2015 SaaS Industry Survey Results: Keeping Score & Measuring Success for Modern Software Marketers

1. 2015 SaaS Industry Survey Results:
Follow me @matthewjhoward
Keeping Score & Measuring
Success for Modern Software
Marketers
December 9, 2015

2. 1. Data, Data, Data (See Handout)
2. Context Setting (Elephant in the Room)
3. Story Time (Because we’re marketers)
4. Back to the Data (How do you stack up?)
4 Things

3. Software eats the world.
Data dominates all.
Transparency rules.
Nothing is immune.

4. Software + data
leads to
automation,
transparency, and
disruption in all
things including…
The other elephant in the room!
B2B marketing.

5. B2B marketing
disruption answers to
different names…
REVOPS
#SMARKETING #GROWTHHACKING

6. RevOps happens when product,
marketing and sales use software
tools to work together in a non-stop,
continuous effort that spans the
entire funnel from target personas, to
suspects, to prospects, to customers.

7. Looks like this…

8. RevOps is like DevOps…
Automated by software
Driven by data
Measured in real time
Authentically collaborative
Designed by engineers

9. “For the fourth year in a row, we
surveyed 305 companies to
gather benchmark data with
regard to growing a successful
SaaS business.”
-- David Skok, Matrix Partners

10. Demographics of 305
Companies
• Median revenue = $4M (82% < $25M)
• Median employees = 47 (range of 2 to 1,200)
• Median customer count = 300 (72% < 1,000)
• Median ACV = $21k (21% < $5K and 17% > $100K)
• Sales Model = 41% primarily direct, 21% primarily inside
• Headquarters = 70% in U.S.

11. CAC ACV LTV DRR ETC
Data, Data, Data
Ratios, Acronyms, and Lingo…

12. I am going to put
a story out there:
if you like it, you
can take it. If you
don't, send it
right back.
-Ron Burgundy

13. SaaS marketers are like single people who
treat every day like Valentine’s…
 Spend heavily on dates to find new
friends (customers)
 Seek hugs and love ($) in return
 Diligently maximize benefits from
existing friends (upsell)

14. Hugs & Love
are the universal
currency of SaaS.
In this sense,

15. Of course,
not all
friends are
equal.

16. Therefore…
SaaS Marketers
carefully measure
spend to acquire new
friends.
CAC = Cost of Acquiring
Customers

17. And they measure
number of hugs per
friend, per year.
ACV = Annual Contract Value

18. And hugs received over
lifetime.
LTV = Life Time Value

19. They measure dating
efficiency two different
ways…
CAC/ACV (lower is better)
$1 CAC generates $2 ACV = 0.5 / 6 month payback
ACV/CAC (higher is better)
Generate $1,000,000 ACV from $500,000 CAC investment = 2.0 sales efficiency

20. $@!t happens.
So SaaS marketers also
measure breakups...
Churn

21. …and total annual hugs
minus breakups.
DRR = Dollar Retention Rate

22. Ultimately, SaaS
marketers have 3 types of
friends:
• Friends with Benefits
• Friends with Costs
• Friends with Biggest
Benefits

23. Friends with benefits
stick around and give
many hugs over time.
LTV > 3X CAC

24. Friends with costs
give few hugs and
leave early.
LTV < 3X CAC

25. Friends with biggest benefits
not only stick around...
but they give more hugs the
longer they stay.
LTV > 10 X CAC

26. 4 rules of SaaS dating:
1. Target wisely
2. Spend accordingly
3. Measure carefully
4. Love the ones you’re
with

27. Define your strategy
and take aim with the
most efficient dating
models.
1. Target Wisely.
Web driven sales players allocate 65% to marketing.
Inside sales models allocate 38% spend to marketing.

28. 2. Spend
Accordingly.
Top performers grow
>35% and spend
>40% of revenue on
dates because they
have solid payback
and abundant access
to capital.
Others spend less.
Note: Public players with >$100m spend
44% on revenue on dating.

29. 3. Measure Carefully
 SMB dating
 Spend $1.18
 Acquire $1 of new ACV
 CAC/ACV Ratio = 14
months
 Sales Efficiency = 0.84
 One year contracts
 Lower churn
 Moderate upsell
Note: Hubspot spend $15k to acquire
$24k. CAC/ACV = 7 months. Sales
Efficiency = 1.6. Both metrics 2X
better than median above. 5 year
contract means LTV = 8X CAC
 Enterprise dating
 Spend $1.50
 Acquire $1 of new ACV
 CAC/ACV Ratio = 18 months
 Sales Efficiency = 0.66
 Multi-year contracts
 Lowest churn
 Highest upsell
Note: Spend $90k to acquire $60k in
ACV. CAC/ACV = 18 months. Sales
efficiency = 0.66. 5 year contract
means LTV = 3X CAC
 Consumer dating
 Spend $0.50
 Acquire $1 of new ACV
 CAC/ACV Ratio = 6 months
 Sales Efficiency = 2.0
 Month-to-month
 Higher churn
 Lower upsell
Sample: Spend $60 to acquire
$180. CAC/ACV = 6 months.
Sales Efficiency = 2. 2 year
contract means LTV = 6X CAC

30. Top performers are
fanatical about farming
and have a higher % of
new ACV from upsells.
4. Love the Ones
You’re With…
Players with >$40m in revenue generate 37%
of new ACV from upsells.

31.  Spend $0.28
 Acquire $1.00 of up-sell
 Median CAC/ACV = 3 months
 Sales Efficiency = 3.5
Up-Sales Cost
24% of New Sales
Renewals Cost 11%
of New Sales
 Spend $0.13
 Acquire $1.00 of renewals
 Median CAC/ACV = 1 month
 Sales Efficiency = 7.6

32. So, it's all about the hugs!
And that's why SaaS
marketers treat every day like
Valentines.

33. Now back to the data!

37. Insight
2015 median growth is up from
37% reported in 2013 and 42%
reported in 2014.

38. Insight
Since many of the fastest
growers are among the smallest
companies. Eliminating them
brings median growth rates down
10% points.

39. Insight
Companies in the $5-$7.5 M
range are among the fastest
growers – with the median much
greater than the median of
companies half their size.

40. Insight
Highlighted range represents the
33% to 67% percentile of data.
Companies >$2.5m and < $10m
are fastest growers.

41. Insight
There appears to be no
relationship between median
contract size and growth other
than a bump-up for the $100K-
$250K group which could be
skewed by sparse data.

42. Insight
Compared to last year, inside
sales is becoming more popular
as primary distribution model..
Median growth among field sales
dominated companies slightly
lagged inside sales dominated
companies by 6% points, but led
internet sales by 8% points.
Channel sales dominated
companies grew significantly
faster, though the data is sparse.
Mixed also performed well.

43. Insight
Companies with mixed/balanced
target customer strategies are
growing the fastest.
Otherwise, at least for companies
>$2.5MM in revenues, there
aren’t significant differences.

44. Insight
Field sales remains the most
popular way to sell, with 41% of
participants employing it as their
primary mode of distribution.
NOTE: this is a surprise to David
Skok, because most of his
companies employ inside sales.

45. Insight
In this year’s results, we see
noticeably more companies using
inside sales.
Analyzed by contract value, field
sales dominates for companies
with median deals over $50K
ACV and more or less
disappears when median deal
sizes are below $15K ACV.
There’s meaningful bifurcation
among the $15K-$25K and
$25K-$50K groups.

46. Insight
The median sales efficiency
metric of $1.18 is notably higher
than previous surveys.
$1.07 and $0.92 were reported in
the 2014 and 2013, respectively.
Note: CAC in this case is
measured as the cost to acquire
a dollar of ACV.
Alternatively you can measure
“months to recover CAC” – i.e. if
it costs you a dollar to acquire a
dollar of ACV, then it will take you
12 months to recover that CAC.
For the median of $1.18 to
acquire a dollar of ACV, that
means it will take 12 x 1.18 =
14.16 (or 14 months to recover.)
14 months
to recover

47. Insight
It’s is a MUCH cheaper to mine
revenue from existing customers
via upsells and renewals.
The median CAC per $1 of AVC
upsells is $0.28, or about 24% of
CAC to acquire $1 of ACV from a
new customer.
The median CAC per $1 of ACV
renewals is $0.13, or 11% of the
CAC to acquire $1 of AVC from a
new customer.

48. Insight
As expected, field sales has the
most expensive CAC at $1.14,
followed by inside sales at $0.90.
Channel and online distribution
have significantly lower CACs at
$0.66 and $0.42, respectively.
Compared to previous years, all
modes have shown increases
except Internet, which is down
from $0.54 to $0.42.

49. Insight
Overall, the median SaaS
company devotes 31% of their
CAC to Marketing expenses, with
the remaining 69% allocated to
Sales expense.
However, Inside Sales- and
Internet Sales-driven companies
have a much greater reliance on
Marketing, with 38% and 65% of
their CAC budgets devoted to
Marketing, respectively.

50. Insight
Field Sales-dominated
companies have 20% longer
CAC payback periods than those
primarily using Inside Sales,
which in turn have approximately
20% longer CAC payback
periods than those relying
primarily on Internet Sales.

51. Insight
The median respondent gets
16% of new ACV sales from
upsells; larger companies rely
more heavily on upsells. This is
largely consistent with prior
years’ results.

52. Insight
Almost across the board, the
fastest growers tended to have
noticeably more reliance on
upsells.

53. Insight
Professional services play a
minor role for most, with the
median SaaS company booking
proserv revenues on new deals
equivalent to 18% of first year
subscription contract value.
Median P.S. margins are approx.
20%.

54. Insight
Compared with previous surveys,
attach rates ticked up
significantly across the board
(2014 survey: Enterprise 18%,
SMB 8%, VSB 6%, Mixed 9%).
As expected, companies which
are focused mainly on enterprise
sales have higher levels of
professional services.

55. Insight
Median subscription gross
margins are 78% (nearly identical
when removing the smallest
companies from the group).
These numbers are virtually
unchanged from the 2014, 2013
and 2012 results.

56. Insight
Approximately 30% of companies
derive some amount of new ACV
from “freemium” strategies,
though virtually no one drives
their business on it..
“Try Before You Buy” is much
more commonly used: 60%
derive revenues through this
strategy, and 30% derive the
majority of their new ACV
through “Try Before You Buy”.
These results are very consistent
with previous years.

57. Insight
The median reported sales
commission rate is 9% of ACV –
which is consistent overall with
prior year results.

58. Insight
The survey results indicate that
median sales commission rates
are only slightly higher for Field
Sales versus Inside Sales.

59. Insight
In 2014, “Elephant hunters”
(>$250k median ACV) had
materially lower commission
rates (7%). We note that the
2015 results are consistent with
results from two years ago.
There was a high degree of
consistency in commission rates
across contract sizes.

60. Insight
The most significant changes this year include: 1) Upsells: this year just 45% paid full commission rates
on upsells, vs. 58% in last year’s group; 2) This year just 32% paid no additional commission on longer
term contracts vs. 42% in last year’s group. Not surprisingly, commissions on renewals are typically
deeply discounted, with a median rate of 2%. Upsells command a median rate of 8%, and nearly half of
the companies pay full commissions on upsells.

61. Insight
One natural question to ask is
whether companies which pay
higher commissions on renewals
experience lower churn. The
following chart suggests that
there is little correlation between
commissions on renewals and
gross churn.

62. Insight
Companies offering 7% or
greater commissions on
renewals have experienced the
highest growth rate.