Getting your pricing and metrics right is critical for any start-up, but doubly so for a recurring-revenue business. In this session, we explore key customer metrics for new ventures, including acquisition, activation, conversion, churn and referrals. We look at pricing in general and freemium in particular. Finally, we examine valuations for software-as-a-service (SaaS) companies and how they compare with companies using traditional software license models.

1. Tuesday, May 24th

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SaaS Math
Mark MacLeod
Real Ventures

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Introduction
CFO
Advisor
Investor

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Agenda
Why I love SaaS
Metrics 101
Pricing Magic
Valuation
Q &A

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Why I love SaaS
and by “I”, I mean Investors
$ 21B Market
20% Growth
Certainty Premium

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SaaS Metrics 101
“In God we trust, all others bring data”
W. Edwards Deming

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Metrics for Pirates
Source: Metrics for Pirates - 500 Hats

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Metrics 101:
Where to focus,when...
1st battle - Acquisition
Release early,even if it sucks
Talk to users!
Test messaging,channels
Measure every action

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Metrics 101:
Where to focus,when...
Ultimate battle: Retention
Churn Rate is the most important metric
for SaaS businesses

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What to measure
Part 1 - The Funnel
Source: http://www.forentrepreneurs.com/saas-metrics/

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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

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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

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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.)

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What to measure
Referral
K Factor -Viral Coefficient
Understand change in each key driver

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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

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What to measure
Part 1I - Per User Economics

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Per User Economics
Elements:
Revenue Per Month (ARPU) * Life of a User
*
Margin %
Less
Cost of Acquisition (CAC)
=
Customer LifetimeValue (CLTV)

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Impact of Churn
Source: http://www.forentrepreneurs.com/saas-metrics/
At $5/ month
Lifetime
Revenue
Low - $100
High - $500

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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

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CAC
How Much should you spend?
Depends on churn
Target 6 months’ revenue or less
Be willing to spend up to marginal CLTV

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How To Measure
Custom Built

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How To Measure
Off the Shelf

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Example

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Example

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Pricing

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Elements of Your Pricing Decision
Value Proposition - Hard ($) vs. Soft (time)
Positioning
Target customer - Consumer, Business
Comparables
How you sell?
Acquisition Cost

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Pricing Examples
$ 10 $ 20 $ 49 $ 24
$ 20 $ 30 $ 250 $ 25 ++

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Freemium

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Freemium
Necessary Conditions:
Large market
Incremental Cost to serve = $0
Clear upgrade Path
Funding $

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Freemium
Why freemium?
Reduce barriers to try
Disrupt the market
Network effects

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Freemium
Freemium Types
Direct: Premium version
Indirect:Access the user base (ads, subscriptions)

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Case Study: Freshbooks

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Case Study: Mint.com

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Annual Prepay
Offer Discounts for Prepayment

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SaaS Valuations

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Early Stage Valuations
Not Numbers Driven
Factors:
Team
Track Record
Traction
Opportunity Size
Deal Competition

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Late Stage Valuations
Source: Software Equity Group, L.L.C

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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

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q & a
Questions?

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thank you
mark macleod
twitter: @startupcfo
blog: startupcfo.ca
web: realventures.com
about.me/markmacleod