Grow B2B SAAS Company Unit Economics
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The document discusses unit economics and metrics for a B2B SaaS company. It provides examples of key metrics like customer acquisition cost (CAC), lifetime value (LTV), monthly recurring revenue (MRR), and cash flow over time. It analyzes the company's funnel metrics, revenue, costs, profitability, and capital requirements under different scenarios to determine how changes could impact the business model. The document aims to help the CEO understand how to improve the unit economics and determine if the business is viable and worth investing in further.
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Grow B2B SAAS Company Unit Economics
- 1. Growing the company Unit economics example for B2B SAAS Dr Martin J Steinmann martin@steamfab.io
- 2. @SteafFab Ventures we know that innovation can be taught and learned. We support international startups in their quest to acquire customers and grow. We help you enter the U.S. market, attract a round of financing, extend the team, and acquire customers. We know how to create companies and our mission it top make you succeed. martin@steamfab.io Martin J Steinmann, Ph.D. martin@steamfab.io www.steamfab.io
- 3. A specific example: You are the CEO of a B2B company • You sell a SAAS solution with a subscription business model • You got $2m seed financing • You launched an MVP as a mobile app • You figured out how to attract customers • You are told that for an A-round you need $100k MRR martin@steamfab.io
- 4. CTR Click-through-rate CPC Cost per click CPM Cost per thousand impressions PPC campaign parameters
- 5. CTR Click-through-rate CPC Cost per click CPM Cost per thousand impressions PPC campaign parameters 1.9% $2 $38 Average values for search ads
- 6. Top of funnel metrics look like this • Your CTR is 2% on search ads • 13% download the app • Day-3 retention is 5% • 30 day retention is 3% (free tier) • 20% buy a subscription @ $19.95/mo martin@steamfab.io
- 7. Funnel Metrics # % $ Impressions CPM: $40 Clicks 2% CPC: $2 Downloads 13% 30-day 3% Subscription 1 20% martin@steamfab.io
- 8. Funnel Metrics # % $ Impressions CPM: $40 Clicks 2% CPC: $2 Downloads 13% 30-day 5 3% Subscription 1 20% martin@steamfab.io
- 9. Funnel Metrics # % $ Impressions CPM: $40 Clicks 2% CPC: $2 Downloads 167 13% 30-day 5 3% Subscription 1 20% martin@steamfab.io
- 10. Funnel Metrics # % $ Impressions CPM: $40 Clicks 1,282 2% CPC: $2 Downloads 167 13% 30-day 5 3% Subscription 1 20% martin@steamfab.io
- 11. Funnel Metrics # % $ Impressions 64,102 CPM: $40 Clicks 1,282 2% CPC: $2 Downloads 167 13% 30-day 5 3% Subscription 1 20% martin@steamfab.io
- 12. Funnel Metrics # % $ Impressions 64,102 CPM: $40 Clicks 1,282 2% CPC: $2 Downloads 167 13% $15.30 30-day 5 3% $512.80 Subscription 1 20% $2,564 martin@steamfab.io
- 13. Funnel Metrics # % $ Impressions 64,102 CPM: $40 Clicks 1,282 2% CPC: $2 Downloads 167 13% $15.30 30-day 5 3% $512.80 Subscription 1 20% $2,564 martin@steamfab.io 10 years to recover cost
- 14. Case A Case B # % $ # % $ Impressions 64,102 CPM: $40 CPM: $45 Clicks 1,282 2% CPC: $2 3% CPC: $1.5 Downloads 167 13% $15.30 15% 30-day 5 3% $512.80 15% Subscription 1 20% $2,564 1 25% martin@steamfab.io
- 15. Case A Case B # % $ # % $ Impressions 64,102 CPM: $40 5,926 CPM: $45 Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5 Downloads 167 13% $15.30 26.6 15% 30-day 5 3% $512.80 4 15% Subscription 1 20% $2,564 1 25% martin@steamfab.io
- 16. Case A Case B # % $ # % $ Impressions 64,102 CPM: $40 5,926 CPM: $45 Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5 Downloads 167 13% $15.30 26.6 15% $10 30-day 5 3% $512.80 4 15% $67 Subscription 1 20% $2,564 1 25% $267 martin@steamfab.io
- 17. Case A Case B # % $ # % $ Impressions 64,102 CPM: $40 5,926 CPM: $45 Clicks 1,282 2% CPC: $2 178 3% CPC: $1.5 Downloads 167 13% $15.30 26.6 15% $10 30-day 5 3% $512.80 4 15% $67 Subscription 1 20% $2,564 1 25% $267 martin@steamfab.io
- 19. Retention Curves for Android Apps Average D3 retention is 23% Average D30 retention is 10% Average D90 retention < 5% Average Retention Curve for Android Apps
- 20. Retention Curves for Android Apps Average D3 retention is 23% Average D30 retention is 10% Average D90 retention < 5% Average Retention Curve for Android Apps our company
- 21. Retention Curves for Android Apps Average Retention Curve for Android Apps 1.5 million apps our company
- 22. Retention Curves for Android Apps Average Retention Curve for Android Apps 1.5 million apps Bending the curve happens via activation, not notification spam
- 23. CAC = Customer Acquisition Cost Total marketing spend New subscribers
- 24. CAC Metrics • $267 per subscriber for campaigns • Total headcount cost per month fully loaded: $12,000 (director and manager) • 50 new subscribers per month CAC = $267 + $240 = $507 martin@steamfab.io remember that number
- 25. What is your marketing budget? Show me the data!
- 26. Monthly marketing budget • $13,350 for campaigns (variable) • $12,000 for headcount (somewhat fixed) $25,350 per month for 50 new subscribers martin@steamfab.io
- 27. Cohort Analysis
- 28. Cohorts are groups of people tracked over time oldest cohort newest cohort
- 29. Cohorts are groups of people tracked over time oldest cohort newest cohort today
- 30. Key metrics The key metrics you need to understand are inside your product. Post conversion user behavior drives most (all) of your success factors. It’s about the product, stupid! martin@steamfab.io
- 31. Making Money One year later …..
- 32. LTV = Long-term Value MRR per customerΣ
- 33. LTV = Long-term Value Subscription price Churn for |x| < 1 , Infinite decreasing geometric series
- 34. Revenue metrics • Subscription price is $19.95 • Monthly churn rate is 3% LTV: $665 per subscriber Average lifetime is 33 months martin@steamfab.io
- 35. Profitability metrics • Subscription price is $19.95 • Monthly churn rate is 3% • LTV is $665 • Average lifetime is 33 months • Months to recover CAC: 25 • LTV / CAC ratio: 1.3 martin@steamfab.io
- 36. Profitability metrics • Subscription price is $19.95 • Monthly churn rate is 3% • LTV is $665 • Average lifetime is 33 months • Months to recover CAC: 25 • LTV / CAC ratio: 1.3 martin@steamfab.io Profitable on a unit economic basis
- 37. Profitability metrics • Subscription price is $19.95 • Monthly churn rate is 3% • LTV is $665 • Average lifetime is 33 months • Months to recover CAC: 25 • LTV / CAC ratio: 1.3 Investor benchmark martin@steamfab.io
- 38. Capital Requirements What is this going to cost me?
- 39. Cash-flow metrics • Months to recover CAC: 25, monthly cash-flow for a cohort turns positive after 25 months • Cumulative negative cash-flow continues to accumulate • Investing more does not shorten the time to break-even, but deepens the hole Impact of faster growth on cash- flow and capital requirements Cumulativecash-flow martin@steamfab.io higher monthly investment in CAC
- 40. CF break-even month 48 martin@steamfab.io unit economic break-even first cohort
- 43. Max MRR = Max MRR New revenue per month Churn
- 44. Max MRR = Max MRR New revenue per month Churn 50 x $19.95 3% = $33k= LTV
- 46. 24 months Unit economic break-even 33 months Average life-time 48 months Monthly cash-flow break-even Max capital requirement 120 months Cumulative cash-flow break-even Timeline martin@steamfab.io } Profit Independent of investors
- 47. Defining Success Is this a business worth doing or investing in?
- 48. Business summary • After 4 years we reach $25,000 MRR and our monthly cash flow breaks even • We have 1,281 paying customers • We spent a total of $1.2m on marketing (campaigns & team) • We made $771k in total revenue • We spent $450k in capital to finance growth (ex. R&D, G&A) • Growth curve flattens out: Max MRR is $33k martin@steamfab.io
- 49. What would make this better? Sensitivity analysis martin@steamfab.io
- 50. $(400,000) $(350,000) $(300,000) $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- $50,000 $100,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow Case 1: Reduce churn rate from 3% to 1.5% martin@steamfab.io 1.5 years $100k
- 51. $(250,000) $(200,000) $(150,000) $(100,000) $(50,000) $- $50,000 $100,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow Case 2: Cut campaign cost in half, CAC $374 martin@steamfab.io 2 years $250k
- 52. $(1,000,000) $(900,000) $(800,000) $(700,000) $(600,000) $(500,000) $(400,000) $(300,000) $(200,000) $(100,000) $- Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow Case 3: Grow faster - double marketing spend martin@steamfab.io ($450k)
- 53. $(300,000) $(200,000) $(100,000) $- $100,000 $200,000 $300,000 $400,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow Case 4: Charge more - price $29.95 per month martin@steamfab.io 2+ years $230k
- 54. All 4 improvements combined $(500,000) $- $500,000 $1,000,000 $1,500,000 $2,000,000 $2,500,000 $3,000,000 $3,500,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow martin@steamfab.io 3 years $250k
- 55. 1 & 2 & 4 combined $(200,000) $- $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 Month 1 Month 3 Month 5 Month 7 Month 9 Month 11 Month 13 Month 15 Month 17 Month 19 Month 21 Month 23 Month 25 Month 27 Month 29 Month 31 Month 33 Month 35 Month 37 Month 39 Month 41 Month 43 Month 45 Month 47 Month 49 Month 51 Month 53 Month 55 Month 57 Month 59 Month 61 Month 63 Month 65 Month 67 Month 69 Month 71 Cumula&ve Cash Flow martin@steamfab.io 3 years $350k
- 56. Our company Case 1 Churn Case 2 CAC Case 3 Capital Case 4 Price The one I invest in 1&2&4 MRR $25,556 $34.314 $25,556 $51,072 $38,366 $103,058 $51,514 LTV / CAC 1.31 2.62 1.78 1.31 1.97 5.34 5.34 Months to break-even 25.4 25.4 18.8 25.4 16.9 12.5 12.5 Capital $446,158 $357,783 $209,580 $894,391 $247,670 $229,409 $114,585 Cumulative cash-flow $445,952 $277,634 $126,752 $894,019 $59,562 $1,025,850 $512,326 Max MRR $33,250 $66,500 $33,250 $66,500 $49,917 $199,667 $99,833 Business summary after 4 years Investor BootstrapHigh riskNo
- 57. Our company Case 1 Churn Case 2 CAC Case 3 Capital Case 4 Price The one I invest in 1&2&4 MRR $25,556 $34.314 $25,556 $51,072 $38,366 $103,058 $51,514 LTV / CAC 1.31 2.62 1.78 1.31 1.97 5.34 5.34 Months to break-even 25.4 25.4 18.8 25.4 16.9 12.5 12.5 Capital $446,158 $357,783 $209,580 $894,391 $247,670 $229,409 $114,585 Cumulative cash-flow $445,952 $277,634 $126,752 $894,019 $59,562 $1,025,850 $512,326 Max MRR $33,250 $66,500 $33,250 $66,500 $49,917 $199,667 $99,833 Business summary after 4 years Investor BootstrapHigh riskNo
- 58. 1&2&4 $51,514 5.34 12.5 $114,585 $512,326 $99,833 $1m capital $515,080 5.34 12.5 $1,146,714 $5,125,299 $998,333 MRR LTV / CAC Months to break-even Capital Cumulative cash-flow Max MRR $1m investment yields 10x martin@steamfab.io 10x 10x + $1m
- 59. Presented by SteamFab Ventures 745 Atlantic Ave Boston, MA www.steamfab.io martin@steamfab.io