About the talk SaaS businesses are different from traditional software companies. From one hand they are much more complex to monitor and there are much more aspects of it to measure than bookings and expenses. From the other hand SaaS culture and technology provide an opportunity for executives to measure and optimize what is really important for the company's success. In this presentation Eldad will review the key metrics of a SaaS business and help answer the following questions: What KPIs should I monitor? Where should I put my focus in order to improve results? Is the company business model viable? What is the impact of planned changes on results?The review an analysis is based on Eldad's experience from working at Incapsula as well as a number of publications and blogs on this topic. About Eldad Chai VP Products at Incapsula, responsible for the company's product strategy and execution. Prior to that, as Director of Sales, Eldad was leading all sales activities and driving the company's growth. Before joining Incapsula, he was Product Manager at Imperva's (NYSE: IMPV) award-winning Web Application Firewall, where he led the development and launch of its innovative ThreatRadar technology. About Incapsula A cloud-based Application Delivery Service that makes websites and applications safer, faster and more reliable. Incapsula, an Imperva (NYSE: IMPV) company, offers organizations, large or small, enterprise-grade web application security, DDoS mitigation, performance optimization and load balancing via a global worldwide delivery network.

1. SaaS Metrics
Eldad Chai, VP Products, Incapsula

2. Hello!
Eldad Chai
Product, startups, security
Incapsula
Security, performance, availability for websites as a service
This presentation
How to measure a SaaS business
Theory and real life

3. How are SaaS different?
Product companies
SaaS companies
Sell contracts
Add subscriptions
Track average selling price
Track lifetime value
Count units
Count customers
Onetime deals
Recurringvs. one time
Measure close rates
Measure renewalandchurn rates
Backward looking
Forward looking

4. The SaaS business model
Annual Recurring Revenue (ARR)
Annual Contract Value (ACV)
Or in short…
Get new customers
Keep them for as long as you can

5. SaaS key metrics
Monthly Recurring Revenue (MRR)Growth
ChurnValue/fit
Cost to Acquire Customer (CAC)Growth efficiency
Average Revenue Per Account (ARPA)Expansion
Life Time Value (LTV)Predictions
First 2-3 years
Scaling up phase

6. Should PMs care?
Collect
Analyze
Define
Execution
Product
Market analysis
Win/Loss
Competitive
Feedback
Feature requests
Business goals

7. Should PMs care?
Collect
Analyze
Define
Execution
Product
Market analysis
Win/Loss
Competitive
Feedback
Feature requests
Business goals
Monitor KPIs

8. Should PMs care?
SaaS provides a platform for analysis
Almost any change you make can be quantified
It is a CRIMEnot to tap into that power
Model and optimize
Conversion flows
Churn flows
Upgrade paths
Engagement
New features
…

9. Monthly Recurring Revenue (MRR)
This month’s MRR
Last month’s MRR
Churned MRR
Net new MRR
New deals
Upgrades and cross sales

10. Churn
Can be measured for MRR/ARR or customers
You should probably do both 푛푢푚푏푒푟표푓푐푢푠푡표푚푒푟푠푙푒푎푣푖푛푔 푡표푡푎푙푛푢푚푏푒푟표푓푐푢푠푡표푚푒푟푠(푤ℎ표푐표푢푙푑ℎ푎푣푒푙푒푓푡)

11. How churn kills growth
Annual net new ARR = $50K
Annual churn = 20%
0%
20%
40%
60%
80%
100%
120%
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
YoY
ARR
YEAR
ARR
ANNUAL GROWTH

12. What can cause churn?
Not enough value or lack of market fit
Bugs, instability or poor service
Not sticky
Hard adoption
Pricing is not structured right

13. How to reduce churn
Churn should be a focus area from day one
Monitor customer engagement seriously
Be sticky (with features or contracts)
Negative churn
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
1
3
5
7
9
11
13
15
17
19
21
23
25
27
29
31
33
35
MRR
MONTH
2% chrun
-2% churn

14. Churn advanced analysis
Free vs. SMB vs. Enterprise
Cohort analysis

15. Cost to acquire customer (CAC)
CAC is different for every source (don’t look at averages)
Months to recover CAC
LTV:CAC 푚푎푟푘푒푡푖푛푔푎푛푑푠푎푙푒푠푒푥푝푒푛푠푒푠 푛푢푚푏푒푟표푓푐푢푠푡표푚푒푟푠푎푑푑푒푑

16. Average recurring revenue per account (ARPA)
You want to see this one grow
Also keep track of only new customers 푀푅푅 푛푢푚푏푒푟표푓푐푢푠푡표푚푒푟푠

17. Life time value (LTV)
Predicts how much revenue will each customer bring in 퐴푅푃퐴 푐푢푠푡표푚푒푟푐ℎ푢푟푛푟푎푡푒

18. Industry standards
Benchmarks
LTV > 3 x CAC
Timeto break even < 12 months
Monthly churn < 2%

19. Industry standards

20. SaaS magic number (Josh James)
QRR = Quarterly Recurring Revenue
Expenses = Total Sales and Marketing Expense for last quarter
(푄푅푅−푄푅푅−1)×4 퐸푥푝푒푛푠푒푠−1
Check yourself
Step on it!
Looking for investors?
0.75
1.5

21. Growth levers
Churn
Product
Sales metrics
Upsell and cross sale
Funnel metrics

22. Funnel modeling
Marketing activity
Visit
Trial
Customer
•You need 50 new accounts to meet this quarter's targets
•How many visits to the website do you need?
•What kind of marketing activities should you execute on?
•Is the problem at sales or at marketing?

23. Funnel modeling
200 PPC
400 PR
400 Webinars
100*1/10%= 1000
50*1/50%= 100
50
•Don’t over analyze
•At the minimum track leads/trials (MQLs) and opportunities (SQLs)
•Understand the conversion rates
•Work backwards to set targets for the teams
•Recalibrate every quarter (sliding window)
50% conversion
10% conversion

24. Questions?
eldad.chai@gmail.com
@zitzkin

25. References (well… at least some of them)
https://blog.paymill.com/saas-metrics/
http://chaotic-flow.com/saas-metrics-joels-magic-number-for-saas-companies/
http://larsleckie.blogspot.co.il/2008/03/magic-number-for-saas-companies.html
http://www.slideshare.net/chrija1/9-worst-practices-in-saas-metrics
http://labs.openviewpartners.com/what-are-key-performance-indicators-6-saas-metrics-that-really-matter/
http://www.forentrepreneurs.com/saas-metrics/
http://www.forentrepreneurs.com/saas-metrics-2/
http://chaotic-flow.com/media/saas-metrics-guide-to-saas-financial-performance.pdf
http://andrewchen.co/2013/05/06/the-critical-metrics-for-each-stage-of-your-saas-business-guest-post-by-lars-lofgren-of-kissmetrics/
http://christophjanz.blogspot.co.il/
http://www.forentrepreneurs.com/2014-saas-survey-1/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+forentrepreneurs+%28For+Entrepreneurs%29
http://www.slideshare.net/Zuora/zuora-always-on20123-saas-metrics-that-matter-12301579?ref=http://www.zuora.com/top3saasmetrics/
https://blog.kissmetrics.com/saas-operating-metrics/
http://www.forentrepreneurs.com/why-churn-is-critical-in-saas/
http://www.forentrepreneurs.com/multi-axis-pricing-a-key-tool-for-increasing-saas-revenue/
http://www.forentrepreneurs.com/saas-metrics-2-definitions/
https://blog.kissmetrics.com/5-metrics-for-saas/
http://blog.clientheartbeat.com/customer-churn-rate/