More Related Content More from MaRS Discovery District (20) SaaS Math - MaRS Best Practices Series4. © Mark MacLeod 2011
Agenda
Why I love SaaS
Metrics 101
Pricing Magic
Valuation
Q &A
5. © Mark MacLeod 2011
Why I love SaaS
and by “I”, I mean Investors
$ 21B Market
20% Growth
Certainty Premium
6. © Mark MacLeod 2011
SaaS Metrics 101
“In God we trust, all others bring data”
W. Edwards Deming
7. © Mark MacLeod 2011
Metrics for Pirates
Source: Metrics for Pirates - 500 Hats
8. © Mark MacLeod 2011
Metrics 101:
Where to focus,when...
1st battle - Acquisition
Release early,even if it sucks
Talk to users!
Test messaging,channels
Measure every action
9. © Mark MacLeod 2011
Metrics 101:
Where to focus,when...
Ultimate battle: Retention
Churn Rate is the most important metric
for SaaS businesses
10. © Mark MacLeod 2011
What to measure
Part 1 - The Funnel
Source: http://www.forentrepreneurs.com/saas-metrics/
11. © Mark MacLeod 2011
What to measure
Acquisition
Week over week Growth in:
New UniqueVisitors (Absolute)
New Users
Conversion Rates:
UV to Sign-Up
Changes in conversion rates
New vs. Returning
Which traffic sources work?
Performance vs. Target
12. © Mark MacLeod 2011
What to measure
Activation
Week over week Growth in:
New Activate Users
Conversion Rates:
New User to Active User
Changes in conversion rates
Which sources work best?
Performance vs Target
13. © Mark MacLeod 2011
What to measure
Retention - Active
Cohort Analyses: 30 / 60 / 90 days
Churn - 30 / 60 / 90
Change in churn
Stratify Users
Profile “Power” Users
Specific engagement metrics
(comments, likes, etc.)
14. © Mark MacLeod 2011
What to measure
Referral
K Factor -Viral Coefficient
Understand change in each key driver
15. © Mark MacLeod 2011
What to measure
Revenue
Conversion to Paid
ARPU & Changes in ARPU
Cohort Analyses: 30 / 60 / 90 days
Churn - 30 / 60 / 90
Change in churn
Reasons for cancellation
Exit interview?
Upgrade %
Source of paid users
17. © Mark MacLeod 2011
Per User Economics
Elements:
Revenue Per Month (ARPU) * Life of a User
*
Margin %
Less
Cost of Acquisition (CAC)
=
Customer LifetimeValue (CLTV)
18. © Mark MacLeod 2011
Impact of Churn
Source: http://www.forentrepreneurs.com/saas-metrics/
At $5/ month
Lifetime
Revenue
Low - $100
High - $500
19. © Mark MacLeod 2011
Customer Acquisition Costs (CAC)
Elements:
Staff Costs (salaries)
SEM, paid programs
PR
Travel, conferences, etc.
Calculation Methods:
Basic: No salaries
Loaded:With Salaries
Gross: Before churn
Net:After churn
20. © Mark MacLeod 2011
CAC
How Much should you spend?
Depends on churn
Target 6 months’ revenue or less
Be willing to spend up to marginal CLTV
26. © Mark MacLeod 2011
Elements of Your Pricing Decision
Value Proposition - Hard ($) vs. Soft (time)
Positioning
Target customer - Consumer, Business
Comparables
How you sell?
Acquisition Cost
27. © Mark MacLeod 2011
Pricing Examples
$ 10 $ 20 $ 49 $ 24
$ 20 $ 30 $ 250 $ 25 ++
29. © Mark MacLeod 2011
Freemium
Necessary Conditions:
Large market
Incremental Cost to serve = $0
Clear upgrade Path
Funding $
30. © Mark MacLeod 2011
Freemium
Why freemium?
Reduce barriers to try
Disrupt the market
Network effects
31. © Mark MacLeod 2011
Freemium
Freemium Types
Direct: Premium version
Indirect:Access the user base (ads, subscriptions)
36. © Mark MacLeod 2011
Early Stage Valuations
Not Numbers Driven
Factors:
Team
Track Record
Traction
Opportunity Size
Deal Competition
37. © Mark MacLeod 2011
Late Stage Valuations
Source: Software Equity Group, L.L.C
38. © Mark MacLeod 2011
Winning at SaaS
Keep it Simple - Focus on a single benefit
Talk to users
Measure everything
Don’t be afraid to charge
Service, service, service
40. © Mark MacLeod 2011
thank you
mark macleod
twitter: @startupcfo
blog: startupcfo.ca
web: realventures.com
about.me/markmacleod