1. Wall Street highly values subscription businesses and places a premium on those with high growth and efficient growth, as measured by metrics like growth efficiency index (GEI). 2. The two main levers companies can optimize to improve their market potential are efficient growth and net retention rate. Efficient growth focuses on aligning teams and processes around maximizing annual recurring revenue, while net retention rate measures how well a company retains and expands revenue from existing customers. 3. Companies should optimize these levers by executing strategies to land new customers and expand revenue from existing ones through upsells and add-ons, while minimizing churn, ensuring successful implementations, and engaging customers.

1. Market Value Potential
Optimizing Your
Tyler Sloat, CFO
@tylersloat

2. Agenda
1 How’s Wall Street is Valuing Subscription Companies
2 What Are Your Levers
3 How to Optimize Those Levers

3. How’s Wall Street valuing
subscription businesses?

4. The
Market
loves
subscriptions.

5. the value of
subscriptions.
realizing
They’re getting better at
RevenueMultiple
(nextyear’srevenue)

6. high-growth
subscription businesses.
premium on
They’re placing a

7. why
the disparity?
But

8. Y o u r f i r s t l e v e r
f o r o p t i m i z i n g y o u r M a r k e t p o t e n t i a l :
Efficient Growth

9. Growth is
good.
Efficient
growth is
better.

10. 0%
100%
50%
ARR Non-Growth
Expense
Growth
Expense
COGS,
G&A,
R&D
50%
Recurring
Profit
Margin
Sales,
Marketing,
Customer
Success
BREAK EVEN
& 35%
GROWTH
INVEST IN
FIELD &
GROW
FASTER
OR
Sales,
Marketing,
Customer
Success
The Subscription Model

11. Non-Growth Spend
Growth Spend
incurred to maximize ACV
traditionally sales & marketing efforts
sometimes customer success
incurred to support the organization
traditionally COS, R&D, admin functions
vs.

12. measured by GEI.
Growth is best
$100M Growth Exp.
_________________
1.5 GEI
=
$65M ARR
Growth
Therefore, if GEI is 1.5 and $100M
is spent on growth:
Growth Expense
_________________
ARR Growth
=
Growth
Efficiency
Index (GEI)
Growth Expense
_________________
GEI
=ARR Growth

13. higher
valuation multiples.
drives
Better efficiency
GEI on ARR
companies w/ similar (30-40%) revenue growth
EV/2015ERevenue

14. Y o u r s e c o n d l e v e r
f o r o p t i m i z i n g y o u r M a r k e t p o t e n t i a l :
Net Retention Rate

15. Starting ARR + Upsell – Churn / Starting ARR
N e t R e t e n t i o n R a t e :

16. 16
A R R n+1 / A R R n
Min $5k ACV
“We calculate our retention rate as of a period end by starting with the annual contract value
(ACV) from customers with contract value of $5,000 or more as of 12 months prior to such period
end (Prior Period ACV) and a subscription term of at least 12 months. We then calculate the ACV
from these same customers as of the current period end (Current Period ACV). Finally, we divide
the aggregate Current Period ACV for the trailing 12-month period by the aggregate Prior Period
ACV for the trailing 12-month period to arrive at our retention rate.“

17. 17
M R R n+1 / M R R n
“We calculate our dollar-based net expansion rate by dividing our retaining revenue net of
contract and churn by our base revenue. We define our base revenue as the aggregate monthly
recurring revenue of the paid customer accounts on our customer service platform as of the date
one year prior to the date of calculation. We define our retained revenue net of contraction and
churn as the aggregate monthly recurring revenue of the same customer base included in our
measure of base revenue at the end of the annual period being measured.”

18. 18
M R R n+1 / M R R n
each month compounded to arrive at annual expansion rate
“Our dollar-based net expansion rate compares our recurring subscription revenue from customers from one period to the
next. We measure our net expansion rate on a monthly basis because many of our customers change their subscriptions more
frequently than quarterly or annually. To calculate our annually dollar-based net expansion rate, we first establish the base
period monthly recurring revenue from all our customers at the end of a month. This represents the revenue we would
contractually expect to receive from those customers over the following month, without any increase or reduction in any of
their subscriptions. We then (i) calculate the actual monthly recurring revenue from those same customers at the end of that
following month; then (ii) divide that following month’s recurring revenue by the base month’s recurring revenue at arrive at our
monthly net expansion rate; then (iii) calculate a quarterly net expansion rate by compounding the net expansion rates of the
three months in the quarter; and then (iv) calculate our annualized net expansion rate by compounding our quarterly net
expansion rate over an annual period.”

19. i s b e c o m i n g t h e c o n s e n s u s .
Net Retention Rate

20. retention
rate means
higher
What a
Net Annual Retention Rate
EV/2015ERevenue

21. How do you
optimize these levers?

22. Optimizing for Efficient Growth
Align your growth organization
Marketing is measured on pipeline generation
Sales are compensated on generating net new ACV
Customer Success focuses on driving adoption & customer
around maximizing ARR
stickiness that results in upsells

23. Optimizing for Efficient Growth
Systems & Processes
Discipline in contract structure to enable upsells
Product Management developing features for add-ons

24. Optimizing for Efficient Growth
Building efficiency into
Executing a land & expand strategy
Organic upsell via pricing & packaging
Low sales turn over
your sales model
Increased quotas

25. Optimizing for Net Retention
Aligning your Customer Success
Regular communication around product feature enhancements
Identify upsells opportunities based off usage trends
Have key customers help drive the roadmap
around product adoption

26. Optimizing for Net Retention
Understanding & engaging
Identify & track churn risks
Engaging to drive conversions from free to paid customers
Build a payment structure that facilitates flexible payment options
your users

27. Optimizing for Net Retention
A services organization that
Rapid deployments
Align implementation partners to your definition of success
Commit to consistent engagement throughout the deployment cycle
consistently delivers
successful deployments

28. In Summary
Wall Street gets it
Growth is determined by ARR
Net Retention as an efficiency indicator

29. We build modern, flexible and easy to use enterprise software
that enables companies to manage all aspects of their
relationship with their subscribers.
29

30. the end.
Tyler Sloat, CFO
@tylersloat