axcient: saas economics 101
TRANSCRIPT
1Proprietary information of Ingram Micro Inc. — Do not distribute or duplicate without Ingram Micro's express written permission.
SaaS Economics: 101Justin Moore
1411022rev rev 12-1-14
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• SaaS as a Business Model
• The Revenue/Profit Conundrum
• How SaaS Changes Business Economics
• Trade-offs Required to Make SaaS work
• Can Traditional SW/HW Channel Become SaaS?
• Building a Successful SaaS Practice
• Q&A
Agenda
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Salesforce.com (CRM)
• Market cap: $34.83B
• 2015 Revenue Forecast: $5.25B
• 55,400 clients worldwide
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Salesforce.com vs. Oracle Stock Performance
WOW!
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Salesforce.com Financials
Source: SeekingAlpha
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Workday (WDAY)
Source: Diginomica
• FY 2015 Revenue: $787.9 million
(increase of 68% over 2014)
• Revenue Forecast: $1B by 2016
• 170 Customers
• Valuation: $15B+
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Workday vs. SAP
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Workday Revenue & Income (in millions)
68.06
134.43
273.66
468.94
787.86
-56.22 -79.97-119.76
-172.51
-247.98
-400
-200
0
200
400
600
800
1000
2010 2011 2012 2013 2014
Sales/Revenue
Net Income
Source: MarketWatch
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Zendesk (ZEN) vs. Microsoft and Oracle
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Zendesk Revenue & Income (in millions)
38.23
72.05
127.05
-32.74-22.62
-67.42
-100
-50
0
50
100
150
2012 2013 2014
Sales/Revenue
Net Income
Source:MarketWatch
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• 11 software IPOs.
• LTM revenue at time of IPO is ~$80M
• Y-o-Y revenue growth is ~50%
• Operating margins: (15%) – (25%)
SaaS IPOs in 2014
LTM: Last Twelve Months of Revenue; Yes, operating margins are showing negative #s
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The SaaS Premium
Source: Intercom.io
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• Magic Number (aka Sales Efficiency)
• LTV / CAC
• Churn
• Retention vs. Growth
Key SaaS Metrics You Need to Know
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What is Sales Efficiency?
Traditional SW & HW Business
$500K
Sales & Marketing
Investment
Q1 Q1
Revenue
$1M
$500K
Sales & Marketing
Investment
Revenue
Q2 Q3 Q4
SaaS Business
$300K $300K $300K $300K
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Magic Number
Magic Number = (Q1GP$ - Q4 GP$)*4
Q4 S&M$
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Sales Efficiency Over Time
Source: http://tomtunguz.com/
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Example: Workday Sales Efficiency
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Understanding The Importance of CAC
CAC: Cost to Acquire a Customer
CAC = Sum of All Sales & Marketing Expenses
Total Number of Customers Added
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The Lifetime Value of Your Customers
LTV = Average MRR Per Account x Customer Lifetime
OR
LTV = ARPA
Churn Rate
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Churn
Source: ForEntrepreneurs.com
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Growth vs. Profitability for SaaS
Source: a16z.com
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The more
customers
acquired,
the higher
the costs.
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Traditional Vs. SaaS Revenue Calculation
SaaS Licensed
New Customers New Customers
Initial Monthly Recurring Revenue
(MRR) $Initial License $
% Incremental Add-on Subscription
Revenue
% Additional Add-on License
Revenue
% Yearly Subscription Increase
% Maintenance Fees
Months Prepaid Subscription Months Prepaid Maintenance
% Attrition (churn) % Attrition (churn)
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Important Trade-Offs to Consider
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Building a Scalable Cloud Practice
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