We worked together with Pacific Crest, an investment banking firm with a specific focus on SaaS, to survey 155 SaaS companies on a variety of topics such as growth rates, CAC (cost to acquire a customer), gross margins, churn rates, etc. The goal of the survey is to provide useful operational and financial benchmarking data.
“If you cannot measure it, you cannot improve it” – Lord Kelvin
This article is a comprehensive and detailed look at the key metrics that are needed to understand and optimize a SaaS business. It is a completely updated rewrite of an older post. For this version, I have co-opted two real experts in the field: Ron Gill, (CFO, NetSuite), and Brad Coffey (VP of Strategy, HubSpot), to add expertise, color and commentary from the viewpoint of a public and private SaaS company. My sincere thanks to both of them for their time and input.
SaaS/subscription businesses are more complex than traditional businesses. Traditional business metrics totally fail to capture the key factors that drive SaaS performance. In the SaaS world, there are a few key variables that make a big difference to future results. This post is aimed at helping SaaS executives understand which variables really matter, and how to measure them and act on the results.
The goal of the article is to help you answer the following questions:
- Is my business financially viable?
- What is working well, and what needs to be improved?
- What levers should management focus on to drive the business?
- Should the CEO hit the accelerator, or the brakes?
- What is the impact on cash and profit/loss of hitting the accelerator?
The Bridge Group have recently published a report titled:
Inside Sales for SaaS
Metrics and Compensation Report for B2B technology companies
The report is based on a survey of 197 B2B technology companies, and covers topics such as:
- Ramp and Retention
- Compensation and Quota
- Activity and Infrastructure
- Inside Sales Management
- Management’s top challenges
They kindly offered to provide a link for readers of this blog. If you are interested in downloading a copy, please click here to access the report.
This article describes in detail how to use on-line survey tools to validate your key startup assumptions, and gain actionable insights into topics such as pricing, target demographics, messaging, etc. Continued…
Pacific Crest, an investment banking firm with a strong focus on SaaS, has surveyed a 70 SaaS companies with very interesting results. There is some great data on topics such as growth rates, cost of customer acquisition, churn/retention, expense models, capital efficiency, etc. The full survey, which was put together by David Spitz and his team (follow @dspitz on Twitter), can be found here. In this article, I include many of their slides, and the associated Pacific Crest commentary. In a few cases, I add my own commentary prefaced by my initials DRS. I highly recommend downloading the entire survey, and signing up to contribute your own data for the 2012 survey (which can also be done at the same link). I’d like to thank David Spitz of Pacific Crest for giving me permission to reprint their results below.
Details of the participating companies:
- 70 private SaaS company respondents, participating anonymously and confidentially
- Administered to CEOs and CFOs, May-July 2011
- 69% multi-tenant/single instance
- Diverse mix:
- –$0-$60M+ in revenues (~$13M median)(1)
- –25-250+ employees (~120 median)
- –10-2,000+ customers (~480 median)
- –$100s to $MMs median ACV (~$37.5K median)
- –~50% horizontal apps, ~50% vertical apps, infrastructure, etc.
- –Primarily U.S. headquartered Continued…
Summary: Illustrates graphically why churn is a huge problem a SaaS company gets larger. It also looks at a very surprising factor that can massively accelerate SaaS growth: negative churn. (This article is applicable to any recurring revenue business, not just SaaS.) Continued…
In this article I interview Aaron Ross, co-author of a new book, Predictable Revenue. Aaron discusses his experience at Salesforce.com starting a new group that used an innovative outbound prospecting approach (involving no cold calls) to create new leads. Aaron’s group came up with several important breakthroughs which enabled them add over $100m in incremental recurring revenues over a few short years. This article reviews some of those best practices which provide a recipe for others to make outbound prospecting a repeatable and predictable revenue generator.
Today’s application developers are faced with a broad set of architectural decisions that can make or break their company going forward. This presentation, which was given as a keynote for the MassTLC application development conference, highlights the major changes that are taking place in the world of application development. Continued…
Best practices for inside sales managers. An interview with Mark Roberge, VP of Sales at HubSpot, discussing how he blends science and process with the art of selling.
HubSpot is a SaaS company selling Inbound Marketing software. HubSpot has grown revenue over 6,000% in the last four years, placing them #33 on the Inc 500 fastest growing companies list. They now employ about 300 people. I have always been very impressed with how Mark has run their inside sales organization, which has now grown to 110 people. In this interview, I talk to Mark about his strategy and tactics for running a successful SaaS sales organization. I believe Mark is at the forefront of using data and science to drive how he hires and manages his organization, and this article should bring out some interesting best practices.
Customers hate being sold to. They don’t mind getting expert help when they want to buy something. But much of the time they are not ready to buy, and one of the most irritating things is to have a salesperson try to get them to buy when they aren’t ready. Unfortunately too many people in marketing and sales positions don’t seem to understand this, and proceed to irritate their potential customers. They don’t realize that there is a far better way to sell. That is what this blog post is all about. Continued…
Scalable pricing is a powerful tool to grow revenue in a SaaS or software business. It allows you to capture more of the revenue that your customers are willing to pay, without putting off smaller customers that are not able to pay high prices. It also provides a great way to continue to grow revenue from your existing customers. This post looks at how to create scalable pricing using multiple pricing axes, and discusses the different types of axes that can be used. Continued…
The goal of a SaaS CEO should be to increase the profit they make from each customer (LTV), and lower the costs in sales and marketing that it takes to acquire each customer (CAC). Measuring Customer Engagement is a key tool that will help you achieve that goal, as it will allow you to increase your trial conversion rates, which directly reduces CAC. And it will help you lower your churn rates, which directly increases LTV. (There are also other significant benefits that are described below.) Continued…
If you are a serial entrepreneur starting to look for an idea for your next startup, you are likely to want a way to stimulate your brain to come up with as many good ideas as possible. This blog post outlines a framework that is designed to fire up your best creative thinking modes, triggering the creation of new ideas.