Presentation given by Blake Bartlett from OpenView Venture Partners. What’s the first metric VCs hunt for in your pitch deck? Easy… committed monthly recurring revenue (CMRR). Everyone knows that, right? In their famous report on the laws of cloud computing, Bessemer Venture Partners rightly says, “[CMRR] is the single most important metric for a Cloud business to monitor, as the change in CMRR provides the clearest visibility into the health of any Cloud business.”
Ask any cloud / SaaS investor, and they’ll say the same thing. This is the foundational metric that everyone scours the pitch deck to find.
But is CMRR growth everything? Let’s compare two companies with nearly identical CMRR growth curves. We’ll call them Company ABC and Company XYZ. The chart below shows that indeed, both companies are on the same CMRR trajectory.
Read more at http://blog.openviewpartners.com
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Why the Most Important Success Metric in SaaS is Misleading
1. Blake Bartlett
OpenView Venture Partners
@blakebartlett
Why the Most Important
Success Metric in SaaS
Is Misleading
Featuring the stars of the new Vince Vaughn movie –
Unfinished Business (and other celebrities)
2.
3. What’s the first metric VCs hunt for in
your pitch deck?
That’s easy..
5. “[CMRR] is the single most important
metric for a Cloud business to monitor,
as the change in CMRR provides the
clearest visibility into the health of any
Cloud business.”
Bessemer Venture Partners
Laws of Cloud Computing
7. This is the foundational metric that
everyone scours the pitch deck to find.
But is CMRR growth everything?
8.
9. Two Companies / Same CMRR Trajectory
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
Total CMRR Over Time
Company ABC Company XYZ
Which company is more interesting?
14. Gross New CMRR Added per Month
Since each month can be viewed as a new customer cohort (upsells are excluded),
this tells you the size of each new cohort you’re adding (in $). This is basically your
new customer sales.
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
New Customer CMRR Per Month
Company ABC Company XYZ
17. $0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
New Customer CMRR Per Month
Company ABC Company XYZ
ABC has grown the new cohort size (aka sales) by 2.4x in 2 years. ABC
clearly knows how to scale! XYZ is so boring. They’ve been adding $10K
of new CMRR every month for two years. WOMP WOMP. No thanks XYZ.
21. Solving for end-of-month CMRR (1st
Chart) is pretty simple arithmetic.
End-of-Month CMRR =
Beginning-of-month CMRR + New Customer
CMRR + Upsell CMRR - Downgrade CMRR -
Churned CMRR.
22. Let’s look at the inputs:
1. Beginning-of-month CMRR: more of an input than a
variable here, ignore
2. New Customer CMRR: we know this from Chart 2.
Again, XYZ is growing and ABC is flat
3. Upsell CMRR
4. Downgrade CMRR
5. Churned CMRR
These are all sub-elements of retention
24. What’s the best way to measure churn and
benchmark against other SaaS
companies?
Net dollar retention.
If I acquire $1 of CMRR today, what is that
$1 worth over time?
25. I’ve seen a lot of companies recently
with strong CMRR growth
But weak net dollar retention – with $1
of CMRR shrinking to 40-50¢ within 12
months
33. This equation measures CMRR in Month X as a % of CMRR in Month 1
0%
20%
40%
60%
80%
100%
120%
140%
CMRR in Month X as a % of CMRR in Month 1
Company ABC Company XYZ
Let’s look at the net dollar retention curves of Company ABC
and XYZ to understand what’s going on…
36. Let’s assume XYZ is able to scale its go-to-market like ABC.
Which will give us a true apples-to-apples comparison
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
New Customer MRR Per Month
Company ABC Company XYZ
45. What you need to remember
1. Improving net dollar retention gives you much
more leverage on the go-to-market front.
2. The 1-2 punch of accelerating customer
acquisition and healthy retention is the magic
formula for exponential growth and lots of VC
love.
46. Blake Bartlett
OpenView Venture Partners
@blakebartlett
You can find more content on
expansion-stage growth at
www.openviewpartners.com
Thanks!