customer success: the secret to subscription success and the metrics that matter
TRANSCRIPT
5 Tenets to Success SaaS
MetricsFebruary 25, 2015
Housekeeping
• Q&A panel on your right
• Recording for colleagues who can’t make it
• All attendees will receive slides
• Twitter hashtag #customersuccess
Our Speakers
Lincoln MurphyCustomer Success Evangelist
@lincolnmurphy
David SpitzManaging Director
Software Investment Banking
@dspitz
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.
Can
measure
churn
Can’t
1. Why are metrics like LTV, CAC, and
Churn more important in SaaS?
Traditional Perpetual
License SoftwareSaaS
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
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 / July 2014
Annual Gross Dollar Churn“What percentage of total ACV on a dollar basis churns in a given year (excluding upsells)?”
# of Responses
An
nu
al
Gro
ss
Do
lla
r C
hu
rn
Median ≈ 6%
59
48
20
13
16
0 10 20 30 40 50 60 70
<5%
5-10%
10-15%
15-20%
>20%
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%
+ N
et
Rete
nti
on
(Upsells
gre
ate
r
than c
hurn
)
Net
Ch
urn
(Churn
gre
ate
r
than u
psells
)
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
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 f rom NewCustomer
Upsell to ExistingCustomer
Renewals
75th percentile
25th percentile
Median
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 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%
Nu
mb
er
of
Co
mp
an
ies
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?”
WDAY
NOW
DWRE
VEEV
N
ZEN
PFPT
PCTY
TXTR
MKTOCSOD
ULTI
BNFT
ATHNCVT
CRM
QLYS
OPWR
SPSC
AMBR
QTWO
ECOM
EOPN
TWOU
PAYC
FLTX
LOGM
RNGTRAK
FIVN
CTCTSQI
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
/ C
Y2
01
6E
Re
ve
nu
e M
ult
iple
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
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”
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
• Gainsight SuccessIndex
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
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 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?
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
Q&A
Lincoln MurphyCustomer Success Evangelist
@lincolnmurphy
David SpitzManaging Director
Software Investment Banking
@dspitz
Thank You!
February 25, 2015