SaaS Metrics Masterclass: What Key Business Metrics, Pricing Strategies, and Billing Models Every SaaS Company Should Track
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Stripe's Head of France & Southern Europe's Guillaume Princen's SaaStr Europa 2018 presentation on the key business metrics, pricing, and billing models every SaaS company should track.
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SaaS Metrics Masterclass: What Key Business Metrics, Pricing Strategies, and Billing Models Every SaaS Company Should Track
- 1. # S A A S T R E U R O P SaaS Metrics Masterclass: What Key Business Metrics Pricing Strategies, and Billing Models Every SaaS Company Should Track Guillaume Princen Head of France & Southern Europe | Stripe
- 3. +100,000 businesses work with Stripe 86% chance we’ve seen a credit card before 1,100 employees worldwide Stripe is the best software platform to monetize and run an internet business D E V E L O P E R - C E N T R I C B U I L D I N G B L O C K S F O R B I L L I N G
- 4. Why is SaaS taking over the world?
- 5. W H Y I S S A A S W I N N I N G ? Better user experience Faster to iterate Vastly improved experience Highly scalable internationally Recurring revenue and predictability
- 6. SaaS economics and metrics @G_Princen
- 7. H O W W E L L A R E Y O U D O I N G ? “If you cannot measure it, you cannot improve it” – Lord Kelvin
- 8. • SaaS revenues compound! • Work on your “expansion MRR” • The quest for “negative churn” M O N T H L Y R E C U R R I N G R E V E N U E ( M R R )
- 9. C H U R N R A T E Churn rate = customer lost / total customers
- 10. G R O S S M A R G I N Gross Margin = MRR - Cost of Goods Sold
- 11. A V E R A G E R E V E N U E P E R U S E R ( A R P U ) E X I S T I N G U S E R S N E W U S E R S
- 12. L I F E T I M E V A L U E ( L T V ) LTV = ARPU * Average customer lifetime
- 13. C U S T O M E R A C Q U I S I T I O N C O S T ( C A C ) CAC = Sales and Marketing spending / total customers acquired
- 14. L O N G T E R M P R O F I T A B I L I T Y
- 15. T H E R E A R E O N L Y T H R E E W A Y S T O G R O W A S A A S C O M P A N Y : Get more customers1 Reduce churn2 Increase average spend (ARPU)3
- 16. Know your sales model Get more customers1
- 17. Tell me your sales model, I’ll tell you what SaaS you are High touch sales Team of sales representatives close deals Low touch sales Self-serve sales on website Hybrid model Low and high touch sales in parallel Get more customers1
- 18. QUALIFICATION Structuring a sales team based on the sales model CLOSING RETENTION LOW TOUCH HIGH TOUCH Drive leads and free signups Convert from free to premium Customer succes Sales development reps Account executives Customer success/ account management Get more customers1
- 19. Getting your first customers Get more customers Focus: Identify and pursue only your target customer. *Just* building it won’t make them use it. Do things that don’t scale. 1
- 20. T H E R E A R E O N L Y T H R E E W A Y S T O G R O W A S A A S C O M P A N Y : Get more customers1 Reduce churn2 Increase average spend (ARPU)3
- 21. Churn will make or break you Reduce churn2
- 22. Relentlessly monitor your churn rate Reduce churn2
- 23. But don’t forget churn varies by industry and customer type Reduce churn2
- 24. Increasing retention with the right payments experience Reduce churn Make it easy to up and downgrade Let (real) quitters quit Require credit card details before the free trial 2
- 25. T H E R E A R E O N L Y T H R E E W A Y S T O G R O W A S A A S C O M P A N Y : Get more customers1 Reduce churn2 Increase average spend (ARPU)3
- 26. Make sure the price is right Increase average spend (ARPU)3
- 27. Average Revenue Per User (ARPU) E X I S T I N G U S E R S N E W U S E R S Increase average spend (ARPU)3
- 28. Flat Rate Pricing Usage Based Pricing Tiered Pricing Strategy What are the different pricing strategies? Increase average spend (ARPU)3
- 29. Per User Pricing Per Active User Pricing What are the different pricing strategies? Increase average spend (ARPU)3
- 30. Hybrid Pricing Atlas Flat Rate Pricing Payments Per Usage Pricing What are the different pricing strategies? Increase average spend (ARPU)3
- 31. What’s a good example?
- 33. How do I scale internationally?
- 34. How to bill international customers?Bill them in their currencies Offer the right local payments methods
- 35. S T R I P E ’ S V I S I O N Building blocks for the internet economy Core Payments Frictionless, unified, global payments. Applications Move faster and enable growth.
- 36. S T R I P E ’ S V I S I O N Building blocks for the internet economy Stripe Billing Infrastructure for recurring revenue businesses Accept order Billing Invoice Collect Account Report
- 37. D E V E L O P E R T A L E N T I S A P R E C I O U S R E S S O U R C E Developers spend more time addressing technical debt than working on strategic projects 63% 59% 59% Engineering time has become the limiting constraint on company’s ability to innovate Businesses struggle to hire developers Source: Stripe, The Harris Poll, 2018
- 39. #SAASTREURO PA
Hinweis der Redaktion
- Hi, my name is Guillaume Princen and I lead Southern Europe at Stripe
- Valued at more than 9B$, Stripe works with +100K businesses in +100 markets. Among them, some of the most innovative players in ecommerce, marketplaces… and SaaS that use Stripe to scale their businesses
- If we take a step back, Saas was not an obvious business model for internet based businesses. More common online business models — commerce based such as e-commerce / marketplaces or advertising based — were far more popular in the early days of the Internet. But consumer behavior have changed. A 3rd of the US population says it prefers to pay through a subscription. And growth of the subscription e-commerce segment as grown 100% y/y for the past 5 years according to McK. Why so?
- Customers love SaaS because it “just works.” There is typically nothing to install to access it and hardware failures and operational errors are limited to a minimum. SaaS also generally appears less expensive than software sold on other billing models, which matters for e.g. users who are not sure which software they should adopt over long terms, or who have only a short-term need for the software. Developers love SaaS principally because of the delivery model, not the billing model. Most SaaS is developed continuously and run on the company’s infrastructure. Companies which sell their software on both SaaS and installable models frequently see 10+ times more support requests per customer from customers who install the software locally. Businesses and investors love SaaS because the economics of SaaS are impossibly attractive relative to selling software licenses. Revenue from SaaS is generally recurring and predictable; this makes cash flows in SaaS businesses impressively predictable, which allows businesses to plan against them and (via investors) trade future cash flows for money in the status quo, which allows them to (generously) fund present growth. This has made SaaS companies into some of the fastest growing software companies in history and some of the most successful recent IPOs.
- One of the interesting for us at Stripe, is to witness first hand the dynamics of Saas businesses. Over the years, we’ve been able to see the evolution of business models and the progression of Saas as a preferred model for businesses & consumers. One of the most popular questions for SaaS founders is “Are my numbers any good?” This is surprisingly difficult to answer, because of the differences across industries, business models, stages of a company, and goals of founders. In general, though, experienced SaaS entrepreneurs have a few rules of thumb. The goal today is to share some of those with you.
- As Lord Kelvin – the famous British physicist who discovered the « absolute 0 » would put it -- a standard set of metrics is *essential* to understand and grow your business. This is particularly important with Saas companies. While tales of so-called “hockeystick” growth curves are common in the press, the representative experience of SaaS is that they take a while to grow, dialing in the product, marketing approaches, and sales approaches before things start to work very well. In fact, good SaaS businesses tend to experience significant losses in their early years (and often an associated cash flow problem) before they get much better. So looking early on at the right metrics and addressing them is not only a good short term fix, it’s a healthy discipline for the long term. Let’s start with definitions, so we’re all on the same page.
- Sans ont des valorisations plus élevée:s prévisible, scalable et high margin Base du Saas c’est la récurrence: vos clients ne paient pas en une fois mais un abonnement mensuel. Acquérir et surtout fidéliser, upsell Fidéliser : surpris à quel point clients restent, surtout en B2B Première question de tout investisseur Ce chiffre ne doit jamais baisser car en principe par définition, il croît par intérêts composés (car vos clients continuent de croître) $100K : seuil où l’entreprise devient self-sustainable
- The churn is the percent of customers over a given period who do not continue paying for services. For example, if you have 200 customers pay you in January and only 190 of those pay you in February, the churn would be 5%. The lifetime of a customer can, with a few simplifiying assumptions, be calculated as the sum of an infinite geometric series; this works out to simply taking the inverse of churn. A product which loses 5% of its customers per month has an expected customer lifetime of 20 months; if it charges each customer $30 a month, it has an expected lifetime revenue of $600 per new customer signed up.
- ARPU = sur une période donnée (eg monthly) Une fois que churn est sous contrôle, il y a 2 moyen de continuer à croître : either by growing number of customers Growing ARPU: upsell, augmenter prix, vendre à des clients plus gros. Dropbox = vendre plus d’espace et d’autres produits (Paper) Personellement convaincu que faire grossir l’ARPU est plus simple : augmenter les prix (souvent under-priced), vendre à des clients plus gros ◦ Mattermark: $833 (monthly) ◦ FrontApp: $200 (monthly)
- Life time = nombre de mois • si LTV < 1000€, commerciaux trop chères et il faut essayer autres méthodes d'acquisition : SEO/SEO, ads, emailing • ne jamais acheter des utilisateurs si le produit est gratuit, il faut que ce soit viral.
- metric à mesurer et à contrôler tous les jours: génération de lead (marketing), force de vente (sales) CAC ~ 1/3 of LTV at the beginning Recover CAC in less than 1 year Spécialiste en acquisition
- 2 ans minimum pour devenir vraiment rentable et prouver le PMF de votre saas Vous ne pouvez pas faire l’impasse sur une analyse systématique de vos cash flows Plus vous faites l’acquisition de nouveaux clients, plus vous perdez de l’argent
- High / Low ARPU depending on sales model ARPU / CAC / Sales model Low touch sales: some products just sell themselves High touch: Customers need some help on deciding whether or how to adopt the product. Salesforce basically invented the playbook.
- Structuring for high touch saas is very generic — Emphasise a lot the third piece — retention is key. Don’t focus too much on acquisition Reference book on sales for saas was written by salesforce, named predictable revenue
- If you build it, they will do absolutely nothing. no matter how good your product is, once you build it, no customers will use it unless they hear about it and are convinced of the value it provides Founders (even technical ones) should engage in sales discussions in the early days of the company it’s the only way to (1) get your first customers, (2) gather precious product feedback Building an early list of prospects: balancing your network and cold outreach What are the characteristics of a good early prospect? Do things that don’t scale. Communication tips: Cold emails with thorough background preparation do work Ask for a specific and small thing (15-minute meeting) Follow up once a week until your customer engages.
- Don't underestimate the impact of churn on your business and Relentlessly monitor it. What looks like a small difference today, makes a huge impact in the long term
- Caveat with this will depend on your business model. Netflix has a 9% churn rate which is lowest for streaming companies For B2B Saas specifically For low touch: 2% best you can hope for (front, mattermark), 5% churn is okay, 10% no product market fit. For high touch:
- In general, requiring a credit card upfront will, on net, increase the number of new paying customers you get (it increases the trial-to-paying-customer conversion rate by more than it decreases the number of trials started). This factor reversesas a company gets increasingly sophisticated about activating free trial users (ensuring they make meaningful use of the software), typically via better in-product experiences, lifecycle email, and customer success teams. Conversion rates of low-touch SaaS trials with credit card not required: substantially below 1%: generally evidence of poor product-market fit ~1%: roughly the baseline for competent execution 2%+: extremely good Conversion rates of low-touch SaaS trials with credit card required: substantially below 40%: generally evidence of poor product-market fit 40%: roughly the baseline for competent execution 60%: doing well! Automatic update of expired cards Automatic retry of failed payments 3, 5 and 15 days later Automate email follow up with involuntary churners Easy cancellation helps avoid chargebacks Card expiry stat
- People love to talk about the cost of customer acquisition How much is it acceptable to spend on your customers Assumes 80% margin Okay to spend a third of the customers LTV on acquisition because the margin is so high Buffer are so good at marketing at scale 10-15% on CAC
- Two ways to grow your business — don’t overlook growing your existing customer base. It’s tempting to add new customers but it’s easier to grow your existing customer base. You need to grow your ARPU. Lifetime value under $1000, doesn't make sense to have any sales people dealing with customers Figure comes from YC
- Hard to sell a usage based pricing if you don’t have a usage based cost structure Hard for pure software business to do so, then you go for per seat
- More and more: per active user rather than per user pricing. Unclear if users will adopt. Also useful for increasing ARPU
- Different features and products you need to start being more nuanced about how you price each product
- Saas startups that crack those challenges have amazing business metrics. Some of them even accept to share them publicly, even in their early years.
- Good example of a low touch business - buffer built a tool to manage your social media accounts. Quite a big SaaS: $15M ARR Churn rate is OK (5.38%) but not great on the paper given stage of the company. ARPU ($17.47) and LTV (€324.73) are quite low. Buffer needs its customers to self serve and onboard themselves. They cannot afford to pay an account executive to acquire new customers. CAC ($40.60) is excellent when compared to LTV (ratio 8:1 — a ratio 3:1 is already pretty good). Buffer can afford an average churn rate but acquiring new customers doesn’t cost much. Gross margin is very high (87%): this is typical of software. Net profit margin is great too (25%).
- The beauty of Saas is that it’s highly scalable and going international is a natural evolution once you’ve found your PMF and are looking for new users. But as you scale your Saas, you run into other difficulties: eg: making sure your customers can pay you.
- Getting paid isn’t just about offering the right currency, it’s about offering the right local payment method. Online payments remain oddly cultural. Germans don’t pay much with credit cards, they use Sofort. The Dutch use Ideal. The Chinese use Alipay & WeChat Pay… And in traditional credit cards markets, like FR or the Uk, new payments methods are getting traction (eg: Apple Pay).
- Our goal at Stripe is to help businesses focus on their product and their PMF by taking care of the heavy lifting of running a business. Applied to Saas, we want to give every Saas businesses access to a Spotify-like infrastructure, without the associated cost or complexity.
- — Deeper look at Stripe Billing - a suite of tools to help you automate and scale your recurring business. Accept Order - The Stripe API gives makes it easy to fit ordering within your existing workflow whether its on mobile, web or ordering system like CRM or ERP Billing - With Stripe’s billing components, you can charge for almost any pricing or billing model Invoice - Modern invoicing takes the pain out of b2b payments Collect - Smart recovery tools can reduce payment declines by 45% Account - Stripe Scale includes integrations to NetSuite for rev rec and make closing the books a breeze Report - Stripe Sigma provides insight into subscription metrics
- Why does it matter? Because the success of Saas companies is inherently tied to engineering talent, and the right use of developer tools and cloud-based services. And while most Saas businesses look up to the Dropbox, the Netflix, or the Spotifys of this world, the vast majority of online businesses doesn’t have access to that wealth of engineering talent. [CLICK] Two thirds of technical leaders struggle to hire developers. [CLICK] 6 out of 10 say eng time is *the* limiting constraint on ability to innovate. [CLICK] 6 out of 10 say developers spend more time on technical debt than working on strategic projects. The trouble is that as software has suffused into every corner of business today: developer resource has become increasingly scarce. And more often than not being used to keep on the lights instead of focusing on the right product experience.