unit economics example for b2b saas company
TRANSCRIPT
@SteafFab Ventures we know that innovation can be taught and learned. We support international startups in their quest to acquire customers and grow. We help you enter the U.S. market, attract a round of financing, extend the team, and acquire customers. We know how to create companies and our mission it top make you succeed.
Martin J Steinmann, Ph.D. [email protected]
www.steamfab.io
A specific example: You are the CEO of a B2B company
• You sell a SAAS solution with a subscription business model
• You got $2m seed financing
• You launched an MVP as a mobile app
• You figured out how to attract customers
• You are told that for an A-round you need $100k MRR
CTR Click-through-rate
CPC Cost per click
CPM Cost per thousand impressions
PPC campaign parameters
CTR Click-through-rate
CPC Cost per click
CPM Cost per thousand impressions
PPC campaign parameters
1.9%
$2
$38
Average values for search ads
Top of funnel metrics look like this• Your CTR is 2% on search ads
• 13% download the app
• Day-3 retention is 5%
• 30 day retention is 3% (free tier)
• 20% buy a subscription @ $19.95/mo
Funnel Metrics
# % $
Impressions CPM: $40
Clicks 2% CPC: $2
Downloads 13%
30-day 3%
Subscription 1 20%
Funnel Metrics
# % $
Impressions CPM: $40
Clicks 2% CPC: $2
Downloads 13%
30-day 5 3%
Subscription 1 20%
Funnel Metrics
# % $
Impressions CPM: $40
Clicks 2% CPC: $2
Downloads 167 13%
30-day 5 3%
Subscription 1 20%
Funnel Metrics
# % $
Impressions CPM: $40
Clicks 1,282 2% CPC: $2
Downloads 167 13%
30-day 5 3%
Subscription 1 20%
Funnel Metrics
# % $
Impressions 64,102 CPM: $40
Clicks 1,282 2% CPC: $2
Downloads 167 13%
30-day 5 3%
Subscription 1 20%
Funnel Metrics
# % $
Impressions 64,102 CPM: $40
Clicks 1,282 2% CPC: $2
Downloads 167 13% $15.30
30-day 5 3% $512.80
Subscription 1 20% $2,564
Funnel Metrics
# % $
Impressions 64,102 CPM: $40
Clicks 1,282 2% CPC: $2
Downloads 167 13% $15.30
30-day 5 3% $512.80
Subscription 1 20% $2,564
10 years to recover cost
Case A Case B
# % $ # % $
Impressions 64,102 CPM: $40 CPM: $45
Clicks 1,282 2% CPC: $2 3% CPC: $1.5
Downloads 167 13% $15.30 15%
30-day 5 3% $512.80 15%
Subscription 1 20% $2,564 1 25%
Case A Case B
# % $ # % $
Impressions 64,102 CPM: $40 5,926 CPM: $45
Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5
Downloads 167 13% $15.30 26.6 15%
30-day 5 3% $512.80 4 15%
Subscription 1 20% $2,564 1 25%
Case A Case B
# % $ # % $
Impressions 64,102 CPM: $40 5,926 CPM: $45
Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5
Downloads 167 13% $15.30 26.6 15% $10
30-day 5 3% $512.80 4 15% $67
Subscription 1 20% $2,564 1 25% $267
Case A Case B
# % $ # % $
Impressions 64,102 CPM: $40 5,926 CPM: $45
Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5
Downloads 167 13% $15.30 26.6 15% $10
30-day 5 3% $512.80 4 15% $67
Subscription 1 20% $2,564 1 25% $267
RetentionProduct-Market fit
Retention Curves for Android Apps
Average D3 retention is 23%
Average D30 retention is 10%
Average D90 retention < 5%
Average Retention Curve for Android Apps
Retention Curves for Android Apps
Average D3 retention is 23%
Average D30 retention is 10%
Average D90 retention < 5%
Average Retention Curve for Android Apps
our company
Retention Curves for Android AppsAverage Retention Curve for Android Apps
1.5 million apps
our company
Retention Curves for Android AppsAverage Retention Curve for Android Apps
1.5 million apps
Bending the curve happens via activation, not notification spam
CAC =
Customer Acquisition Cost
Total marketing spend
New subscribers
CAC Metrics• $267 per subscriber for campaigns • Total headcount cost per month fully loaded: $12,000 (director and manager) • 50 new subscribers per month
CAC = $267 + $240 = $507
remember that number
What is your marketing budget?
Show me the data!
Monthly marketing budget• $13,350 for campaigns (variable) • $12,000 for headcount (somewhat fixed)
$25,350 per month for 50 new subscribers
Cohort Analysis
Cohorts are groups of people tracked over time
oldest cohort
newest cohort
Cohorts are groups of people tracked over time
oldest cohort
newest cohort
today
Key metrics
The key metrics you need to understand are inside your product. Post conversion user behavior drives most (all) of your success factors.
It’s about the product, stupid!
Making MoneyOne year later …..
LTV =
Long-term Value
MRR per customerΣ
LTV =
Long-term Value
Subscription price
Churn
for |x| < 1 , Infinite decreasing geometric series
Revenue metrics• Subscription price is $19.95 • Monthly churn rate is 3%
LTV: $665 per subscriber
Average lifetime is 33 months
Profitability metrics• Subscription price is $19.95 • Monthly churn rate is 3% • LTV is $665 • Average lifetime is 33 months
• Months to recover CAC: 25
• LTV / CAC ratio: 1.3
Profitability metrics• Subscription price is $19.95 • Monthly churn rate is 3% • LTV is $665 • Average lifetime is 33 months
• Months to recover CAC: 25
• LTV / CAC ratio: 1.3
Profitable on a unit economic basis
Profitability metrics• Subscription price is $19.95 • Monthly churn rate is 3% • LTV is $665 • Average lifetime is 33 months
• Months to recover CAC: 25
• LTV / CAC ratio: 1.3
Investor benchmark
Capital Requirements
What is this going to cost me?
Cash-flow metrics• Months to recover CAC: 25, monthly
cash-flow for a cohort turns positive after 25 months
• Cumulative negative cash-flow continues to accumulate
• Investing more does not shorten the time to break-even, but deepens the hole
Impact of faster growth on cash-flow and capital requirements
Cum
ulat
ive
cash
-flo
w
higher monthly investment in CAC
CF break-even month 48
unit economic break-even first cohort
Max MRR =
Max MRR
New revenue per month
Churn
Max MRR =
Max MRR
New revenue per month
Churn
50 x $19.95
3%= $33k =
LTV
$(500,000)
$(450,000)
$(400,000)
$(350,000)
$(300,000)
$(250,000)
$(200,000)
$(150,000)
$(100,000)
$(50,000)
$-Mon
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Cumula&veCashFlow
Capital required $450k
CF break-even month 48
24 months
Unit economic break-even
33 months
Averagelife-time
48 months
Monthly cash-flow break-even
Max capital requirement
120 months
Cumulative cash-flow
break-even
Timeline
}ProfitIndependent of investors
Defining Success
Is this a business worth doing or investing in?
Business summary• After 4 years we reach $25,000 MRR and our monthly cash flow breaks even • We have 1,281 paying customers • We spent a total of $1.2m on marketing (campaigns & team) • We made $771k in total revenue • We spent $450k in capital to finance growth (ex. R&D, G&A) • Growth curve flattens out: Max MRR is $33k
What would make this better?
Sensitivity analysis
$(400,000)
$(350,000)
$(300,000)
$(250,000)
$(200,000)
$(150,000)
$(100,000)
$(50,000)
$-
$50,000
$100,000
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Cumula&veCashFlow
Case 1: Reduce churn rate from 3% to 1.5%
1.5 years
$100k
$(250,000)
$(200,000)
$(150,000)
$(100,000)
$(50,000)
$-
$50,000
$100,000
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Cumula&veCashFlow
Case 2: Cut campaign cost in half, CAC $374
2 years
$250k
$(1,000,000)
$(900,000)
$(800,000)
$(700,000)
$(600,000)
$(500,000)
$(400,000)
$(300,000)
$(200,000)
$(100,000)
$-Mon
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Cumula&veCashFlow
Case 3: Grow faster - double marketing spend
($450k)
$(300,000)
$(200,000)
$(100,000)
$-
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$200,000
$300,000
$400,000
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Cumula&veCashFlow
Case 4: Charge more - price $29.95 per month
2+ years
$230k
All 4 improvements combined
$(500,000)
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
$3,000,000
$3,500,000Mon
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Cumula&veCashFlow
3 years
$250k
1 & 2 & 4 combined
$(200,000)
$-
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$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
$1,600,000Mon
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Cumula&veCashFlow
3 years
$350k
Our company
Case 1 Churn
Case 2 CAC
Case 3 Capital
Case 4 Price
The one I invest in
1&2&4
MRR $25,556 $34.314 $25,556 $51,072 $38,366 $103,058 $51,514
LTV / CAC 1.31 2.62 1.78 1.31 1.97 5.34 5.34
Months to break-even
25.4 25.4 18.8 25.4 16.9 12.5 12.5
Capital $446,158 $357,783 $209,580 $894,391 $247,670 $229,409 $114,585
Cumulative cash-flow
$445,952 $277,634 $126,752 $894,019 $59,562 $1,025,850 $512,326
Max MRR $33,250 $66,500 $33,250 $66,500 $49,917 $199,667 $99,833
Business summary after 4 years
Investor BootstrapHigh riskNo
Our company
Case 1 Churn
Case 2 CAC
Case 3 Capital
Case 4 Price
The one I invest in
1&2&4
MRR $25,556 $34.314 $25,556 $51,072 $38,366 $103,058 $51,514
LTV / CAC 1.31 2.62 1.78 1.31 1.97 5.34 5.34
Months to break-even
25.4 25.4 18.8 25.4 16.9 12.5 12.5
Capital $446,158 $357,783 $209,580 $894,391 $247,670 $229,409 $114,585
Cumulative cash-flow
$445,952 $277,634 $126,752 $894,019 $59,562 $1,025,850 $512,326
Max MRR $33,250 $66,500 $33,250 $66,500 $49,917 $199,667 $99,833
Business summary after 4 years
Investor BootstrapHigh riskNo
1&2&4
$51,514
5.34
12.5
$114,585
$512,326
$99,833
$1m capital
$515,080
5.34
12.5
$1,146,714
$5,125,299
$998,333
MRR
LTV / CAC
Months to break-even
Capital
Cumulative cash-flow
Max MRR
$1m investment yields 10x
10x
10x
+ $1m
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