SaaS Metrics & KPIs

• The presentation is a CEO's guide to key insights and metrics for B2B Software as a Service (SaaS) companies, updated in 2018 with benchmarks and presentation notes.
• The presentation is by Kelly Schwedland

Rising Table Stakes

• It's crucial to understand business metrics, offer great customer service, understand customer success, and implement lifecycle marketing and content marketing.
• Copying a business model can be bad
• Understanding successful companies' business models is a sanity check for projections

Why a $Billion? – It's Investable

• Investors look for a large market ($1B+), scalable solutions, recurring revenue, past successes, a full team, and traction.
• Investors want to know what problem is being solved and the market opportunity size.
• SaaS companies with recurring revenue and high operating margins need about $100M+ in annual recurring revenues for a billion-dollar valuation.

Growth Stage Key Points

• Terms & Metrics are key
• Roadmap must be clear
• Sustaining growth can be difficult
• Benchmarks must be monitored

Key Terms & Metrics for SaaS

• Cash Flow is a key metric
• MRR/ARR: Monthly Recurring Revenue/Annual Recurring Revenue must be monitored
• CAC & LTV: Customer Acquisition Cost & Lifetime Value crucial
• SEI: Sales efficiency Index is useful
• ACV: Average Contract Value
• NPS: Net Promoter Score, a leading indicator
• Churn is measured
• LVR: Lead velocity Rate, a leading indicator
• TtV: Time to Value
• Key to consider Cohort analysis
• Revenue per Employee is key

Cash Flow

• Accelerating spending on lead generation, sales, and data center capacity aims to boost customer acquisition.
• Acceleration of growth can squeeze profitability and cash flow, even with perfect execution.
• Running out of cash will end any startup or scale up.
• It is important to predict cash burn effectively while scaling.

MRR & ARR

• SaaS businesses are primarily monthly contracts, some longer term, focusing on MRR (Monthly Recurring Revenue).
• Businesses feature annual contracts, with some for multiple years, focusing on ARR (Annual Recurring Revenue).
• $1M ARR requires $83K MRR, which means acquiring 83 customers with $1000/month ACV or 14 new customers per month.

CAC & LTV

• Business model viability depends on balancing CAC (Cost to Acquire Customers) and LTV (Lifetime Value of a Customer).
• LTV needs to be > 3x CAC
• Months to recover CAC needs to be < 12 months

GEI - Growth Efficiency Index

• The GEI determines how much new recurring revenue a given investment can generate.
• The expense includes Sales, Marketing, Customer Success onboarding
• GEI indicates how long before new customers start adding to revenue (.5 = half a year, 1 = 1 year, etc.)

Matching CAC, LTV & ACV

• Product pricing, sales strategy, and product must be interconnected.
• ACV stands for Average Contract Value

NPS - Net Promoter Score

• Bain analysis has shown sustained value creators that companies achieve long-term profitable growth and have Net Promoter Scores (NPS) two times higher than the average company
• Net Promoter leaders on average grow at more than twice the rate of competitors.
• NPS is a leading indicator of churn

Churn = Customer Health

• Churn always goes hand in hand with closings and turnover Dollar value is not always necessarily true.
• Target upselling and cross-selling to effect negative dollar Churn
• Churn = loss of ARR (MRR) to total ARR (MRR).
• What's good:
• Get to $1M ARR ~12 months after launch
• Net New MRR keeps increasing quarter over quarter
• Maintain a Churn Ratio > 4
• What to watch out for
• A Churn Ratio < 2 churn is too high /new sales aren't working
• Net New MRR is flat or down quarter over quarter
• Takes 18+ months to get to $1M ARR

Cohort Analysis

• The only way to know net MRR growth
• Way to understand Customer Retention/ Churn through multiple product iterations.

LVR - Lead Velocity Rate

• Qualified Lead Velocity Rate (LVR) refers to the growth in qualified leads, measured month-over-month.
• Growing LVR by 10-20% more than the MRR growth will ensure hitting revenue goals.
• LVR offers a clear view of the business's future over the next 12-18 months

TtV- Time to Value

• TtV refers to how fast a customer can derive value from a product.
• Ways to Improve:
• Simplicity is better than feature-richness
• Hack the onboarding flow
• Document to improve
• Quantify, Set goals and Benchmark

Revenue per Employee

• Product Value and Internal Efficiency compete for internal talent, but are flip sides to the same coin.
• Use Rev/Emp as a priority decision guide.
• Best in class companies like Salesforce and Financial Engines are able to achieve more than $300k in revenue per employee per year

Roadmap

• Roadmap is key for progress

5 ways to build a $B business

• In SaaS, a billion-dollar valuation needs $100M+ in Annual Revenue.
• 1,000 enterprise customers at $100k+ /year
• 10,000 medium-sized at $10k+ /year
• 100,000 small businesses at $1k/year
• 1 million consumers at $100+ /year each
• 10 million active consumers monetize at $10+/year each

"T2D3" Growth Phases

• From $2M ARR several seemed to follow a similar path
• From $2M ARR several seemed to follow a very similar path
• T2D3 = Triple twice, Double three times

T2D3 Cont'd

• Phase 1: Establish effective product-market fit
• Phase 2: Get to $2 million in ARR (annual recurring revenue)
• Phase 3: Triple to $6 million in ARR
• Phase 4: Triple to $18 million
• Phase 5: Double to $36 million in ARR
• Phase 6: Double to $72 million
• Phase 7: Double to $144 million

Phase 0: Lean Startup Process

• Investment readiness level can be quantified
• A Lean Startup approach with Agile development is key to get to viable product
• Use the 20 interview Rule before writing the first line of code

Phase 1: Product/Market/ (Team) Fit

• The problems shift to keeping up with demand instead of finding customers.
• The only thing that matters: The Market
• Be aware of warning signs
• Focus internal scaling issues

Building a replicable model

• Documentation of systems is key so that they can be replicated by the next hire.
• Be aware replication requires that it be transferable to other individuals
• Key is to focus on key results/ metrics and allow improvements.

Focus: Marketing, Sales, Revenue

• In order to scale, sales and customer success becomes one of the critical processes.
• Answering 30 key questions will help to own growth.

Sustaining Growth

• Rarely can a company with one product and one go to market channel sustain growth.
• you run out of ads to buy or emails to send.

How fast should we grow

• Growth Rate + Profit = 40%
• from $1m ARR, growth should be higher but adhere to the rule of 40
• If not, fix sales and operations before growing.

Accelerating Customer Acquisition and Retention

• Remove Buyer Roadblocks:
• Increase Awareness
• Facilitate Evaluation
• Streamline Purchase
• Simplify Onboarding
• Improve Retention
• Remind Customers of Value they are getting
• Triggered up-selling and cross-selling that expanded usage of service

Improving Lead to Conversion Ratio

• Measure and optimize each conversion channel.

Overcoming the Growth Challenge

• Investors want the exponential hockey stick growth
• Most true scaling companies have a series of additive elements creates a Pseudo exponential growth call Polynomial

Benchmarking

• How Does SaaS business stack up with:
• Growth
• Pacific Crest SaaS survey data (2017)
• Sales Reps
• Conversion rates
• Customer success

Software Development Metrics

• Focus on Project Management, Net Ops and Quality

Sample Conversion Metrics

• Measure Visitors , Users Back, Transfers

Step 1: Acquisition

• The site/app should use the following channels:
• Affiliate , Apps & Widgets, Blog, Campaigns & Contests and Advertising

###Step 2: Activation

• Users enjoy 1st visit, which requires: Homepage, Product Features is crucial

Step 3: Retention

• Users comeback to visit, through Emails & Alerts, Blogs, News Feeds, Twitter Feeds and System Events & Time-based Features
• Use Cohort Analysis

Step 4: Referral

• Users like product , which means you need Viral Loops
• Use Emails, Widgets & Social
• Use Affiliates, Contests

Step 5: Revenues

• Users conduct some monetization behavior, you must build revenue
• Ensure solid Biz Dev

Explore SaaS metrics and KPIs. Understand gross retention, financial performance, B2B SaaS ventures, and venture capital relationships to enhance SaaS strategies and growth.