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David Skok's, SMASH Summit NYC

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David Skok's (General Partner @ Matrix Partners) presentation at SMASH Summit on 7/26 in NYC

Veröffentlicht in: Technologie, Business
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David Skok's, SMASH Summit NYC

  1. STARTUP KILLERCAC, LTV & Other Metrics that will make (or break) you CAC ROI by Viral Lead Coefficient Time to Source Recover LTV CAC Churn Rate Viral Cycle Conversion Time Rate
  2. MICRO-ECONOMICS PROFITABILITY AT THE CUSTOMER LEVELA POWERFUL WAY TO GAIN BUSINESS INSIGHT
  3. An out of balance Business Model Entrepreneurs are over-optimistic Cost to Acquire a Customer (CAC) Monetization (LTV)
  4. Simple Customer Acquisition Funnel 200 Visitors required for 1 cust Visitors 5% Trial Using Google: At 50c per click 10% Cost: $100 per cust Customer
  5. Add in People costs:- CAC increases dramatically Input Variables Total Web Visitors 10,000 SEM cost per click $ 0.50 Conversion to Trial % 5% Trial conversion % 10% No of Sales & Marketing Staff 3 Cost per employee per month $ 16,500 Marketing and Sales people Flow Qty. Conversion % involved: Total Paid Web Vistors 10,000 CAC rises to Trials 500 5% $1,000 Customers 50 10% SEM Marketing Spend $ 5,000 Total Headcount Costs $ 49,500 Cost of Customer Acquisition Without headcount costs $ 100.00 With headcount costs $ 1,090.00
  6. Sales Complexity No Touch Light Touch High Touch Field Sales Freemium Field Sales Self-Service Inside Sales Inside Sales with SE’s
  7. How I assumed the two would relate
  8. A rough estimate of CAC versus Sales Complexity No Touch Light Touch High Touch Field Sales Freemium Field Sales Self-Service Inside Sales Inside Sales with SE’s 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
  9. The relationship is roughly exponential Clearly adding Human Touch dramatically increases costs
  10. CAC (logarithmic) 10x 10x 10x Sales Complexity
  11. CUSTOMER MICRO-ECONOMICS SaaS andRecurring Revenue
  12. Cash Flow at the Customer Level 1000 0 -1000 -2000 -3000 -4000 -5000
  13. Cumulative Cash Flow1000 0-1000-2000 Ten months to-3000 recover CAC-4000-5000
  14. My rules for CAC/LTV balance in a SaaS model LTV > 3x CAC Months to recover CAC < 12 months Required for Capital Efficiency
  15. SALES & MARKETING FUNNEL METRICS
  16. 1 stTHE BASICSOF FUNNEL DESIGN
  17. ExpandSuspects Closed Deals Upsell Cross sell
  18. IN A PERFECT WORLD… 1 Step
  19. IN A PERFECT WORLD… MyProduct.com DESCRIPTION HOW IT WORKS Our product allows you … Only $9,999.99 BUY NOW!
  20. REALITY IS DIFFERENT Step 1 Step 2 Step 3 WE NEED TO BREAK THINGS DOWN INTO MULTIPLE SMALLER STEPS
  21. WHAT WE ARE DOING ACTION ACTION ACTION MOVEMENT MOVEMENT MOVEMENT
  22. 2 MEASURE "IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT." - LORD KELVIN
  23. WHAT TO MEASUREFOR EACH STEP / ACTION:NO OF ACTIONS % CONVERSION RATE TIME TIME
  24. THE KEY METRICS CAMPAIGNS TO DRIVE TRAFFIC VISITORS OVERALL CONVERSION CONVERSION % % TRIALS CONVERSION % CLOSED DEALS
  25. NOT ALL LEAD SOURCES ARE EQUAL Google Ad Word Funnel FaceBook Ad Funnel Visitors Visitors5% 2% Trial Trial 10% 20% $5,000 Customer $8,000 Customer
  26. ROI by LEAD SOURCE Cost per lead OVERALL CONVERSION % (BY LEAD SOURCE) Lifetime value of the Customer
  27. THE ART OFMARKETING
  28. DESIGNING YOUR FUNNEL
  29. WHAT IS A FUNNEL? ACTION ACTION ACTION MOVEMENT MOVEMENT MOVEMENT
  30. HOW DO WE DESIGN OUR FUNNEL?
  31. THEBUYER
  32. THE BUYING CYCLE PURCHASE CONSIDERATION CLOSED DEAL AWARENESS
  33. THEBUYER CONSIDERATION ADDRESS THEIR QUESTIONS & CONCERNS • Will this work for my situation? • Is it the best product in the market? • Is it a safe choice? (Who else is using it?) • Will I get a return on my investment? • Is it scalable, secure? • Is it easy to implement? • Will I get good support? • Etc.
  34. TRIGGERS • Moving house • Movers, phones, cable TV, furniture, insurance, etc. • Starting a new software project • PaaS (Platform as a Service), Dev Tools, etc. • Need to hire a lot of new employees • Applicant Tracking System • Just lost my data in hard drive crash • Backup software/service • Read about a new scary computer virus • Anti-virus software
  35. Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects Suspects SuspectsBUT EVEN IF YOU AREMICROSOFT, CISCO, ORACLE, ORGOOGLEYOUR FUNNEL WILL HAVEBLOCKAGEPOINTS
  36. IMPROVE
  37. IN DIAGNOSING MANY FUNNEL BLOCKAGE POINTS,I HAVE FOUND THAT THERE IS ACLEARPATTERN…
  38. YOU ARE HOPING YOURCUSTOMERS WILL DOSOMETHINGTHAT THEY ARENOT MOTIVATED TO DO
  39. IN OTHER WORDS…YOU DESIGNED YOUR FUNNELTHE WAY YOU HOPED IT WOULDWORK…BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUTTHE CUSTOMER’S POINT OFVIEW
  40. JBOSS EXAMPLEPUT A REGISTRATION FORMON THEIR WEB SITE BEFOREA FREE DOWNLOADIMPACTCUT THE DOWNLOAD RATEBY MORE THAN 10X
  41. GET INSIDE YOURCUSTOMER’S HEAD FRICTION & CONCERNS - Hate being sold to - Find it offensive to give name and email - Don’t want to get spam sales emails - Worried that email address will be given to other marketers
  42. UNDERSTAND WHATMOTIVATES THEM FRICTION & CONCERNS MOTIVATIONS - Want to solve my problem - Recommendation from a friend - Education - Data/ information reports - Entertainment - Free stuff - Meeting other people like me that have insights to share
  43. CREATE A SOLUTION THATENTICES THEM AND ADDRESS THEIR CONCERNS FRICTION & CONCERNS ENTICE & ADDRESS CONCERNS - Customer testimonials address vendor risk - Free trials address product viability and fit concerns - Lowest price guarantees
  44. JBOSS EXAMPLE• Making $27,000 a month selling documentation• Solution: • Give away documentation to get their email address
  45. EXAMPLE: DRIVING TRAFFIC TO YOUR WEB SITE GETTING FOUND Not going to find your site unless: friction & - On top page of Google concerns search results - Recommended by a trusted source - Referred to in social media or blogosphere
  46. LESSONS FROM WEBSITEGRADER• Free tools drive viral spread• Low customer work required• High value delivered• Score leverages competitive urge, and acts as a trigger• Builds trust through clear demonstration of expertise
  47. using engineering for marketing
  48. USING DATA TO DRIVE WEBTRAFFICSYSOMOS: SOCIAL MEDIA MONITORINGLEVERAGED THEIR DATABASE TOCREATE BLOG POSTS WITH DATA ONTOPICS OF CURRENT INTEREST:• IRAN ELECTION RIOTS• TWITTER’S GROWTH• FACEBOOK USAGE
  49. LED TO: SYSOMOS ARTICLES IN ECONOMIST, NY TIMES WEB TRAFFIC TO READ THE FULL REPORT LEADS – IMPRESSED BY THE CAPABILITIES OF THE SOFTWARE
  50. DROPBOX: SIMPLE FILE SHARING SOFTWARE– Get you hooked for free– Storage slowly increases to the point where you need to pay– But by then they have established trust – And it is hard to move your data that is shared with others
  51. First Contact Sell Build BuildFirst Contact Sell Relationship Trust
  52. OFTEN NECESSARY TO FIND TOPICSTHAT ARE NOT RELATED TO THE SALE Build Build Relationship Trust First Contact Sell
  53. SELLING IS 10X EASIER…ONCE YOU HAVE ESTABLISHED TRUST
  54. THE KEYS TO SUCCESS THE BUYER GET INSIDE YOUR BUYER’S MIND
  55. CONCLUSION
  56. WHAT I DIDN’T COVER• Sadly way too many topics for this time slot• Virality – see my blog• NPS – Net Promoter Score• Etc.
  57. For More information Visit my blog at www.forEntrepreneurs.com
  58. APPENDIX
  59. WHYCHURN IS SOIMPORTANT
  60. Why Churn is so Important Bookings Versus Churn MRR (Monthly Recurring Revenue)$150.0 $3,000.0 2.5% Churn $2,500.0$100.0 $2,000.0 $50.0 $1,500.0 Months $- 5% Churn $1,000.0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 2.5% Churn $500.0 $(50.0) 5% Churn $- Months 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58$(100.0)
  61. The Impact of Negative Churn Bookings Versus Churn MRR (Monthly Recurring Revenue)$200.0 $8,000.0 -2.5% Churn -2.5% Churn $7,000.0$150.0 $6,000.0$100.0 $5,000.0 $50.0 $4,000.0 Months $- $3,000.0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 2.5% Churn 2.5% Churn $(50.0) $2,000.0 5% Churn $1,000.0$(100.0) 5% Churn $- Months 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58$(150.0)
  62. MICRO-ECONOMICSFOR A SALES PERSON
  63. How Revenue Builds for a SaaS Salesperson (assuming no ramp up time) With no Churn With Churn of 2.5%$45,000 $45,000$40,000 $40,000$35,000 $35,000$30,000 $30,000$25,000 $25,000$20,000 $20,000$15,000 $15,000$10,000 $10,000 $5,000 $5,000 $0 $0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Custs Feb Custs Mar Custs Apr Custs Jan Custs Feb Custs Mar Custs Apr Custs May Custs Jun Custs Jul Custs Aug Custs May Custs Jun Custs Jul Custs Aug Custs Sep Custs Oct Custs Nov Custs Dec Custs Sep Custs Oct Custs Nov Custs Dec Custs
  64. The Cash Flow Gap MRR vs Expenses – New Sales Hire Net profit - New Sales Hire$30,000 $25,000 11 months to $20,000 breakeven MRR$25,000 $15,000$20,000 Expenses $10,000 $5,000$15,000 Cash $- Gap 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 Month 1 Month 2 Month 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9$10,000 $(5,000) $(10,000) $5,000 $(15,000) $(20,000) $- Month Month Month Month Month Month Month Month Month Month Month Month 1 2 3 4 5 6 7 8 9 10 11 12 $(25,000) (Slightly later breakeven point, because Gross Profit is less than MRR)
  65. 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 get But a great invested: back the return on $110k investment investment
  66. UNDERSTANDING CUSTOMERENGAGEMENT
  67. THE OLD WORLD HUMAN INTERACTIONS
  68. THE NEW WORLDMACHINE INTERACTIONS
  69. THE PRODUCT HAS BECOMEYOUR SALESPERSON
  70. TRACKING ENGAGEMENT What do we know about them? What do their actions tell us? Buyer Behaviors Attributes
  71. Account Profile
  72. WHY MEASURE ENGAGEMENT?INSIGHTWhich customers are about to Churn?ACTIONUse emails and/or customer service repsto increase usage
  73. WHY MEASURE ENGAGEMENT?INSIGHTWhich Free Trials are going wrong?ACTIONUse emails and/or customer success repsto increase usage
  74. WHY MEASURE ENGAGEMENT?INSIGHTWhich free trials are going really well?ACTIONGet Sales to call and ask for the order
  75. Active Lists
  76. Engaged Evaluators Report
  77. WHY MEASURE ENGAGEMENT?INSIGHTWhich key features in the Free Trial have not been tried?ACTIONUse emails and/or customer success repsto focus on those features
  78. PATTERN DISCOVERY AND THE NEED FOR DATA SCIENTISTS
  79. Which behaviors are mostcorrelated with Churn? Which lead sources lead to the most profitable customers? What Free Trial behaviors indicate a customer that won’t buy? Etc.
  80. THEBUYER WHO IS YOUR BUYER? • Who is involved? • What are their roles (Champion, Influencer, Decision maker, etc.)?
  81. THEBUYER UNDERSTAND THEIR BUYING PROCESS • What are their approval processes? • e.g. IT approval needed, Board approval needed Wife’s approval needed
  82. USING METRICS TO MEET TARGETS WORK BACKWARDS FROM THE TARGET
  83. Example: JBoss - Sales & Marketing Machine EnterpriseSuspects Closed Deals Rollouts Web Web Phone InsideLeads Scoring Call Sales Lead Nurturing
  84. Metrics: The End Goal 4:1 3:1 4:1 (25%) (33%) (25%) Raw Web Closed Tele- Tele-Leads activity Deals marketing sales scoring
  85. Using the model to work backwards 4:1 3:1 4:1 Raw Web Closed Tele- Inside-Leads activity Deals marketing sales scoring• To do $4m in the month: – If Average Deal Size is $10k – Need $4m divided by $10k deals to reach target = 400 deals – Means 1,200 deals being worked in Inside sales (400x4) • Know that each rep can work 60 deals at a time, means 20 reps – Means 3,600 telemarketing contacts (1,200x3) – Means 14,400 Raw Leads (3,600x4)

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