"SaaS Metrics, how does to leverage the subscription economy?" by Patrick Campbell, CEO at Price Intelligently

How Growth is Changing
The Family - Berlin 2017
#TFBERLIN Brought to you by your friends at@PriceIntel

We live in a world where
acquisition, as we know it,
is dead.

Who in the world are you?

ProﬁtWell
SaaS pricing software
and tech enabled
services
Free ﬁnancial metrics
for subscription
businesses
Price
Intelligently
Happy customers big and small
#TFBerlin Brought to you by your friends at@PriceIntel

We’ve seen inside more software
companies than anyone else on the
planet.

The market is saturated, and
unit economics just aren’t
what they used to be…

Competition is now rampant.

Q: How many competitors did you have in your first year of business?
A: Companies started more than a year ago had far fewer
competitors in their space than companies started today.
N = 1432 software founders and executives
Average#ofCompetitorsintheirfirst
yearofbusiness
0
3
5
8
10
5 years old 3 years old 1 year old
9.7
4.8
2.6

Q: How many competitors do you have now?
A: Older companies increased competition over time, likely due
to attracting new entrants, as well as decreased barrier to entry
CurrentAverageNumberofCompetitors
0
3
7
10
13
5 years old 3 years old 1 year old
10.25
11.7512.15

The relative value of features is declining.
All software is going to $0.

N = Varies by line, but minimum of 10,000 customer respondents per line
WTPas%ofWTP4YearsAgo
0%
30%
60%
90%
120%
4 Years Ago 3 Years Ago 2 Years Ago 1 Year Ago Today
Core Features Single Sign On Integrations Analytics
Q: How has software willingness to pay (WTP) evolved over time?
A: Software willingness to pay has declined significantly over the
past few years due to increased options and higher demands.

CAC is steadily increasing over time.

Q: How has customer acquisition cost (CAC) evolved over time?
A: Customer acquisition cost has increased significantly over the years
due to market saturation of marketing vying for consumer attention.
BlendedCACas%ofblendedCAC4
YearsAgo
-15%
0%
15%
30%
45%
60%
4 Years Ago 3 Years Ago 2 Years Ago 1 Year Ago Today
B2B B2C
N = 437 companies per line

We make matters worse by focusing on the
wrong fundamentals.

Q: Which pillar of your business is the most important to your growth?
A: Founders and software executives overwhelmingly put
their support behind acquisition based growth.
%oftotalrespondents
0%
25%
50%
75%
100%
More logos Making more money per customer Keeping customers around longer

There are clear winners and
losers in this environment.

Q: What was the growth focus of companies that died in the past couple of years?
A: Of 90 companies that died in the past 3 years, the majority
of them were focused on acquisition based growth.
N = 90 companies that went out of business or were fire sold in the past 36 months
%ofCompanies
0%
25%
50%
75%
100%
Less than $10M ARR $10.01M to $25M ARR $25.01M+ ARR
Primarily Acquisition Growth Balanced Growth

Q: How does growth compare between acquisition based companies and their balanced counterparts?
A: Acquisition based growth companies grow at a smaller rate than those
with a balanced growth approach (growth from all three pillars of growth).
N = Minimum of 512 companies per segment pulled from the middle 2/3 of companies in terms of growth rate. This,
along with a dampening model was used to control for outlier spikes in growth rate.
YoYGrowthRate
0%
14%
28%
41%
55%
2012 2013 2014 2015
Primarily Acquisition Growth Balanced Growth

Q: If we improve each area of a software business equally, what’s the relative impact on revenue?
A: Monetization and retention based growth far outpaces
acquisition based growth.
%impactonrevenue
0%
2%
5%
7%
9%
12%
14%
Acquisition Monetization Retention
3.32%
N = Data from 734 software companies

%impactonrevenue
0%
2%
5%
7%
9%
12%
14%
6.71%
3.32%

%impactonrevenue
0%
2%
5%
7%
9%
12%
14%
6.71%
12.7%
3.32%

%impactonrevenue
0%
3%
6%
9%
12%
15%
18%
9.32%
15.89%
2.35%
6.71%
12.7%
3.32%
2008 - 2012 2013 - 2016

The root cause is we don’t
know our buyers.

Q: What are quantified buyer personas?
A: Quantified buyer personas are data driven profiles of the
customers you’re targeting or choosing to ignore.
Table Stakes Tony
• Valued features:
• SFDC Integration
• Chrome extension
• Least valued features
• Analytics
• API access
• WTP = ~$10/month
• CAC = ~$22
• LTV: $160
Advanced Arnie
• Analytics
• API Access
• Chrome extension
• Premium support
• CAC = ~$56
• LTV: $325

Q: Which single category describes your buyer personas internally?
A: When asked, SaaS founders and executives indicated that their
company’s buyer personas weren’t well defined or centralized.
%ofrespondents
0%
20%
40%
60%
80%
100%
Thought about them Central document Quantified buyer personas
6.6%
36.6%
56.8%
N = 1,647 SaaS Founders and Executives

Q: How many customer development conversations (non-sales) are you having per month?
A: SaaS founders and executives indicated that their companies are primarily
only talking to less than 10 customers in a cust dev capacity per month.
%ofrespondents
0%
20%
40%
60%
80%
100%
10 or less 11 to 25 26 to 50 51+
3.9%10.1%17.7%
68.3%

Q: How many experiments are you running per month (including marketing experiments)?
A: SaaS founders and executives indicated that their companies
are overwhelmingly running less than 10 experiments per month.
%ofrespondents
0%
20%
40%
60%
80%
100%
0 1 to 3 4 to 10 11+
2.7%12.1%
37.8%
47.8%

The is should be scary.

Point of Conversion
Offer Product #1
Justify price #1 Offer Product #1
Justify price #1
Offer Product #1
Justify price #1
Drive Customer #1 Drive Customer #2 Drive Customer #3
Buyers are the central tenet of your business

Too many of us build first, and find our true
customer later. That doesn’t work.

How do we quantify our buyer
personas?

Let’s walk through an example….

ProfitWell: Eating our own dog food

“Ohhh…you’re like…”

Stop building. Start talking.

For the love of God. Talk to your customer.

Cool? Awesome - here’s how to do that.

Q: How do we collect the right data to quantify our buyer personas and set our pricing up correctly?
A: The data collection isn’t rocket science at a high level, but
the devil, as per usual, is in the details.
1
2
3
Buyer Personas
and Design
1
Data Collection
And Segmentation
2
Data Consolidation
And Analysis
3

Startup Steve
•
•
•
•
• WTP = ~$X/month
• CAC = ~$XX
• LTV: $XXX
Miderprise Marty
•
•
•
•
• WTP = ~$X/month
• CAC = ~$XX
• LTV: $XXX
Customer development process

Details: What’s our experimental design look like?

Our Experimental design - the details
• We want to focus on a core research question and then expand out utilizing three types of data:
• Demographic data
• Feature value/relative preference data
• Pricing data
1
2
3
Your Customer Development Toolkit
Price Sensitivity Analysis
Proven model for gauging customer’s
willingness to pay and price sensitivity
Experimental Design
Properly segmenting and breaking down the data.
Relative Preference Analysis
Statistical methodology to measure
preferences for features, intention, and
value propositions

What do people value?

Q: Why do traditional survey collection methods fail?
A: We’re bad at collecting the right data, because we don’t
focus enough on forcing decisions or asking the right questions.
1
2
3
“Please rank the following features on a
scale from 1 to 10”
Depth of your metrics
Beautiful Design
Actionability from your metrics
Accuracy of your metrics
0 0.25 0.5 0.75 1

Q: How should we ask a preference or value questions?
A: Utilize a methodology that forces the respondent to make a decision. We
believe that the Max Diff methodology gets you the best bang for your buck.
1
2
3

Q: What type of feedback will you get with max diff?
A: When utilizing Max Diff, you get both rank order and magnitude, which
allows you to save yourself from costly false positives on preferences.
1
2
3

Startup Steve
• Price
• Design
• Actionability
• Depth
• WTP = ~$X/month
• CAC = ~$XX
• LTV: $XXX
Miderprise Marty
• Accuracy
• Uptime
• Price
• Design
• WTP = ~$X/month
• CAC = ~$XX
• LTV: $XXX

How much are people willing to pay?

Core pricing questions - taking advantage of human
psychology
• Human beings think about value as a spectrum. We can take advantage of this phenomenon by asking
pricing questions in a ranged manner:
• At what (monthly) price point does [PRODUCT] become too expensive that you’d never consider
purchasing it?
• At what (monthly) price point does [PRODUCT] start to become expensive, but you’d still consider
purchasing it?
• At what (monthly) price point does [PRODUCT] a really good deal?
• At what (monthly) price point does [PRODUCT] too cheap that you question the quality of it?
1
2
3

Q: Why is asking in ranges the most effective way to ask pricing questions?
A: Ranged questions allow your to get the best answers from respondents,
but also ensure you’re able to properly segment and measure elasticity.
1
2
3

1
2
3
WTP for a SaaS Metrics Solution
WTP
$0
$75
$150
$225
$300
Size of Company (MRR)
$0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+

Startup Steve
• Price
• Design
• Actionability
• Depth
• CAC = ~$XX
• LTV: $XXX
Miderprise Marty
• Accuracy
• Uptime
• Price
• Design
• WTP = ~$150-200/month
• CAC = ~$XX
• LTV: $XXX

Startup Steve
• Price
• Design
• Actionability
• Depth
• CAC = ~$500-$600
• LTV: $600
Miderprise Marty
• Accuracy
• Uptime
• Price
• Design
• WTP = ~$150-200/month
• CAC = ~$3000
• LTV: $1500

1
2
3
WTP for a Churn Reduction Solution
WTP
$0
$1,250
$2,500
$3,750
$5,000
$0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+

1
2
3
WTP for a Rev Rec Solution
WTP
$0
$1,000
$2,000
$3,000
$4,000
$0 - $50k $51k - $100k $101k - $250k $251k - $500k $501k+

Putting it all together.

Q: How do you start to put this all together?
A: This is where you earn your paycheck on making hedged
decisions based on your research question.
1
2
3
Low CAC with
constant value
Creates the
Requirement
Path to Share of
Wallet
ProfitWell
Financial metrics for the subscription economy
100% accurate SaaS
metrics for free
integrating 1-click with
your billing system
Central fulcrum to cust
success, sales, finance,
marketing e-team, and
rest of stakeholders
Allows interface to
clearly point to
problems and reinforce
value of paid add-ons

Start small. You can always test more.

12 hours.

12 hours. $2,089.

Implement a customer
development process.

patrick@priceintelligently.com

"SaaS Metrics, how does to leverage the subscription economy?" by Patrick Campbell, CEO at Price Intelligently

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"SaaS Metrics, how does to leverage the subscription economy?" by Patrick Campbell, CEO at Price Intelligently