This guide will introduce you to the essential metrics and methods of starting a Software-as-a-Service business, including what’s often overlooked.
We’ve broken it up into 3 steps:
- Step 1: Track Key Metrics (Churn Rate, Customer Acquisition Cost, Lifetime Value...)
- Step 2: Metric Decomposition (Not all metrics are created equal)
- Step 3: Marketing Strategies (How to keep customers coming back to your site)
2. AGENDA
NOT ALL METRICS ARE CREATED EQUAL
CHURN RATE, CUSTOMER ACQUISITION COST, LIFETIME VALUE...
HOW TO KEEP CUSTOMERS COMING BACK TO YOUR SITE
STEP 2: METRIC DECOMPOSITION
STEP 1: TRACK KEY METRICS
STEP 3: MARKETING STRATEGIES
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THE FUNDAMENTALS AND METRICS OF SAAS
This guide will introduce you to the essential metrics and methods of starting a
Software-as-a-Service business, including what’s often overlooked.
We’ve broken it up into 3 steps:
2
3. STEP 1: TRACK KEY METRICS
@AMPLIFYLA3
CHURN RATE
CAC
LTV
LTV : CAC
EARLY-STAGE LTV
QUICK RATIO
MAGIC NUMBER
SOME METRICS WE’LL COVER
IN THIS GUIDE:
"If you cannot measure
it, you cannot improve
it”
– Lord Kelvin, devised the
absolute temperature scale
4. STEP 1: TRACK KEY METRICS
THE PERCENTAGE OF CUSTOMERS WHO LEFT YOUR SERVICE IN A GIVEN PERIOD
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Trying to add more users to counter a high churn rate is like trying fix a leaky
bucket by adding more water – you need to patch up the hole
Sales Targets
Subscribers
Repays
Repays
Repays
{Conversion
Rate
Churn Rate
{
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CHURN RATE
5. CUSTOMER ACQUISITION COST
CAC
LTV
HOW MUCH IT COSTS TO MOTIVATE YOUR
CUSTOMER TO SUBSCRIBE
LIFETIME VALUE (LTV)
THE NET PROFIT ONE CUSTOMER
PRODUCES
CAC =
Acquisition Spending
# Customers Acquired from Marketing
LTV =
Recurring Revenue
Churn Rate
LTV : CAC RATIO
LTV > CAC
A ratio of at least 3 is important for growing
companies beginning large marketing
campaigns.
☑
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STEP 1: TRACK KEY METRICS
6. EARLY-STAGE LIFETIME VALUE
For early stage companies, LTV might not be a reliable metric since your early churn
rate may not be accurate. To account for this, using a conservative fixed number of
months (e.g. 36 months) to recalibrate your LTV:
Early-stage LTV =
1 - (1 - Churn Rate)36
Churn Rate
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SOURCE: JEFF BUSSGANG
STEP 1: TRACK KEY METRICS
7. QUICK RATIO MAGIC NUMBER
EXAMPLE
KEY STATS
DEFINITION
KEY STATS
4
A Quick Ratio of 4 is often a
benchmark investors looking at high
growth SaaS companies
0.5 - 1.0
If it’s greater than 1, you should accelerate growth
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QR =
New MRR + Expansion MRR
Churned MRR + Contraction MRR
How much of your business is growth
compared to your churned revenue
MN =
(QRR2 - QRR1) x 4
Marketing Expenses During Quarter
A Quick Ratio of 3 would mean that for every
dollar lost in a month, 3 dollars are added
DEFINITION
Indicates the health of your company from the
perspective of growing quarterly recurring revenue
EXAMPLE
A Magic Number of 3 would mean that for
every dollar lost in a month, 3 dollars are
added
If it’s less than 0.5, rethink your marketing strategy
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STEP 1: TRACK KEY METRICS
8. STEP 1: TRACK KEY METRICS
MEASURE THE LOYALTY THAT EXISTS BETWEEN YOU AND YOUR CUSTOMERS
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NET PROMOTER SCORE
Detractors
1 2 3 4 5 6 7 8 9 10
Passives Promoters
0
NPS Score = % Promoters - % Detractors
DETRACTORS ARE USERS WHO RATE YOUR SERVICE “0-6”
PROMOTERS ARE USERS WHO RATE YOUR SERVICE “9-10”
10%75%
PROMOTERS
15%
PASSIVES DETRACTORS = 10%
15%
75%
65
NPS SCORE
9. COMPOUNDED MONTHLY GROWTH RATE WEEK 1 RETENTION
DEFINITION
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CMGR measures the periodic growth of a
company (new subscribers, revenue, etc.)
DEFINITION
The percentage of active users after 1 week of
subscribing or installing
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STEP 1: TRACK KEY METRICS
CMGR =
Latest Month
First Month )( - 1
1/# of Months
“Using CMGR also helps you
benchmark growth rates with
other companies”
– Jeff Jordan, General Partner at
Andreessen Horowitz
"Week 1 Retention (W1) has one
of the biggest impacts on your
retention over time"
– Brian Balfour, VP Growth, Hubspot
Up to 80% of users typically stop engaging with
your service just within the first week of signup
Engaging as many users as possible during that
critical first week is essential to keeping
exponentially more active users a month or
year after signup
10. STEP 2: METRIC DECOMPOSITION
Choosing Key Metrics
Not all metrics are created equal. Depending on the
size and stage of your company, certain metrics will
provide more value and insight into your business than
others. For example, if your business was founded two
months ago, tracking Lifetime Value (LTV) might not
make sense. For smaller and growing companies,
account churn can indicate your business’s overall
health.
Metric Components
Break down your top level metrics into their
underlying components. For example, Customer
Acquisition Cost (CAC) can be broken down into your
total marketing expenses and your new acquired
customers. Net new customers can be broken down
into new, churned, and unsuccessfully on-boarded
customers.
Breaking down your metrics allows you to create a
model that enables you to visualize your traction by
tracing back from a top level metric back to its
component parts.
Repeat
ARPU
Churn
Rate
Gross
Margin
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LTV
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SOURCE: RJMETRICS
11. DRIP MARKETING IS A SET OF MARKETING EMAILS THAT ARE AUTOMATICALLY
SENT OUT ON A SCHEDULE
YOU CAN INCLUDE BEHAVIORAL EMAILS THAT ARE SENT BASED ON
TRIGGERS OR ACTIONS YOUR USER MADE
Shares on
Facebook
Day 7
Watches
Video
Day 2Subscribes
Thank you email Engaging video
Sponsored email
More content
Tag as “Engaged”
Tips for Power
Users
Newsletter
Suggest upgrade
to Pro version
Option to share
on social media
Repeat cycle with
new users
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STEP 3: MARKETING STRATEGIES
12. CALL-TO-ACTION BUTTONS
SNIPLY
Sniply adds your custom call-to-action to any
page on the web, allowing you to engage
your followers through every link you share.
CLICKTALE
Clicktale provides heatmaps and link analytics
to help you better understand how your
website is engaging your users
Call-to-action buttons can be crazy
effective at converting sales targets
to paying users
Some products to consider using:
SOURCE: SNIPLY
SOURCE: CLICKTALE
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STEP 3: MARKETING STRATEGIES
13. SAAS COMPANIES IN THE AMPLIFY PORTFOLIO
unGlue builds consumer SaaS software to
help parents limit the amount of time and
content their children consume on any
screen and device, at home and away
Alon Shwartz
Estify works with the car manufactures to
create, organize, and standardize proper repair
data so that the repair centers and insurance
providers can know exactly how to fix vehicles
to their pre-accident condition.
Jordan Furniss
Bitium provides app management, single sign-
on and analytics for more than 1,500 cloud-
based apps allowing companies to securely
manage their software catalog.
Scott Kriz & Erik Gustavson
Fama utilizes the open social graph to go
beyond the resume, helping companies
make smarter hiring decisions.
Ben Mones
@AMPLIFYLA13
FloQast helps accounting departments
collaborate, organize and ultimately lead to
more transparency and efficiency during the
close and reporting process.
Michael Whitmire
Repost offers monetization, content protection,
and a full-suite of distribution services for artists
on SoundCloud.
Jeff Ponchick & Joey Mason
14. CITATIONS
The Top SaaS Metrics Of The Most Influential Venture Capitalists — Insight Squared
SaaS Metrics Guide to SaaS Financial Performance — Chaotic Flow
What is the single most effective metric for a SaaS business? — Quora
Your LTV Math is Wrong - Seeing Both Sides
If You Are Going to Read One Intro Guide to Saas Metrics, This Is It — David Arnoux
The Ultimate SaaS Metric: The Customer Lifetime Value to Customer Acquisition Cost
Ratio (LTV/CAC) — Dave Kellogg
Magic Number Math — Scale Venture Partners
5 Awesome User Engagement Metrics for Growth - Popcorn Metrics
Net Promoter Score (NPS) - Netigate
SOURCES USED IN THIS GUIDE
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