12 Key Levers of SaaS Success
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This presentation is from my talk at the 2017 SaaStr Annual Conference in San Francisco. It offers an overview of a simple model to understand a SaaS business and the key levers a CEO can pull to get the most impact. The presentation covers: Optimizing the SaaS Funnel: - Get inside your customer’s head - Break down the funnel into microsteps - Identify bottlenecks - Use funnel math to make improvements 12 key levers within the funnel: 1) Product/Market fit 2) Top of the funnel flow 3) Conversion rate 4) CAC (customer acquisition cost) 5) Number of sales people 6) PPR (productivity per rep) 7) Getting enough leads 8) Pricing 9) Customer retention rate 10) Dollar retention rate 11) Months to recover CAC 12) Recruiting, onboarding & management
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12 Key Levers of SaaS Success
- 1. 12 Key Levers of SaaS Success David Skok ForEntrepreneurs Blog General Partner, Matrix Partners
- 2. Goals Present a simple model to understand a SaaS business1 2 Show what levers a CEO can pull to get the most impact
- 4. Search for Product/Market Fit Scaling the Business Search for Repeatable & Scalable & Profitable Growth Model The Three Phases of a Startup’s Lifecycle
- 5. Predictable, Repeatable, Scalable, Profitable Growth Scaling the Business Search for Product/Market Fit Search for Repeatable & Scalable & Profitable Growth Model
- 6. One Sign That You’re Getting There: Bookings - (NOT Revenue or ARR!) Quarters
- 7. Simple Model for a SaaS Business
- 8. A Funnel
- 9. The Full SaaS Funnel Onboard Retain Expand Loyal Customers who are advocates
- 10. The Beautiful Thing about Funnels…
- 11. Governed by very simple Math
- 12. Two Key Levers Top of Funnel Flow (Quantity) Conversion Rate
- 13. Bookings Top of Funnel Lead Flow Conversion Rate Average Deal Size
- 15. Two Sales Motions Touchless Self-Serve • No Sales People • Based on Free Trial Sales People Needed
- 16. The Simple Case: Touchless Self Serve Visitors to Web Site Sign up for Free Trial Closed Deals
- 17. Funnel Metrics are Essential "IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT." - LORD KELVIN
- 18. The Key Metrics VISITORS CAMPAIGNS TO DRIVE TRAFFIC TRIALS CLOSED DEALS CONVERSION % CONVERSION % OVERALL CONVERSION %
- 19. Not All Lead Sources are Equal Visitors Trial 5% 10% $5,000 Customer Google Ad Words FaceBook Ads Visitors Trial 2% 20% $8,000 Customer
- 20. OVERALL CONVERSION % (BY LEAD SOURCE) Cost per lead LTV ROI by Lead Source
- 21. Fix Conversion Rates First • Fix before spending heavily on Traffic growth • Three starting points: • Improve Product/Market Fit • Find the Optimal Customer Segments • Clear, Simple, Powerful, Messaging & Positioning
- 22. Funnel Conversion Rate Problems Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects
- 23. The Source of Most Problems Vendor-centric funnel design Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects
- 24. NOT MOTIVATED TO DO THAT THEY ARE CUSTOMERS WILL DO SOMETHING YOU ARE HOPING YOUR
- 25. IN OTHER WORDS… YOU DESIGNED YOUR FUNNEL THE WAY YOU HOPED IT WOULD WORK… BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT THE CUSTOMER’S POINT OF VIEW
- 26. JBOSS EXAMPLE EMAIL ADDRESS BEFORE FREE DOWNLOAD
- 27. IMPACT CUT THE DOWNLOAD RATE BY MORE THAN 10X
- 28. FRICTION CONCERNS Get Inside Your Customer’s Head
- 29. MOTIVATIONS FRICTION CONCERNS Redesign, or Try to Use What Motivates Them
- 30. JBOSS EXAMPLE • Making $27,000 a month selling documentation • Solution: • Give away documentation to get their email address
- 31. EXAMPLE: DRIVING TRAFFIC TO YOUR WEB SITE GETTING FOUND Not going to find your site unless: - Top of Google search - Referred to by an influencer friction & concerns
- 34. LESSONS FROM WEBSITE GRADER • Free tools drive viral spread • Low customer work required • High value delivered • Score leverages competitive urge, and acts as a trigger • Builds trust through clear demonstration of expertise
- 35. LESSONS FROM WEBSITE GRADER Shows how the product team can impact the funnel
- 36. MICROFUNNELS
- 37. Take key steps in your funnel… Free Trial
- 38. … and break them into micro-steps Free Trial Get Access to current data and import Invite Colleagues Test Feature Wow! Moment
- 39. Identify Bottlenecks Get Access to current data and import Invite Colleagues Test Feature Wow! Moment
- 40. Fix Using the Same Analysis FRICTION CONCERNS
- 41. Get Access to current data and import Redesign Select Sample Data Invite Colleagues Test Feature Wow! Moment
- 43. So far we’ve looked at the simple case Touchless Self-Serve • No Sales people • Based on Free Trial
- 44. What happens when the sale is more complex and needs a sales person? Sales People Needed
- 45. Without Sales People Visitors to Web Site Closed Deals Simple linear relationship Conversion Rate
- 46. But when you add in Sales People… Ramp Time Sales Capacity Limit
- 47. Growth Comes in Discontinuous Units
- 48. The Unit of Growth Sales Person
- 49. Supported by Leads & Customer Success Sales Person $’s Marketing Spend SDR’s Leads Customer Success, Renewals, etc.
- 50. What Drives Bookings? No. of Sales People Productivity per Rep (Average) x PPR
- 51. Let’s look at each of these in turn…
- 52. Number of Sales People One of the most common reasons for missing plan Didn’t hire sales people fast enough
- 53. Sales Hiring • You will need to build an in-house recruiting machine See my blog post: “Recruiting: The 3rd Crucial Startup Skill”
- 54. Two Metrics to Track 0 2 4 6 8 10 12 14 16 18 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Number of Reps versus Plan Reps Plan $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k
- 55. Lost Bookings due to slow hiring $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k $500k
- 56. Over Assignment of Quota needed to hit plan =1/85% $0 $500 $1,000 $1,500 $2,000 $2,500 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Assigned Quota vs Plan & New ARR Assigned Quota Plan Bookings $k 85%
- 57. PPR: Productivity per Rep • Quality of sales hires • Sales Training and Onboarding
- 58. PPR: Sales Training and Onboarding • Sales People: One of the most expensive resources • Yet, typically little effort is put in to sales training in early days • High payback • Worth having the founders spend time to develop & deliver a lot of the material
- 60. PPR over time $100 $110 $120 $130 $140 $150 $160 $170 Q1 Q2 Q3 Q4 Average Productivity Per Rep NewARRbooked-$k/quarter
- 61. PPR Looked at by Rep Tenure 60 80 100 120 140 160 180 Q1 Q2 Q3 Q4 Average Productivity Per Rep - Grouped by Rep Tenure 6 - 12 months 12-24 months >24 months NewARRbooked-$k/quarter
- 62. PPR by Individual Rep Rep Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16 John 120 165 180 145 80 110 195 Mary 80 110 135 155 150 145 Fred 60 35 75 40 55 Alice 85 145 160 180 145 Joe 60 110 85 130 145 Mike 155 170 145 190 Sarah 35 45 70 45 Sue 80 145 175 165
- 63. % of Reps at Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 75% of Quota 30% 40% 50% 60% 70% 80% 90% 100% Q1-16 Q2-16 Q3-16 Q4-16 % of Reps above 100% of Quota
- 64. There’s one other thing that drives PPR Adequate Lead Flow
- 66. Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Funnel Math
- 67. Raw Lead Marketing Qualified Lead Sales Accepted Lead Opportunity Closed Deal 20% 80% 25% 20% Closed Deal1 Opportunity5 Sales Accepted Lead 20 Marketing Qualified Lead 25 Raw Lead125 Reverse Funnel Math
- 68. Allows Us to Compute Leads Required per Rep x No. of Closed Deals = Reverse Funnel Conversion Rate Marketing Qualified Leads Required
- 69. This Becomes the Contract Between Sales & Marketing Marketing Qualified Leads Required Sales Marketing SDR’s
- 70. The Backend of the Funnel Closed Deals Loyal Customers who are Advocates Renew ExpandOnboard It’s all about LTV
- 71. Top Factors Affecting Renewals • On-boarded successfully? • Champion still at the company? • Customer getting meaningful business benefits? • Is the product Sticky?
- 72. Dollar Renewal Rate is King See my SaaStr 2016 presentation Customer Renewal Rate >Dollar Renewal Rate
- 73. SUMMARY 12 Key Levers for SaaS Success
- 74. Simple Team Focus: Optimize your Funnel
- 75. Funnel Optimization Meetings • Start by diagramming your funnel • Draw the micro steps for key parts e.g. free trial
- 76. Funnel Optimization Meetings Participants Sales Marketing Product “Sparketing!”
- 77. Key Levers 1. Product/Market Fit
- 78. Key Levers 3. Conversion Rate 2. Top of Funnel Lead Flow 4. CAC
- 79. Key Levers 5. No. of Sales People (Recruiting) Productivity per Rep (Average) 6. PPR7. Enough Leads
- 80. Key Levers LTV 8. Pricing 9. Customer Retention Rate 10. Dollar Retention Rate (Ability to “Land & Expand”)
- 81. Key Levers Cash to Finance the Business 11. Months to Recover CAC
- 82. Key Levers Building a Great Organization 12. Recruiting, Onboarding & Management
- 83. For more details on all these topics: forentrepreneurs.com Presentation Slides: forentrepreneurs.com/saastr-2017