Industry leaders, Zuora and Totango, present which metrics truly give an accurate picture of the health of your subscription business. Which metrics should you calculate and optimize on - ARR, GEI, CRC or other ratios? Chief Financial Officer, Tyler Sloat from Zuora shares 3 metrics they measure for their company and track against other best-in-class subscription companies. Chief Marketing Officer, Kaiser Mulla-Feroze from Totango, also presents a couple key metrics he finds missing from the boardroom discussions. Visit totango.com to view the entire webinar and hear their insightful commentary that accompanies these slides and Q&A.

1. Understanding the Financial Health of your
Subscription Business
Presented by:

2. builds modern, flexible, and easy-
to-use enterprise software that
enables companies to manage all
aspects of their relationship with
their subscribers.
is a customer success platform that
helps subscription businesses take
a data-driven approach to reducing
churn, driving adoption, and
maximizing lifetime revenue.

3. Subscription Finance
New Model, New Metrics
Tyler Sloat, CFO, Zuora
@tylersloat

4. Executing against today’s subscription
business model requires an understanding
of a whole new set of metrics.

5. The new model is complex.
Build a widget. Recognize your revenue.Sell the widget.
Acquire customers &
monetize relationships.
free trial
paid
subscriptions
add on
upgrade
renewal

6. ARR GOVERNS ALL
A R R n – Churn + A C V = A R R n + 1

7. The 3 Metrics…
That will keep you up at night.
Growth Efficiency Churn Rate Recurring Profit Margin
How do you know if your metrics are effective?

8. “How much new ACV can we get out of
growth investment?”
What’s my strategy?
Invest at least enough money in Growth to
acquire enough ACV to offset churn. With
what’s left, you have to continue to invest or
bring profits to the bottom line.
“How much of our recurring revenue should
we invest in growth?”
Growth Efficiency Index

9. Churn Rate
“What’s the maximum GEI I should accept
to warrant continued investment in
Growth?”
Connecting GEI & Churn
If your GEI is 1.0 (spend $1 to generate $1
of ACV) and your churn rate is 10%, a
Company can justify continued investment
in Growth Expense.

10. Recurring Profit Margins
“What is best in class Recurring Profit
Margin based on my Company’s size?”
Your strategy…
The lower the recurring costs, the more
money you have to play with – book as
profit or invest back in growth.

11. The model interpreted…
COGS,
G&A,
R&D
50%
Recurring
Profit
Margin
Sales,
Marketing,
Customer
Success
BREAK EVEN
0%
100%
50%
ARR Non-Growth
Expense
Growth
Expense
BREAK EVEN INVEST IN
FIELD &
GROW
FASTER
Sales,
Marketing,
Customer
Success
OR
With a GEI of 1.0 and
churn at 15%, you’ll have
35% growth while
maintaining break even.
But only if deals are
collected upfront and
you’re cash flow positive.
But, if your GEI is 2.0
you’re growth will slow to
10% to break even.
“
“

12. Box

13. Hubspot

14. NetSuite

15. ServiceNow

16. Zendesk

17. …So how do you
operationalize across
your company?

18. P A D R E
P P M

19. 100+survey respondents
100+survey questions

20. 10,000+points of data

21. RUN: Are your customers committed?
15%Monthly
4%Semi-Annual
73%1-2 years
> 2 years
7%
Contract Terms

22. EXPAND
Upsells are important – over
40%
20%
>60%
14%
of respondents
generate more than
of their bookings from upsells
of companies are changing
pricing at least annually
Only every 3 years
Sales reps are the key – companies generating higher upsells assign reps to manage

23. CUSTOMER RETENTION COST
The Missing Metric for Subscription Businesses
KAISER MULLA-FEROZE
CMO
@KaiserMF
Full report available at: www.slideshare.net/totango/customer-retention-cost-report

24. INITIAL REVENUE
FROM
NEW CUSTOMER
ACQUISITION
RENEWAL &
UPSELL REVENUE
of revenue comes
after the initial sale
70-80%

25. The economics of
customer retention
is critical in
determining the
financial health of a
subscription
business.
As companies adopt recurring
revenue models, the CRC ratio must
become a key topic in every Board
session.
– Bruce Cleveland, InterWest Partners
“
”

26. 0%
10%
20%
30%
40%
50%
60%
70%
CUSTOMER
RETENTION
CUSTOMER
ACQUISITION
Metrics currently
tracked
Metrics you plan
to track
CUSTOMER ACQUISITION Vs. RETENTION COSTS
298
159
185
248
Source: SaaS Metrics Survey, Totango, 2014

27. • Should incremental investment go to
acquire new customers or retain existing
customers?
• What is the right level of investment in
customer retention?
• Are we under-investing in customer
retention vs. customer acquisition?
• How should our relative spend on
customer acquisition vs. retention change
over time?
A lot of great CAC metrics have been
developed over the years, but good
metrics on the cost of retaining
customers have been missing.
– Mark Klebanoff, CFO, PayScale
“
”

28. what you are spending on
customer retention
TRACK
your retention cost to
revenue ratio
UNDERSTAND
your retention cost versus
industry guidelines
COMPARE
Four steps to assess, manage, and optimize your
customer retention efforts
cost of retention together
with cost of acquisition
EVALUATE
Full report available at: www.slideshare.net/totango/customer-retention-cost-report

29. 1. Track your customer retention spend

30. 2. Understand your retention cost relative to revenue

31. 3. Compare your retention cost vs. industry guidelines
Staffing
Systems &
Technology
Customer Retention
Programs

32. 3a. Staffing
Customer Success Staffing Based on
Product & Business Complexity
* Assuming $300k fully loaded cost of a CSM (incl allocation of management)
10-30%
of revenue

33. 3b. Systems and technology
CSM Productivity
Tools
Workflow and business
process tools
§ CSMs manage their
portfolios and customer
touchpoints
§ Executives manage their
teams
Customer Success
Monitoring Systems
Consumption and
adoption monitoring
§ Early warning system
for churn
§ Compute predictive
health
§ Spot growth/upsell
opportunities
1%
of staff costs
0.5%-1%
of revenue

34. 3c. Customer retention programs
Customer Nurture & Retention Programs
Critical part of scaling customer retention efforts
§ Best practice development and sharing
§ Campaigns to drive product adoption and engagement
§ New feature webinars and training
§ Building a customer community
1-2%
of revenue

35. 4. Evaluate retention cost together with acquisition cost
CRC
CAC
VS.
Comparing CAC and CRC
to guide investment decisions

36. 4. Evaluate retention cost together with acquisition cost
CRC + CAC
Combining CAC and CRC to
understand financial health

37. COGS,
G&A,
R&D
50%
Recurring
Profit
Margin
Sales,
Marketing,
Customer
Success
BREAK EVEN
0%
100%
50%
ARR Non-Growth
Expense
Growth
Expense
BREAK EVEN INVEST IN
FIELD &
GROW
FASTER
Sales,
Marketing,
Customer
Success
OR
Source: Zuora, 2015

38. Public SaaS Company Metrics

39. Over the longer term, SaaS
companies will have to aim for a
P&L that will look like this:
Full report available at: www.slideshare.net/totango/customer-retention-cost-report

40. Q&A
Tyler Sloat
@tylersloat
CFO@zuora.com
Kaiser Mulla-Feroze
@KaiserMF
kaisermf@totango.com
@totango
info@totango.com
@zuora
www.zuora.com