What is the best strategy for dramatically increasing the price of a SaaS product without angering customers? SaaS. It’s a frothy time and during such times people can develop a tendency to get sloppy about their numbers.
The first sign of froth is when people routinely discuss company size using market capitalization instead of revenue. This happened constantly during Bubble 1.0 and started again several years ago – e.g., all the talk of unicorns, private companies with $1B+ valuations. Oneupsmanship becomes the name of the game in frothy times. If your competitor’s site had 1M pageviews to your own site’s 750K, marketing quickly came up with a new metric on which you could win: “we had 1.5M eyeballs.” This kind of gaming, pardon the pun, is seen through rather easily. The more disturbing distortions are those intended to impress industry influencers to validate strategy. Public companies try to demonstrate results through revenue allocation games, robbing from non-strategic SKUs to pump up strategic ones (e.g., “cloudwashing” as the megavendors are now often accused). This is great. Unit Economics: CLTV, CAC and cohorts - StartupDocs.se.
December 3rd, 2015, by Erik Byrenius How much is a customer worth?
How much does it cost to acquire a customer? If you can’t answer these basic questions, it’s hard to know if your business is sustainable or not. Your unit economics analysis will help you answer these questions. In this blog post, I will guide you through how I use unit economics to better understand a business. In this post, I will use a non-subscription e-commerce business as an example, but the general theory behind unit economics works just as well for other business models as well, including subscription e-commerce and SaaS. If you want to skip the theory, just go to my (e-commerce) unit economics template in Google Docs. Why Unit Economics? Using unit economics analysis, you can estimate how much a customer is worth (CLTV) and how much they cost to acquire (CAC).
CLTV – Customer Lifetime Value Of course not all customers are the same, but aggregated customer behavior can help you predict the future. Retention Cohorts. Saas. TOMASZ TUNGUZ venture capitalist at redpoint saas Pricing for SaaS Enabled Marketplaces - When to Go Free How Much Cash Should Your SaaS Startup Burn?
What is the Optimal Quick Ratio for Your SaaS Startup? What Quota Attainment Reveals About Your SaaS Startup's Go to Market Five Words of Wisdom from SaaS Office Hours with Bill Macaitis 5 Mistakes SaaS Startups Often Make with Pricing The Essential Go To Market Math for Beating Your SaaS Startup's Growth Targets. What Drives SaaS Company Valuation? Growth! If you’ve ever wondered what drives the valuation of a SaaS vendor, then take a look at this chart that a banker showed me the other day.
The answer, pretty clearly, is revenue growth. The correlation is stunning. Taking some points off the line: 10% growth gets you an on-premises-like valuation of 2x (forward) revenues20% growth gets you 3x30% growth gets you 4x50% growth gets you nearly 6x Basically (growth rate % / 10) + 1 = forward revenue multiple. You might think that profitability played some role in the valuation equation, but if you did, you’re wrong. Marketo (MKTO) -44% with a ~4x revenue multipleMarin Software (MRIN) -40% with a ~4x revenue multipleWorkday (WDAY) -22% with a ~11x revenue multipleBazaarvoice (BV) -6% with a ~5x revenue multipleCornerstone on Demand (CSOD) 0% with a ~8x revenue multipleQlik Technologies (QLIK) 13% with a ~3x revenue multipleTangoe (TNGO) 17% with a ~3x revenue multiple As you can see, there’s basically no reward for profitability. Like this: The Rule of 40% For a Healthy SaaS Company. There are lots of blogs and anecdotes on (a) how to build a successful SaaS company and (b) what a successful SaaS company looks like.
Yesterday’s post by Neeraj Agrawal from Battery Ventures titled The SaaS Adventure is another great one as he describes his (and presumably Battery’s) T2D3 approach. If you want to follow these posts more closely on a daily basis, I encourage you to subscribe to the Mattermark Daily newsletter. Or take a look at the VCs I follow in my Feedly VC channel. I was at a board meeting recently and heard something I’ve not heard before from a late stage investor. He described what his firm called the 40% rule for a healthy software company, including business SaaS companies. The 40% rule is that your growth rate + your profit should add up to 40%. Now, growth rate is easy in a SaaS-based business. Profit is harder to define. 18 Extraordinary Lessons Learned from Interviewing The World’s Top SaaS Entrepreneurs. How We Increased Our Traffic by 12,024% with Zero Advertising.
How We Measure and Optimize Customer Success Metrics in Our SaaS Startup.