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5 Tenets to Success SaaS
Metrics
February 25, 2015
Housekeeping
• Q&A panel on your right
• Recording for colleagues who can’t make it
• All attendees will receive slides
• ...
Our Speakers
Lincoln Murphy
Customer Success Evangelist
lmurphy@gainsight.com
@lincolnmurphy
David Spitz
Managing Director...
Disclosure
This document has been prepared by Pacific Crest Securities. Information contained herein has been obtained fro...
Can
measure
churn
Can’t
1. Why are metrics like LTV, CAC, and
Churn more important in SaaS?
Traditional Perpetual
License Software
SaaS
o “One and Done”
o Revenues minus costs
essentially tell the story
o LTV and C...
LTV CAC
?
ARR  Gross Margin
Churn
$ Cost to Acquire
a Customer
Results from 2014 Pacific Crest Private SaaS Company Survey Results
156 respondents
Note: Survey responses as of June / Ju...
243 respondents
Note: Survey responses as of June / July 2014
30
15
15
39
34
35
75
0 20 40 60 80
<90%
90-95%
95-100%
~100%...
Respondents: New ACV from New Customer: 159, Upsell to Existing Customer: 151, Renewals: 153
Note: Survey responses as of ...
Source: SuccessFactors Roadshow Presentation
Cohort Analysis Example – SuccessFactors IPO Roadshow Slide
2. Isn’t Customer Success more about a
“relationship?”
Relationship
thinking is
crucial
Relationship based on the customer’s success
Success Advocacy
http://www.saastr.com/its-not-just-cltv-its-your-trgcltv-that-matters-total-all-in-revenue-generated-by-your-customer/
3. So I have benchmarks… How do I use
them? What are the implications for my
business?
182 and 181 respondents, respectively
Note: Survey responses as of June / July 2014
Results from 2014 Pacific Crest Privat...
WDAY
NOW
DWRE
VEEV
N
ZEN
PFPT
PCTY
TXTR
MKTO
CSOD
ULTI
BNFT
ATHN
CVT
CRM
QLYS
OPWR
SPSC
AMBR
QTWO
ECOM
EOPN
TWOU
PAYC
FLTX...
Huge Impact to Sustained Differences in Churn
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
$400,000
$4...
4. How do we think about benchmarking customers?
5. How do we get started?
Benchmarking Yourself Against Others
• Peers
• Investors
• Analysts
• Pacific Crest’s SaaS Survey
• SaaS Capital’s Survey
...
Benchmarking Your Customers
 Ensure you’re collecting the required data and
that it can be anonymized
 (Not a Lawyer, bu...
6. Bonus – what should I
NOT do?
Case Study: XYZ Corp.
Year 1 Year 2
Attractive Subscription
Revenue Growth
$54M
 $72M
(+33% growth)
Excellent Gross Margi...
Year 1 Year 2
LTV
$50K x 76%
= $253K

$55K x 80%
= $254K
15% 17%
CAC
$34M
= $113K

$59M
= $118K
300 500
LTV / CAC 2.25x
...
Q&A
Lincoln Murphy
Customer Success Evangelist
lmurphy@gainsight.com
@lincolnmurphy
David Spitz
Managing Director
Software...
Thank You!
February 25, 2015
Customer Success: The Secret to Subscription Success and the Metrics that Matter
Customer Success: The Secret to Subscription Success and the Metrics that Matter
Customer Success: The Secret to Subscription Success and the Metrics that Matter
Customer Success: The Secret to Subscription Success and the Metrics that Matter
Customer Success: The Secret to Subscription Success and the Metrics that Matter
Customer Success: The Secret to Subscription Success and the Metrics that Matter
Customer Success: The Secret to Subscription Success and the Metrics that Matter
Customer Success: The Secret to Subscription Success and the Metrics that Matter
Customer Success: The Secret to Subscription Success and the Metrics that Matter
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Customer Success: The Secret to Subscription Success and the Metrics that Matter

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Did you know? Less than a 1/3 of companies are able to accurately measure and manage churn – the critical metric for subscription businesses.

The challenges are numerous – from emerging roles and responsibilities to inadequate technology stacks built for transactional business models. Fortunately, successful SaaS pioneers have honed their processes and owe success in part to carefully managing a new class of metrics. From survey data, we’ll show you what you need to know as your company scales.
Join Gainsight and Pacific Crest Securities for a live webinar on 2/25 at 10:00 AM PT to learn:
How you stack up against high-performing SaaS companies across a variety of areas
Which metrics a Customer Success team and leader need to start measuring and managing
What you need to do to prepare for public market scrutiny
When: February 25, 10:00 AM PST
Who:
David Spitz, Managing Director, Software & Security at Pacific Crest Securities
Lincoln Murphy, Customer Success Evangelist at Gainsight

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Customer Success: The Secret to Subscription Success and the Metrics that Matter

  1. 1. 5 Tenets to Success SaaS Metrics February 25, 2015
  2. 2. Housekeeping • Q&A panel on your right • Recording for colleagues who can’t make it • All attendees will receive slides • Twitter hashtag #customersuccess
  3. 3. Our Speakers Lincoln Murphy Customer Success Evangelist lmurphy@gainsight.com @lincolnmurphy David Spitz Managing Director Software Investment Banking dspitz@pacific-crest.com @dspitz
  4. 4. Disclosure This document has been prepared by Pacific Crest Securities. Information contained herein has been obtained from sources believed to be reliable, but the accuracy and completeness of the information, and that of the opinions based thereon, are not guaranteed. This document is for information purposes only and is not an offer to buy or sell or a solicitation of an offer to buy or sell the securities mentioned. Pacific Crest Securities and entities and persons associated with it, including its analysts, may have long or short positions or effect transactions in the securities of companies mentioned in this report, and may increase or decrease such holdings without notice. Pacific Crest Securities may make a market in the shares of any such company. These markets may be changed at anytime without notice. Pacific Crest Securities may have acted as lead or co-managing underwriter in one or more of such company’s U.S. equity offerings, and it may perform or seek to perform other investment banking services for any company referenced in this document. Pacific Crest’s specific disclosures can be seen here: http://www.pacific-crest.com/disclosures/ Pacific Crest’s privacy policy can be seen here: http://www.pacific-crest.com/privacy-policy/ Survey respondents participated anonymously and confidentially. Responses were received through online surveys taken in June-July 2014. Pacific Crest cannot verify accuracy of responses. Observations and commentary contained herein relate solely to the survey results and cannot necessarily be applied elsewhere.
  5. 5. Can measure churn Can’t
  6. 6. 1. Why are metrics like LTV, CAC, and Churn more important in SaaS?
  7. 7. Traditional Perpetual License Software SaaS o “One and Done” o Revenues minus costs essentially tell the story o LTV and CAC o Dollar Retention o Land and Expand VS. John
  8. 8. LTV CAC ? ARR  Gross Margin Churn $ Cost to Acquire a Customer
  9. 9. Results from 2014 Pacific Crest Private SaaS Company Survey Results 156 respondents Note: Survey responses as of June / July 2014 Annual Gross Dollar Churn “What percentage of total ACV on a dollar basis churns in a given year (excluding upsells)?” # of Responses AnnualGrossDollarChurn Median ≈6% 59 48 20 13 16 0 10 20 30 40 50 60 70 <5% 5-10% 10-15% 15-20% >20%
  10. 10. 243 respondents Note: Survey responses as of June / July 2014 30 15 15 39 34 35 75 0 20 40 60 80 <90% 90-95% 95-100% ~100% 100-105% 105-110% >110% Median ≈ 103% 100%+NetRetention (Upsellsgreater thanchurn) NetChurn (Churngreater thanupsells) Net Dollar Retention (Including Upsells and Expansions) “How much do you expect your ACV from existing customers to change, including the effect of both churn and upsells?” Results from 2014 Pacific Crest Private SaaS Company Survey Results # of Responses
  11. 11. Respondents: New ACV from New Customer: 159, Upsell to Existing Customer: 151, Renewals: 153 Note: Survey responses as of June / July 2014 Results from 2014 Pacific Crest Private SaaS Company Survey Results Customer Acquisition Cost “How much do you spend on a fully-loaded sales & marketing cost basis to acquire $1 of ACV from a customer?” $0.60 $0.10 $0.06 $1.44 $0.46 $0.26 $1.07 $0.18 $0.12 $0.00 $0.25 $0.50 $0.75 $1.00 $1.25 $1.50 New ACV from New Customer Upsell to Existing Customer Renewals 75th percentile 25th percentile Median
  12. 12. Source: SuccessFactors Roadshow Presentation Cohort Analysis Example – SuccessFactors IPO Roadshow Slide
  13. 13. 2. Isn’t Customer Success more about a “relationship?”
  14. 14. Relationship thinking is crucial
  15. 15. Relationship based on the customer’s success
  16. 16. Success Advocacy
  17. 17. http://www.saastr.com/its-not-just-cltv-its-your-trgcltv-that-matters-total-all-in-revenue-generated-by-your-customer/
  18. 18. 3. So I have benchmarks… How do I use them? What are the implications for my business?
  19. 19. 182 and 181 respondents, respectively Note: Survey responses as of June / July 2014 Results from 2014 Pacific Crest Private SaaS Company Survey Results 2 23 32 37 18 14 17 6 9 24 2 13 36 32 28 19 10 16 10 15 0 5 10 15 20 25 30 35 40 <0% 0%-10% 10%-20% 20%-30% 30%-40% 40%-50% 50%-60% 60-80% 80-100% >100% NumberofCompanies 2013 GAAP Revenue Growth 2014E GAAP Revenue Growth Median 2013 GAAP Rev Growth ≈ 29% Median 2014E GAAP Rev Growth ≈ 33% GAAP Revenue Growth “How fast did you grow GAAP revenues in 2013? How fast will you grow GAAP revenues in 2014?”
  20. 20. WDAY NOW DWRE VEEV N ZEN PFPT PCTY TXTR MKTO CSOD ULTI BNFT ATHN CVT CRM QLYS OPWR SPSC AMBR QTWO ECOM EOPN TWOU PAYC FLTX LOGM RNG TRAK FIVN CTCT SQI MRIN RALY >34% Mean 24-34% Mean 18-24% Mean <18% Mean YDLE HUBS NEWR BOX WK 0.0x 4.0x 8.0x 12.0x 0% 10% 20% 30% 40% 50% 60% EV/CY2016ERevenueMultiple Projected CY2015E Revenue Growth Source: Capital IQ and company filings Note: Pricing as of February 23, 2015 Public SaaS Company Revenue Multiples as a Function of Growth >34%24-34%18-24%<18% ’14-’15E Revenue Growth
  21. 21. Huge Impact to Sustained Differences in Churn $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 1 4 7 10 13 16 19 22 25 28 31 34 37 40 Month $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 $350,000 $400,000 $450,000 $500,000 1 4 7 10 13 16 19 22 25 28 31 34 37 40 Month Cohort Performance with +3% Monthly Churn Cohort Performance with -3% Monthly Churn Source: www.forentrepreneurs.com “SaaS Metrics 2.0”
  22. 22. 4. How do we think about benchmarking customers?
  23. 23. 5. How do we get started?
  24. 24. Benchmarking Yourself Against Others • Peers • Investors • Analysts • Pacific Crest’s SaaS Survey • SaaS Capital’s Survey • Gainsight SuccessIndex
  25. 25. Benchmarking Your Customers  Ensure you’re collecting the required data and that it can be anonymized  (Not a Lawyer, but…) Ensure you’re Terms of Service, Privacy Policy, Contract, etc. is updated  If opt-in is required, position is as a win-win-win for all involved
  26. 26. 6. Bonus – what should I NOT do?
  27. 27. Case Study: XYZ Corp. Year 1 Year 2 Attractive Subscription Revenue Growth $54M  $72M (+33% growth) Excellent Gross Margins 76%  80% Reasonable Monthly Churn 1.3%  1.4% Positive Trends in Customer Count and Average ACV 1,150 $50K  1,450 $55K Sales & Marketing Expense Ratios Mirroring Many High Growth Companies 63% of revenues  83% of revenues Question: How attractive is this?
  28. 28. Year 1 Year 2 LTV $50K x 76% = $253K  $55K x 80% = $254K 15% 17% CAC $34M = $113K  $59M = $118K 300 500 LTV / CAC 2.25x  2.15x Case Study: XYZ Corp. (cont’d) Customer Detail Customers (Beginning) 1,000 1,150 New Customers 300 500 Churn (150) (200) Customers (End) 1,150 1,450 Annual Churn 15% 17% ACV $50K $55K
  29. 29. Q&A Lincoln Murphy Customer Success Evangelist lmurphy@gainsight.com @lincolnmurphy David Spitz Managing Director Software Investment Banking dspitz@pacific-crest.com @dspitz
  30. 30. Thank You! February 25, 2015
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Did you know? Less than a 1/3 of companies are able to accurately measure and manage churn – the critical metric for subscription businesses. The challenges are numerous – from emerging roles and responsibilities to inadequate technology stacks built for transactional business models. Fortunately, successful SaaS pioneers have honed their processes and owe success in part to carefully managing a new class of metrics. From survey data, we’ll show you what you need to know as your company scales. Join Gainsight and Pacific Crest Securities for a live webinar on 2/25 at 10:00 AM PT to learn: How you stack up against high-performing SaaS companies across a variety of areas Which metrics a Customer Success team and leader need to start measuring and managing What you need to do to prepare for public market scrutiny When: February 25, 10:00 AM PST Who: David Spitz, Managing Director, Software & Security at Pacific Crest Securities Lincoln Murphy, Customer Success Evangelist at Gainsight

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