961) (5,743) (6,649) (7,697)
EBITDA (3,677) (3,015) (2,292) 309 3,736 8,285
Cash (1,677) (4,692) (6,984) (8,815) (1,246) 18,772
CAC 281$ 268$ 256$ 223$ 194$ 169$
Months to recover CAC 4.0 mths 3.8 mths 3.7 mths 3.2 mths 2.8 mths 2.4 mths
Churn 2% 2% 2% 2% 2% 2%
Recurring profit margin (302) 529 1,429 4,616 8,723 14,057
LTV 1,681 1,681 1,681 1,681 1,681 1,681
LTV:CAC 5.98 6.26 6.56 7.54 8.67 9.97
(15,000)
(10,000)
(5,000)
-
5,000
10,000
15,000
20,000
25,000
1 2 3 4 5 6 7 8 9 10 11 12
The SaaS Business
Model
Gross Profit Expenses EBITDA Cash

14. Month 1 2 3 6 9 12
Customers
Opening - 12 24 69 126 199
New 12 13 15 19 26 34
Churned (0.25) (1) (1) (2) (3) (5)
Closing 12 24 38 86 148 228
Cohort Revenue
Month 1 1,175 1,151 1,126 1,053 979 906
Month 2 1,293 1,266 1,185 1,104 1,023
Month 3 1,422 1,333 1,244 1,155
Month 6 1,892 1,774 1,656
Month 9 2,519 2,361
Month 12 3,352
Revenue 1,175 2,443 3,813 8,646 14,835 22,830
COGS 353 733 1,144 2,594 4,451 6,849
Gross Profit 823 1,710 2,669 6,052 10,385 15,981
MOM Growth - 108% 56% 25% 18% 15%
Sales and Marketing (3,375) (3,544) (3,721) (4,307) (4,986) (5,772)
Product (900) (945) (992) (1,149) (1,330) (1,539)
G&A (225) (236) (248) (287) (332) (385)
Expenses (4,500) (4,725) (4,961) (5,743) (6,649) (7,697)
EBITDA (3,677) (3,015) (2,292) 309 3,736 8,285
Cash (1,677) (4,692) (6,984) (8,815) (1,246) 18,772
CAC 281$ 268$ 256$ 223$ 194$ 169$
Months to recover CAC 4.0 mths 3.8 mths 3.7 mths 3.2 mths 2.8 mths 2.4 mths
Churn 2% 2% 2% 2% 2% 2%
Recurring profit margin (302) 529 1,429 4,616 8,723 14,057
LTV 1,681 1,681 1,681 1,681 1,681 1,681
LTV:CAC 5.98 6.26 6.56 7.54 8.67 9.97
(15,000)
(10,000)
(5,000)
-
5,000
10,000
15,000
20,000
25,000
1 2 3 4 5 6 7 8 9 10 11 12
The SaaS Business
Model
Gross Profit Expenses EBITDA Cash

15. 1.) Efficient customer acquisition and ARR Growth

16. 1.) Efficient customer acquisition and ARR Growth
• Customer acquisition and increased ARR is necessary
for growth

17. 1.) Efficient customer acquisition and ARR Growth
• Customer acquisition and increased ARR is necessary
for growth
• Efficient customer acquisition supports the long-term
value of the business

18. Month 3
Customers
Opening 24
New 15
Churned (1)
Customer Acquisition Cost (CAC) = total sales and marketing costs = 3,721 = 256$ Closing 38
number of customers acquired 15
Revenue 3,813
COGS 1,144
Gross Profit 2,669
Sales and Marketing (3,721)
Product (992)
G&A (248)
Expenses (4,961)
EBITDA (2,292)
Cash (6,984)
CAC 256$
Months to recover CAC 3.7 mths
Churn 2%
Recurring profit margin 1,429
LTV 1,681
LTV:CAC 6.56

19. Lifetime Value (LTV) = the discounted future cash flows
from a customer over its lifetime

20. Lifetime Value (LTV) = the discounted future cash flows
from a customer over its lifetime
• Companies generally aim for ratio of LTV : CAC of greater than 3x

21. Lifetime Value (LTV) = the discounted future cash flows
from a customer over its lifetime
• Companies generally aim for ratio of LTV : CAC of greater than 3x
• Difficult to calculate

22. Months to Recover CAC
Months to recover CAC = Cost of Acquisition = 256$ = 3.7 months
GP from new customers 100 x 70%

23. Months to Recover CAC
What is a good CAC recovery period?
• For enterprise businesses: less than 12 months
• For SMB businesses: less than 6 months
Months to recover CAC = Cost of Acquisition = 256$ = 3.7 months
GP from new customers 100 x 70%

24. Months to Recover CAC
What is a good CAC recovery period?
• For enterprise businesses: less than 12 months
• For SMB businesses: less than 6 months
Months to recover CAC incorporates:
• New customers acquired
• Sales and marketing cost
• Revenue, COGS, and gross profit generated by new customers
Months to recover CAC = Cost of Acquisition = 256$ = 3.7 months
GP from new customers 100 x 70%

25. 2.) Churn measurement and management

26. 2.) Churn measurement and management
Churn = the rate at which we lose customers or revenue over time.

27. 2.) Churn measurement and management
Churn = the rate at which we lose customers or revenue over time.
The key is to have a measure that:
• Closely approximates the average lifetime of the customer
• Is measured consistently

28. 2.) Churn measurement and management
Churn = the rate at which we lose customers or revenue over time.
The key is to have a measure that:
• Closely approximates the average lifetime of the customer
• Is measured consistently
Churn incorporates:
• The rate of ARR growth and trajectory of the customer journey
• Customer support costs
• Whether product spend is driving retention
• Whether pricing strategy is effective

29. 3.) Net recurring profit margin

30. 3.) Net recurring profit margin
Recurring profit margin = the business’s ability to pay for
recurring expenses with recurring revenue

31. 3.) Net recurring profit margin
Recurring profit margin = the business’s ability to pay for
recurring expenses with recurring revenue
Recurring gross profit – Recurring expenses

32. Month 3
Customers
Opening 24
New 15
Net Recurring Profit Margin = Recurring Gross Profit - Recurring Expenses. Churned (1)
Closing 38
Recurring income Gross profit 2,669
Less Revenue 3,813
Recurring expenses Product (992) COGS 1,144
G&A (248) Gross Profit 2,669
(1,240)
Sales and Marketing (3,721)
Recurring profit margin 1,429 Product (992)
G&A (248)
Expenses (4,961)
Recurring profit margin is the lever we can pull to drive sustainability. EBITDA (2,292)
Cash (6,984)
CAC 256$
Months to recover CAC 3.7 mths
Churn 2%
Recurring profit margin 1,429
LTV 1,681
LTV:CAC 6.56

33. 4.) The “golden metric”

34. 4.) The “golden metric”
The “golden metric” = the key element that pinpoints alignment
to the long-term revenue growth and success of your business

35. Conclusion

36. Conclusion
The key to success in a SaaS business = winning new customers profitably
and having an ongoing profitable relationship with those customers

37. Conclusion
The key to success in a SaaS business = winning new customers profitably
and having an ongoing profitable relationship with those customers
We need a plan that incorporates:
1.) Efficient customer acquisition and ARR Growth
2.) Churn measurement and management
3.) Net recurring profit margin
4.) The “golden metric”

38. Presenter – Matthew Tribe
• matthew@adeptadvisors.com.au
• linkedin.com/in/matthew-tribe/