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Benchmarking Churn Across the SaaS Ecosystem
TODD GARDNER
#Pulse2017
Practical Strategies for Benchmarking Your Retention
BENCHMARKING CHURN ACROSS THE SAAS ECOSYSTEM
Practical Strategies for Benchmarking Your Retention
May 10, 2017
© SaaS Capital | www.saas-capital.com 3
What Does SaaS Capital Know About Churn?
• Funded 45 successful SaaS companies across a wide spectrum of ACVs and verticals – Series A/B/C alternative
• Reviewed the churn metrics of thousands of SaaS companies
• Conduct the largest private SaaS company survey on churn in the industry: 700+ respondents for 2017 survey
© SaaS Capital | www.saas-capital.com 4
What to Benchmark?
• Retention = MRR today from customers a year ago / MRR a year ago
• Gross retention is the purest measure of retention
• Net retention combines and obfuscates two very different capabilities: customer retention vs. the capacity to cross-sell, upsell, and raise prices
• Net Retention = 100% (70% Gross + 30% upsell) very different from Net Retention = 100% (100% Gross + 0% upsell)
• Gross Retention should be benchmarked vs. companies with similar ACV products (NetSuite very different than Carbonite)
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Gross Revenue Retention by Annual Contract Value
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Median Gross Retention by Company Age
Beware of the False Positive Problem
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Sample Cohort Analysis: Revenue Retention by Month
0%
20%
40%
60%
80%
100%
120%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
Revenu
eRe
tained
Months
Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16
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Median Retention by Company Size
Retaining Customers
Gets Harder as You Grow
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Impact of Customer Success on Net Retention
Customer Success Makes
a Difference
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Growth Rate Based on Net Revenue Retention
Each 1% Improvement in Net Retention
Increases Growth Rate 1%
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Changes in Retention are Exponential
Growth Rate is also 15% to 30% greater
Revenue is 15% to 30% greater
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How Growth and Scale Impact Valuation
0x
2x
4x
6x
8x
10x
12x
14x
16x
-10% 0% 10% 20% 30% 40% 50% 60%
REvenu
eMultip
le
RevenueGrowthRate
Salesforce
Workday
ServiceNow
Hubspot
DemandWare
Covisint
Source:Pacific CrestSecuritiesandSaaSCapital,2015
DealerTrak
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Size of ARR
Growth of MRR
Predict-ability of
MRR
Company Valuation
up 72%!
20% More Revenue
Valuation MultipleUp from 5.0x to 7.1x
Over Time, Churn has a Massive Impact on Company Valuation
© SaaS Capital | www.saas-capital.com 14
Takeaways:
• Gross retention is the purest measure of retention
• When Benchmarking retention, account for ACV
• Improving churn is “swimming upstream” as your company matures
• Improved retention increases your company's value exponentially
• SaaS Capital is awesome