A High Growth SaaS Playbook

12 Metrics to drive success

David Skok
ForEntrepreneurs Blog
General Partner, Matrix Partners
Goals

Present a simple model to

1 understand a SaaS business

Show what Levers a CEO can

2 pull to get most impact
A QUICK PREAMBLE
The Three Phases of a Startup’s Lifecycle

Search for Product/Market Fit

Search for Repeatable & Scalable

& Profitable Growth Model

Scaling the Business

Predictable, Repeatable, Scalable, Profitable Growth

Search for Product/Market Fit

Search for Repeatable & Scalable

& Profitable Growth Model

Scaling the Business

Also happens to be what Growth Round investors are looking for
 The key sign that you’re getting there:
Bookings - (NOT Revenue or ARR!)

For SaaS:
Bookings = Net New ARR
(New + Expansion – Churned)

Q1 Q2 Q3 Q4 Q5 Q6 Q7
ARR with Flat Bookings ARR with Growing Bookings

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q1 Q2 Q3 Q4 Q5 Q6 Q7
The right way to measure SaaS Bookings

New ARR
(New Customers)

Net New Expansion ARR

ARR (Existing Customers)

Churned ARR
(Lost Customers)
Key SaaS chart: 4 components of bookings
ARR Bookings
$35.0

$30.0

New ARR Always look at a

$25.0
chart that shows the
$20.0
trendlines to see if
there is growth
$15.0 Net New ARR

$10.0

Expansion ARR
$5.0

$-
Jan Feb Mar Apr May Jun

$(5.0)

$(10.0) Churned ARR

$(15.0)
How do we drive Net New ARR?
A Funnel
The Full SaaS Funnel

Onboard
Retain
Expand

Loyal Customers
who are advocates
The Beautiful Thing about Funnels…
Governed by very simple Math
 Top of Funnel Flow
Two Key Levers (Quantity)

Conversion
Rate
Secondary Funnel Metrics

CAC

Time
Two Sales Motions

Touchless Self-Serve Sales People Needed

• No Sales people
• Based on Free Trial
The Simple Case: Touchless Self Serve

Visitors to Sign up for Closed

Web Site Free Trial Deals
Funnel Metrics are Essential

"IF YOU CAN NOT MEASURE IT,

YOU CAN NOT IMPROVE IT."
- LORD KELVIN
The Key Metrics
CAMPAIGNS
TO DRIVE
TRAFFIC

VISITORS

OVERALL
CONVERSION
CONVERSION % %

TRIALS

CONVERSION
%

CLOSED DEALS
Not all Lead Sources are Equal
Google Ad Words FaceBook Ads

Visitors Visitors

5% 2%
Trial Trial

10% 20%

$5,000 $8,000
Customer Customer
ROI by Lead Source

Cost per lead

OVERALL
CONVERSION %

(BY LEAD SOURCE)

LTV
Fix Conversion Rates First
• Fix before spending heavily on Traffic growth

• Three starting points:

• Improve Product/Market fit
• Find the optimal Customer Segments
• Clear, Simple, Powerful, Messaging & Positioning
So Far we’ve looked at the simple case

Touchless Self-Serve

• No Sales people
• Based on Free Trial
What Happens when the sale is more complex, and
needs a sales person?

Sales People Needed

Without Sales people

Visitors to Conversion Closed

Web Site Rate Deals

Simple linear relationship

But when you add in Sales People…

Sales
Ramp Capacity
Time Limit
Growth comes in discontinuous units
The Unit of Growth

Sales Person
Supported by Leads & Customer Success

Leads Customer Success,

Renewals, etc.
$’s
Marketing
Spend

Sales Person

SDR’s
What Drives Bookings?

x
No of PPR
Sales People Productivity per Rep
(Average)
Lets look at each of these in turn…
Number of Sales People

One of the most common reasons for missing plan

Didn’t hire sales people fast enough

Sales Hiring
• You will need to build an in house recruiting machine

See my blog post:

“Recruiting: the third crucial Startup Skill”
Two Metrics to Track Assigned Quota vs Plan & New ARR

$2,500

Assigned Quota Plan Bookings

Number of Reps versus Plan
18 $2,000

16

14
$k $1,500
12

10
$1,000
8
Reps Plan
6
$500
4

2
$0
0 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17
Q4-16 Q1-17 Q2-17 Q3-17 Q4-17
 Assigned Quota vs Plan & New ARR

$2,500

Assigned Quota Plan Bookings

$2,000

Lost Bookings
$500k
$k $1,500
due to slow
$1,000 hiring
$500

$0
Q4-16 Q1-17 Q2-17 Q3-17 Q4-17
 Assigned Quota vs Achieved
Bookings
$1,400
Assigned Quota
Over
$1,200
Assignment
$1,000
85%
of Quota
$k
$800
needed to
Actual Bookings
$600
hit plan
$400

$200
=1/85%
$0
Q4-16 Q1-17 Q2-17 Q3-17 Q4-17
PPR: Productivity per Rep

• Quality of sales hires

• Sales Training and

Onboarding
PPR: Sales Training and Onboarding
• Sales people: one of the most expensive resources

• Yet typically little effort put in to sales training in early days

• High payback
• Worth having the founders spend time to develop & deliver a lot of the material
Monitoring PPR

4 Charts
PPR over time
Average Productivity Per Rep
$170
New ARR booked - $k / quarter

$160

$150

$140

$130

$120

$110

$100
Q1 Q2 Q3 Q4
PPR looked at by Rep Tenure
Average Productivity Per Rep - Grouped by Rep Tenure
180
New ARR booked - $k / quarter

160

140

120

100

6 - 12 months 12-24 months >24 months

80

60
Q1 Q2 Q3 Q4
PPR by Individual Rep

Rep Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16

John 120 165 180 145 80 110 195
Mary 80 110 135 155 150 145
Fred 60 35 75 40 55
Alice 85 145 160 180 145
Joe 60 110 85 130 145
Mike 155 170 145 190
Sarah 35 45 70 45
Sue 80 145 175 165
% of Reps at Quota
% of Reps above % of Reps above
75% of Quota 100% of Quota
100% 100%

90% 90%

80% 80%
Goal: 75%
70% 70%

60% 60%

50% Goal: 50% 50%

40% 40%

30% 30%
Q1-16 Q2-16 Q3-16 Q4-16 Q1-16 Q2-16 Q3-16 Q4-16
Another way to look at Rep Productivity
There’s one other thing that drives PPR

Adequate Lead Flow

THE
MAGIC OF
FUNNEL
MATH
Funnel Math

Raw Lead

20%
Marketing
Qualified Lead

80%
Sales Accepted
Lead

25%
Opportunity

20%
Closed Deal
Reverse Funnel Math

Raw Lead 125 Raw Lead

20%
Marketing Marketing
25
Qualified Lead Qualified Lead

80%
Sales Accepted Sales Accepted
20
Lead Lead

25%
Opportunity 5 Opportunity

20%
Closed Deal 1 Closed Deal
Allows us to Compute Leads required per Rep

x =
No of Reverse Funnel Marketing Qualified
Closed Deals Conversion Rate Leads Required
This becomes the Contract between Sales & Marketing

Marketing

Marketing Qualified
Leads Required Sales

SDR’s
The Backend of the Funnel
It’s all about LTV

Loyal
Customers
Closed Deals Onboard Renew Expand
who are
Advocates
Top Factors affecting Renewals

• On-boarded successfully?

• Champion still at the company?

• Customer getting meaningful business benefits?

• Is the product Sticky?

Dollar Renewal Rate is King

Dollar
Renewal Rate
> Customer
Renewal Rate

This is also what I refer to as Negative Churn

Customer Churn vs $Dollar Churn

Customer 1
$1k MRR

Customer 2
$5k MRR
Customer Churn vs $Dollar Churn

Customer 1 Customer 1 Churned

$1k MRR 50% Customer Churn
17% $Dollar Churn

Customer 2 Customer 2
$5k MRR $6k MRR
Customer Churn vs $Dollar Churn

Customer 1 Customer 1
$1k MRR $1k MRR
Customer 2 Churned
50% Customer Churn
83% $Dollar Churn
Customer 2
$5k MRR
Negative $Dollar Churn

Customer 1
$1k MRR
Customer 1 Churned
Customer 2 50% Customer Churn
$7k MRR -16% $Dollar Churn
Customer 2
$5k MRR
Negative Churn

Expansion
Revenue Lost
Revenue
from Existing
Customers
> from Churning
Customers
 Negative Churn – Crucial for Long Term Success
$3m $7m
Lost due
to Churn
Revenue Lost with
$30m $70m 2.5% monthly Churn
Renewals

YEAR 3 Lost due

to Churn

Becomes harder
Renewals
& harder to
replace this with
new bookings
YEAR 6
 Features
Basic
Edition

Requires Variable
Pricing Axes
 Users

Features
Basic
Edition

Requires Variable
Pricing Axes
 Users

Features
Basic
Edition

Requires Variable Depth of

Examples:
- Mailing list size
- Database size
Pricing Axes Usage - Amount of storage used
REPEATABLE, SCALABLE & PROFITABLE
Unit Economics
Two kinds of Unit Economics
• Customer Unit Economics

• Salesperson Unit Economics

Why do we care about
Unit Economics?
Cash Flow at the Customer Level
SaaS Model

1000

-1000

-2000

-3000

-4000

-5000
Cumulative Cash Flow
1000

-1000

-2000
Ten months to
-3000 recover CAC

-4000

-5000
 Impact of Faster Growth on Cash Flow
The SaaS $20,000,000

Cash Flow
Trough $15,000,000

$10,000,000

$5,000,000

$-
Month 1

Month 7

Month 13

Month 19

Month 25

Month 31

Month 37
$(5,000,000)
Growth Rate: 2 more custs per mnth Growth Rate: 5 more custs per mnth
Growth Rate: 10 more custs per mnth
Customer Unit Economic Best Practices

LTV > 3x CAC

Months to
recover CAC < 12/18 months
Required for Capital Efficiency
Sales Complexity

No Touch Light Touch High Touch

Field Sales
Freemium Self- Inside Inside Field Sales
with SE’s
Service Sales Sales
How I assumed the two would relate
A rough estimate of CAC versus Sales Complexity

No Touch Light Touch High Touch

Field Sales
Freemium Self- Inside Inside Field Sales
with SE’s
Service Sales Sales

Rough Estimates of Cost of Customer Acquisition (CAC)

$0- $50 – $1,000 - $3,000 - $25,000 – $75,000 –
$10 $200 $2,000 $8,000 $75,000 $200,000
The relationship is roughly exponential

Clearly adding
Human Touch
dramatically
increases costs
CAC (logarithmic)
10x
Lesson:
• Remove human touch
from the sales process as much
as possible

10x • Customer’s usually prefer

self-service
• Lower CAC ultimately means you
can spend more on product

10x

Sales Complexity
Low Touch Sales

The Product is
your sales person
WHAT IS YOUR TIME TO
WOW! ?

For more on this topic, see this presentation:

https://www.forentrepreneurs.com/launch-scale-2017/
LTV - Importance of Gross Margins

LTV = ARPA * GM%

Churn

This is the simple formula. If you have negative churn, please refer to this blog post:
What’s your TRUE customer lifetime value (LTV)? – DCF provides the answer
https://www.forentrepreneurs.com/ltv/
Improving Gross Margins
• Greatest cost is usually people costs in implementation and on-boarding

• Solve by:
• Simplifying the product
• On-line training courses
• Provide in-product training videos and walk-throughs
• Charge a one time fee for implementation
Salesperson Unit Economics
The Cash Flow Gap
MRR vs Expenses – New Sales Net profit - New Sales Hire
Hire $25,000

$30,000 11 months to
$20,000 breakeven
MRR
$15,000
$25,000
Expenses $10,000
$20,000
$5,000
Cash
$15,000 $-
Gap

Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Month 13
Month 14
Month 15
Month 16
Month 17
Month 18
Month 19
Month 20
Month 21
Month 22
Month 23
Month 24
$(5,000)
$10,000
$(10,000)

$5,000 $(15,000)

$(20,000)
$-
Month Month Month Month Month Month Month Month Month Month Month Month $(25,000)
1 2 3 4 5 6 7 8 9 10 11 12

(Slightly later breakeven point, because Gross Profit is less than MRR)
The SaaS
Cash Flow Trough Cumulative Net Profit - New Sales
Hire
$400,000

$300,000

$200,000

$100,000

$-

$(100,000)

$(200,000)

Total amount 23 Months to But a great

invested: get back the return on
$110k investment investment
What happens when we add 2 new sales hires every month?

Net profit Cumulative Net Profit

$150,000 $4,000,000

$100,000 $3,000,000

$50,000
$2,000,000

$-
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Month 13
Month 14
Month 15
Month 16
Month 17
Month 18
Month 19
Month 20
Month 21
Month 22
Month 23
Month 24
$1,000,000
$(50,000)
$-
$(100,000)

$(1,000,000)
$(150,000)

$(200,000)
$(2,000,000)

$(250,000) $(3,000,000)

Worst loss: Total amount 32 Months to

First profitable invested: get back the
$190k in
month: 21 $2.6m investment
month 11
Salesperson Unit Economics

• Quota:OTE (On Target Earnings) Should be > 5

• PPR:OTE Roughly > 3.5
• Months to cash flow breakeven for a new sales hire
RECRUITING
Execution requires building an
organization with great talent
 Recruiting is now the
third critical startup skill

The first two skills are:

• Building a product that the market wants to buy
• Building a repeatable, scalable, profitable growth process

For more details, see this blog post: https://www.forentrepreneurs.com/recruiting/

Recruiting & Talent Metrics
• % of hires made on time

• Hiring funnel Metrics

• Candidate Acceptance rate
• Average number of candidates in the final interview stage for open positions
• Etc.

• Diversity %

• Retention by category
• Exceptional performers
• Core performers
• OK performers
• Not performing
SUMMARY
Key Metrics for SaaS Success
Simple Team Focus:

• Align the whole team around

one goal: Optimize your Funnel

• Use Metrics to drive aligment and

focus

• The end goal: build a Repeatable,

Scalable, & Profitable growth
machine
Funnel Optimization Meetings

• Start by diagramming your funnel

• Draw the micro steps for key parts
e.g. free trial
The Growth Team

Product

Sales Marketing

Customer
Success
Key Levers
1. Product/Market Fit
Key Levers

2. Top of Funnel Lead Flow

3. Conversion
4. CAC
Rate
Key Levers

7. Enough 5. No of 6. PPR
Leads Sales People Productivity per Rep
(Average)
(Recruiting)
Key Levers

LTV
8. Pricing

9. Dollar Retention Rate

(ability to “Land & Expand”)

10. Gross Margins

Key Levers

Cash to Finance the business

11. Months to Recover CAC
Key Levers

Building a Great Organization

12. Recruiting, Onboarding & Management
Sept 11th, San Francisco
For more details on all these topics: Presentation Slides:
visit ForEntrepreneurs.com forentrepreneurs.com/saastock-2018