saas metrics: the secret to subscription success
TRANSCRIPT
An Introduction to SaaS Metrics & Churn:The Secret to Subscription Success
chartmogul.com
© 2015 Chartmogul Ltd
We’re a SaaS business too. Here’s how we measure ourselves and
update our investors
Marketing Funnel
Inside Sales
SaaS Revenue Metrics
Financials
© 2015 Chartmogul Ltd
KPIs We Care About (and you should too)
Customers
Monthly Recurring Revenue (MRR)
Annual Recurring Revenue (ARR)
Average Revenue Per Account (ARPA)
MRR/Customer churn rate
Customer Lifetime Value (LTV)
Customer acquisition cost (CAC)
© 2015 Chartmogul Ltd
SaaS Revenue Metrics:
• Differ from traditional accounting in that they
are mostly interpreted forward projections
• Don’t make standard financial reporting
(gross/net revenue, etc) any less relevant
• Are more relevant to the management team
on a day-to-day basis.
© 2015 Chartmogul Ltd
Monthly Recurring Revenue (MRR)
MRR is the backbone of any subscription business.
“The amount of revenue you would generate next month if all customers are paying monthly and you had no new customers, cancellations, upgrade or downgrades.”
© 2015 Chartmogul Ltd
Breaking Down MRR Into “Movements”
New business MRR - A lead that converts into a paid customer
Expansion MRR - Any increase in the MRR of an existing customer
Contraction MRR - Any decrease in MRR of an existing customer
Churn MRR - Decreases in MRR from customer cancellations
Reactivation MRR - Previously churned customers resubscribing
© 2015 Chartmogul Ltd
Customer Churn Rate (B2B)
What is it?The rate at which you are losing customers through subscription cancellations.
Calculation
Segmentation is key to getting meaningful Churn metrics.
© 2015 Chartmogul Ltd
MRR Churn Rate (B2B)
What is it?The rate at which you are losing revenue through subscription cancellations.
Calculation
Segmentation is key to getting meaningful Churn metrics.
© 2015 Chartmogul Ltd
Positive Churn vs. Negative Churn
Many of the best known public SaaS companies have negative churn, e.g. New Relic, Zendesk, but not a requirement to be a unicorn, e.g. HubSpot.
Image credits to Tomasz Tunguz
:( :D
© 2015 Chartmogul Ltd
Churn Rate (B2C)
A B2C formulaDevin Brady (Recurly) wrote about a better way to calculate churn which we think is more useful for B2C companies (e.g. Netflix)
CalculationIterating through each day in the selected period (e.g. month/quarter) we calculate as follows:
SUM(1 - #_active_customers_at_end_of_day / #_active_customers_at_the_start_of_day)
© 2015 Chartmogul Ltd
Churn Recognition
Best practice is to recognise churn at the end of the paid up billing period.
© 2015 Chartmogul Ltd
Churn classificationPro-active churn - Customer chose to cancel Passive churn - Customer didn’t update credit card Happy churn - Finished using your product (subset of pro-active churn) Churn that isn’t really churn - Money-back guarantees, etc.
What is a reasonable level of Churn?Most SaaS companies selling to SMBs have quite high monthly churn (3-5%)The more up-market you go the lower the churn rate (usually)Many public SaaS companies have negative net churn, as high as 20%
© 2015 Chartmogul Ltd
Cohort Analysis - Identifying “Risky” Months
Cohort analysis is the best way to truly understand how your subscriptions evolve over their lifespan.
Cus
tom
er C
ohor
ts
Months Since Signup
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Customer Lifetime Value (LTV)
What is it?An estimate of the total subscription value of an average customer.
Calculation
Helps with decisions on CAC spending, growth predictions.
ARPA
Customer churnLTV =
© 2015 Chartmogul Ltd
Customer Lifetime Value (LTV)
This simple formula is a good starting point, but it doesn't take into account two important factors:
1. Churn doesn't occur linearly
2. Many companies experience significant account expansion following an initial purchase.
The blue line results in 10% less revenue over the same period.
© 2015 Chartmogul Ltd
Customer Lifetime Value (LTV)
A Modular LTV Formula
© 2015 Chartmogul Ltd
Learn more from the leaders in SaaS thinking…
Jason M. Lemkin@jasonlk
saastr.com
Christoph Janz@chrija
theangelvc.net
David Skok@BostonVC
forentrepreneurs.com
Tomasz Tunguz@ttunguz
tomtunguz.com
+ chartmogul.com/blog
The ChartMogul SaaS Cheat Sheet Trilogy
© 2015 Chartmogul Ltd
Even More Resources(!)• A Better Way to Calculate your Churn Rate• Ultimate SaaS Metrics Cheat Sheet• Ultimate Churn Metrics Cheat Sheet• Ultimate Cohort Analysis Cheat Sheet• Ultimate Guide to SaaS Customer Lifetime Value (LTV)• Why SaaS startups should aim for negative MRR churn
© 2015 Chartmogul Ltd
