1. The SaaS Business Model Drivers and Metrics

2. Discussion Topics: The Business Objectives The key drivers Metrics Other Benefits of SaaS

3. The Business Objectives Profit Cash Growth

4. Understanding Profit in the SaaS world The micro-economic view Look at economics of: Sales person Customer

5. Modeling a single sales hire A useful starting point

6. Excel Spreadsheet Available here: www.forEntrepreneurs.com/saas-economics-1 Part of a blog post that describes the model The figures I have used should not be taken as a default set of values for any SaaS business There are going to be wide variations in funnel efficiencies that will make each individual business considerably different

7. Key Variables

9. Quota: $500k

10. Ramp time

12. Looking at a Single Salesperson

13. The Cash Flow Gap 11 months to breakeven CashGap (Slightly later breakeven point, because Gross Profit is less than MRR)

14. The SaaS Cash Flow Trough 23 Months to get back the investment Total amount invested: $110k But a great return on investment

15. Marketing Funnel Economics

16. Our Example Marketing Funnel Visitors to Web Site Organic Traffic SEM Other Paidlead sources Top of Funnel Raw Leads Registered Visitors Middle of Funnel Qualified Leads Inside Sales Inside Sales Closed Deal Closed Deal

17. Our Example Marketing Funnel

18. Our Example Marketing Funnel

19. Our Example Marketing Funnel

20. The model also computes CAC and LTV This excludes people costs in marketing, and sales management costs

21. My rules for CAC/LTV balance in a SaaS model LTV Months to recover CAC CAC > 3x < 12 months Required for Capital Efficiency

22. What we are looking for A well balanced business model Monetization(LTV) Cost toAcquire aCustomer(CAC)

24. Inbound Marketing

25. Free or Freemium

26. Open Source

27. Free Trials

28. Touchless conversion

29. Inside Sales

30. Channels

31. Strategic partnerships

32. High Churn Rates

34. Cross Sell/Upsell

35. Product line expansion

36. Lead Gen for 3rd parties

37. Field Sales

39. When To Grow?

40. Conserve Cash Invest Aggressively Search for Product/Market Fit Search for Repeatable & Scalable Sales Model Scaling the Business

41. What happens at the company level when we add 2 new sales hires every month? 32 Months to get back the investment Total amount invested: $2.6m First profitable month: 21 Worst loss: $190k in month 11

44. What’s the blocker to faster growth? Usually it is the rate at which you can grow leads Typically each lead source maxes out Adding new lead sources often means paying more per lead Leads Source C Source B Source A Time Another blocker: The rate at which you can hire and train really high quality sales people

45. The Key Metrics CAMPAIGNS TO DRIVE TRAFFIC VISITORS OVERALL CONVERSION % CONVERSION % TRIALS (BY LEAD SOURCE) CONVERSION % CLOSED DEALS

46. Annual Upfront Payment …instead of monthly

47. What happens if we collect a year’s payment in advance? Looking at the whole company picture when hiring 2 sales people per month Year in advance Eliminates the cash flow trough, and means $35m more cash in this scenario Monthly

48. Lesson Learned Look for ways to get customers to pay in advance Depending on the cost of your capital, this can be worth fairly large discounts

49. CHURN Why happy customers are so important

50. Churn Rate plays a huge role in success

51. How Churn affects LTV Average customer lifetime in months = 1 / Monthly Churn

52. How Churn affects Lifetime Months Monthly Churn

53. How Churn affects LTV LTV Monthly Churn

56. A way to get to negative Churn Top of Funnel Middle of Funnel Inside Sales Increasing revenue per client over time will create negative churn Closed Deal Expand, Upsell, Cross Sell

57. Other Benefits of SaaS Impact on Sales Complexity

58. Sales Complexity

59. How I assumed the two would relate

60. A rough estimate of CAC versus Sales Complexity Rough Estimates of Cost of Customer Acquisition (CAC)

61. The relationship is roughly exponential Clearly adding Human Touch dramatically increases costs

62. CAC (logarithmic) 10x 10x 10x Sales Complexity

63. High CAC requires higher pricing … which leads to greater approval complexity

64. SaaS Sales Complexity Low risk to customer Easy to try before buying Small initial financial commitment Easy to cancel if not working Low IT involvement in decision process No infrastructure or IT

65. How SaaS changes Sales Complexity Value / Pain / Urgency = LTV (logarithmic) Sales Complexity 

66. A Final Benefit

67. Product Development Single version of the product at all customers Can be improved monthly Provides clear feedback on what is working Great indicator of customer happiness Which is a predictor of churn

68. For More information Visit my blog at www.forEntrepreneurs.com