saas metrics - how to stay on top of your saas business performance

SaaS MetricsEldad Chai, VP Products, Incapsula

Hello!

Eldad Chai

Product, startups, security

Incapsula

Security, performance, availability for websites as a service

This presentation

How to measure a SaaS business

Theory and real life

How are SaaS different?

Product companies SaaS companies

Sell contracts Add subscriptions

Track average selling price Track life time value

Count units Count customers

One time deals Recurring vs. one time

Measure close rates Measure renewal and churn rates

Backward looking Forward looking

The SaaS business model

Annual Recurring Revenue (ARR)

Annual Contract Value (ACV)

Or in short…

Get new customers

Keep them for as long as you can

SaaS key metrics

Monthly Recurring Revenue (MRR) Growth

Churn Value/fit

Cost to Acquire Customer (CAC) Growth efficiency

Average Revenue Per Account (ARPA) Expansion

Life Time Value (LTV) Predictions

First 2-3

yearsScalin

g up

ph

ase

Should PMs care?

Collect Analyze Define Execution Product

Market analysis Win/Loss

Competitive

FeedbackFeature requests

Business goals

Should PMs care?

Collect Analyze Define Execution Product

Market analysis Win/Loss

Competitive

FeedbackFeature requests

Business goals

Monitor KPIs

Should PMs care?

SaaS provides a platform for analysis

Almost any change you make can be quantified

It is a CRIME not to tap into that power

Model and optimize Conversion flows Churn flows Upgrade paths Engagement New features …

Monthly Recurring Revenue (MRR)

This month’s MRR

Last month’s MRR

Churned MRR

Net new MRR

New deals

Upgrades and cross sales

Churn

Can be measured for MRR/ARR or customers

You should probably do both

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑙𝑒𝑎𝑣𝑖𝑛𝑔

𝑡𝑜𝑡𝑎𝑙 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 (𝑤ℎ𝑜 𝑐𝑜𝑢𝑙𝑑 ℎ𝑎𝑣𝑒 𝑙𝑒𝑓𝑡)

How churn kills growth

Annual net new ARR = $50K

Annual churn = 20%

0%

20%

40%

60%

80%

100%

120%

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15

Yo

Y

AR

R

YEAR

ARR

ANNUAL GROWTH

What can cause churn?

Not enough value or lack of market fit

Bugs, instability or poor service

Not sticky

Hard adoption

Pricing is not structured right

How to reduce churn

Churn should be a focus area from day one

Monitor customer engagement seriously

Be sticky (with features or contracts)

Negative churn

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35

MR

R

MONTH

2% chrun

-2% churn

Churn advanced analysis

Free vs. SMB vs. Enterprise

Cohort analysis

Cost to acquire customer (CAC)

CAC is different for every source (don’t look at averages)

Months to recover CAC

LTV:CAC

𝑚𝑎𝑟𝑘𝑒𝑡𝑖𝑛𝑔 𝑎𝑛𝑑 𝑠𝑎𝑙𝑒𝑠 𝑒𝑥𝑝𝑒𝑛𝑠𝑒𝑠

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠 𝑎𝑑𝑑𝑒𝑑

Average recurring revenue per account (ARPA)

You want to see this one grow

Also keep track of only new customers

𝑀𝑅𝑅

𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟𝑠

Life time value (LTV)

Predicts how much revenue will each customer bring in

𝐴𝑅𝑃𝐴

𝑐𝑢𝑠𝑡𝑜𝑚𝑒𝑟 𝑐ℎ𝑢𝑟𝑛 𝑟𝑎𝑡𝑒

Industry standards

Benchmarks

LTV > 3 x CAC

Time to break even < 12 months

Monthly churn < 2%

Industry standards

SaaS magic number (Josh James)

QRR = Quarterly Recurring Revenue

Expenses = Total Sales and Marketing Expense for last quarter

(𝑄𝑅𝑅 − 𝑄𝑅𝑅−1) ×4

𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠−1

Check yourself Step on it! Looking for investors?

0.75 1.5

Growth levers

Churn

Product

Sales metrics

Upsell and cross sale

Funnel metrics

Funnel modeling

Marketing activity

Visit Trial Customer

• You need 50 new accounts to meet this quarter's targets

• How many visits to the website do you need?

• What kind of marketing activities should you execute on?

• Is the problem at sales or at marketing?

Funnel modeling

200 PPC

400 PR

400 Webinars

100*1/10%=1000

50*1/50%=100

50

• Don’t over analyze

• At the minimum track leads/trials (MQLs) and opportunities (SQLs)

• Understand the conversion rates

• Work backwards to set targets for the teams

• Recalibrate every quarter (sliding window)

50% conversion

10% conversion

Questions?eldad.chai@gmail.com

@zitzkin

References (well… at least some of them)

https://blog.paymill.com/saas-metrics/

http://chaotic-flow.com/saas-metrics-joels-magic-number-for-saas-companies/

http://larsleckie.blogspot.co.il/2008/03/magic-number-for-saas-companies.html

http://www.slideshare.net/chrija1/9-worst-practices-in-saas-metrics

http://labs.openviewpartners.com/what-are-key-performance-indicators-6-saas-metrics-that-really-matter/

http://www.forentrepreneurs.com/saas-metrics/

http://www.forentrepreneurs.com/saas-metrics-2/

http://chaotic-flow.com/media/saas-metrics-guide-to-saas-financial-performance.pdf

http://andrewchen.co/2013/05/06/the-critical-metrics-for-each-stage-of-your-saas-business-guest-post-by-lars-lofgren-of-kissmetrics/

http://christophjanz.blogspot.co.il/

http://www.forentrepreneurs.com/2014-saas-survey-1/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+forentrepreneurs+%28For+Entrepreneurs%29

http://www.slideshare.net/Zuora/zuora-always-on20123-saas-metrics-that-matter-12301579?ref=http://www.zuora.com/top3saasmetrics/

https://blog.kissmetrics.com/saas-operating-metrics/

http://www.forentrepreneurs.com/why-churn-is-critical-in-saas/

http://www.forentrepreneurs.com/multi-axis-pricing-a-key-tool-for-increasing-saas-revenue/

http://www.forentrepreneurs.com/saas-metrics-2-definitions/

https://blog.kissmetrics.com/5-metrics-for-saas/

http://blog.clientheartbeat.com/customer-churn-rate/