This week’s SaaS roundup features great tips for SaaS company growth, properly discounting multi-year SaaS contracts, preventing SaaS churn and much more! Let’s get started…
Sammy Abdullah of Blossom Street Ventures is building quite a reputation for his critical thinking, fresh perspectives on SaaS topics and brilliantly eye-opening statistical research. We’ve featured many of his presentations in the past, like his piece on SaaS valuations making a comeback and many others, but this is one of his best so far. Abdullah states his thesis that net dollar retention is the most important metric in SaaS, and spends just under 5 minutes driving this point home. For those who may not be familiar, net dollar retention is beginning of period revenue + upsells -churn – downgrades all divided by beginning of period revenue (BEG + UPGRADES – CHURN – DOWNGRADES / BEG). The most common measure of a period is 1 year. Putting forth data collected from roughly 40 SaaS companies, Abdullah proves his point that upsells are indeed critical to SaaS growth.
Even if a SaaS business is growing 60% year over year, if that business is at the median of 108% net retention, then $1 out of every $3 of new revenue was an upsell. It’s material.– Sammy Abdullah
Cobloom‘s Ryan Law really goes above and beyond here, gathering together 50 SaaS metrics and organizing them by category and relevance. To help add context to each of these metrics and their proper use, Law includes quotes from many SaaS industry trailblazers like Bill Macaitis of Slack, Tomasz Tunguz of Redpoint Ventures, Christoph Janz of The Angel VC and more. Truly the closest thing we’ve seen to an “ultimate” guide to SaaS metrics in quite a while.
Many SaaS companies track the wrong metrics, in the wrong way, or worse still, overlook crucial KPIs entirely. Instead of using metrics as a valuable aid to performance, they end up confusing the picture.– Ryan Law
Ben Murray (AKA The SaaS CFO) dives into price discounts on multi-year SaaS contracts, when and why to give them, when and why you shouldn’t, and more. Murray also takes a look at churn, and shares some data showing how longer and shorter contracts effect churn differently. After clearly outlining the impact discounts make on multi-year contracts, Murray includes a downloadable SaaS multi-year pricing calculator to give readers a better feel for how far you can push your discounts on multi-year contracts. Simply plug your data points into the calculator and see how your revenue compares by contract length!
When customers are locked into longer contracts, they have less opportunity to churn. Therefore, you can accept higher churn than shorter contracts and still come out with the same revenue.– Ben Murray
Medium tech writer Priyom Sarkar shares his unique perspective on SaaS churn, and what it takes to prevent it. Presented as a 5-step churn prevention process, Sarker weaves powerful charts and data throughout this piece to demonstrate that his opinions are backed by facts and careful research. The bones of Sarker’s plan are simple, but the way he details each of the steps included is what makes this 4-minute read well worth the time.
I have seen many companies jumping to fixing churn by increasing New sales. Note that the leak in a bucket will only become bigger if the bucket grows. Thus it’s important to deep dive into the funnel and fix the main reason(s) of churn.– Priyom Sarkar
In his newest article, Falcon.io‘s Toni Hohlbein shares how his team decreased the company’s CAC-Payback from 25 to 12 months over three quarters. If you don’t know, CAC-Payback measures how long it takes to recoup the money you spent to acquire a customer (CAC) with the revenue you get from that customer. This is typically referred to as ROI, as the two are basically synonymous. Some measure this in months, and others in years. Whatever you call it and however you measure it, Hohlbein has some great tips for improving it!
The reason why VCs ask about CAC-Payback is to understand the efficiency of your Sales and Marketing engine. That engine will determine how much you can grow with the funds you have.– Toni Hohlbein
Thanks so much for joining us for another SaaS roundup. We hope to see you here again next Monday!