SaaS Model & MetricsHow to build a successful software business
Brian Hutchins - Product Owner, ScrollMotion
What is SaaS?• Software as a Service
• Subscription Model - Users purchase a subscription instead a perpetual license (usually monthly).
• Originated with web-based software companies like Salesforce and Google.
• Being adopted by traditional software companies. Adobe has converted 4M Photoshop users.
• Today, SaaS is everywhere (Netflix, Google Docs, Tinder) and a popular starting point for many new ventures.
Why SaaS? Product Perspective
• Enables product to be “Lean” & “Agile”
• Lean Methodology • Product develop philosophy: build, measure,
learn, build, measure, learn, …
• Agile Development • Software development approach: prioritized,
incremental development.
Why SaaS? Product Perspective
• Responsive to customer needs
• Responsive to changing technology
• Product cycles every 18 months 2 weeks
How? • Find Product / Market Fit
• Find Repeatable & Scalable Sales Model
• Scale the Business
Nothing new here!
When your SaaS business is
losing money at an increasing
rate…
how can you tell if the business is
going to work eventually?
CAC LTV
Viable SaaS Business
Why do so many entrepreneurs get this wrong?
CAC <
Cost to Aquire a Customer Customer Lifetime Value
Acquisition
Retention & Monetization
• Conversion Rate • CAC • Churn Rate • LTV • $Churn Rate • CHI
Key Metrics Know How
CACCost to acquire a customer Unique to each business
Company A Website SEM Ad Buys PR Marketing Person
CACCompany A Website SEM Ad Buys PR Marketing Person
Company B Website SEM Ad Buys PR Marketing Person Sales Team Sales Engineers
Customer Churn Rate
User 2
User 3
User 1
User 2
User 3
Paid Subscriptions Month 0
Company A’s SaaS Offering
Paid Subscriptions Month 1
Customer Churn Rate
User 2
User 3
33% Customer ChurnUser 1
User 2
User 3
Paid Subscriptions Month 0
Company A’s SaaS Offering
Paid Subscriptions Month 1
\
Customer Lifetime ValueLTV = Avg Monthly Profit per Customer x Customer Lifetime
LTV = Avg Monthly Profit per Customer x1
Churn
LTV
Avg Monthly Profit per Customer = $1000
Customer Lifetime = 20 months
Churn = 5%
LTV = $1000 * 20 = $20,000
LTV = $1000 * 1 / 0.5 = $20,000
Chart - David Skok / Matrix Partners
Dollar Churn Rate
User 2
User 3
Company A’s SaaS Offering
Paid Subscriptions Month 1
$1
$2User 1
User 2
User 3
Paid Subscriptions Month 0
$3
Dollar Churn Rate
User 2
User 3
Paid Subscriptions Month 1
$1
$2
33% Customer Churn 33% Dollar Churn
User 1
User 2
User 3
Paid Subscriptions Month 0
$3
Company A’s SaaS Offering
Dollar Churn RateUser 2
Company A’s SaaS Offerings
Paid Subscriptions Month 1
Basic
Gold$1
$3
User 3
$4
User 1
User 2
User 3
Paid Subscriptions Month 0
$3
Dollar Churn RateUser 2
User 1
User 2
User 3
Paid Subscriptions Month 0
Paid Subscriptions Month 1
Basic
$3
33% Customer Churn -33% Dollar Churn
Gold$1
$3
User 3
$4
Company A’s SaaS Offerings
CHI(1) Vital force in Taoism that animates the body (2) Customer Health Indicators (3) Customer Happiness Index
CHI• Customers make a decision about your service
every pay period
• Your customer must find continuing value in your product
• Wouldn’t it be great to predict customer satisfaction & engagement that correlates to retention?
• CHI is a measure of customer engagement
CHI• Simple: Customer Usage
• Sophisticated: Specific user behaviors correlating to purchase and retention
• Example: Facebook • Simple: User opens FB daily — DAU • Sophisticated: User likes - OK, posts - Better
uses Messager-Best! — Better measure of engagement and value
Summary• Be Lean & Agile
• Use SaaS metrics
• Minimize CAC, Maximize LTV
• Happy customers don’t churn
• Happy customers buy more stuff
LTVCAC <
Acknowledgements• David Skok
• Best SaaS blog • http://www.forentrepreneurs.com/
• Christof Janz • SaaS business template • http://christophjanz.blogspot.com/
• Totango - Customer Success Analytics Company • SaaS benchmarks • http://www.totango.com/