Lessons from the SaaS Metrics of 1500 companies – Patrick Campbell – MicroConf Europe 2016

The MicroConf Europe 2016 Talk Recaps can be found on the central hub page.

Website: priceintelligently.com
Twitter: @patticus
Slides: http://www.priceintelligently.com/microconf

 

  • Premise: “Building a software company is getting harder, not easier… and it’s going to increase in difficulty.”
  • LTV/CAC Ratio:
    • less than 2 results in 4-12% churn
    • 2-5 results in 3-6% churn
    • over 5 results in <3% churn
  • What % of total sales is expansion revenue: 10-15%
  • How much should you be growing YoY: As much as possible
    • no fixed growth target set by VC, because we are bootstrapped
    • Your growth rate goes down the bigger your annual recurring revenue (ARR) is
  • Our world is more competitive, making switching costs easier.
    • 5 years ago: Average of 1.5 competitors per surveyed SaaS app
    • Today: Average of 8 competitors per surveyed SaaS app
  • The value of features is declining over time
  • CAC is increasing over time
  • You need to know your buyers on a granular basis
    • valued features
    • least valued features
    • WTP (Willingness To Pay)
    • CAC (Customer Acquisition Cost)
    • LTV (Lifetime Value
  • Problem: We don’t do a lot of cust dev conversations
    • 75% of companies have less than 10 customer development conversations per month
    • 78% of companies are sending 0 customer development surveys per month
    • 50% of companies do 0 marketing experiments/tests each month
  • Looked at over 25,000 growth blog posts
    • 80% are written about Acquisition
    • less than 10% are written on Retention!
  • Looked at 6,324 companies
    • 90% are building for Acquisition
    • <5% are building for Retention
  • C-Level/Founder spend their time on
    • 85% getting more logos (Acquisition)
  • Impact of improving each growth lever by 1% results in the following growth in your bottom line:
    • Acquisition: 3.32%
    • Monetization: 12.7%
    • Retention: 6.71%
  • We want customers, but don’t know what to do when we get them!

How do we fix customer development and focus on monetization

  • 3 ways to better monetization
    • Quantify buyer personas
    • Implement a pricing process
    • Utilize a multi-price mindset
  • Example: ProfitWell
    • Noticed that one of their consulting clients about to IPO were calculating MRR the wrong way
    • ==> We can build a product that will calculate everything correctly
    • Immediately got compared to Baremetrics and Chartmogul
    • We noticed there are 37 other competitors…
    • We went back to the playbook: Persona-Pricing Fit
      • Startup Steve vs. Miderprise Marty
      • For the love of God. Talk to your customer.
        • set a target – e.g. “we talk to 10 customers each month”
    • Right way to set prices: Value-based pricing influenced by cost-plus pricing & competitive pricing
    • have multiple tiers of your product – differentiated by enabled features
    • “Please rank the following features on a scale of 1 to 10” will show you that every feature is important
      • Better: “Of the following options, which is LEAST and MOST important to you”
      • can be used in conversations, not just surveys
      • much better data quality
      • correlate answers to size of business of your customers ==> tells you what small customers care about vs. what big customers care about
    • How much are your customers willing to pay?
      • “At what price point does PRODUCT become too expensive that you’d never consider purchasing it?”
      • “At what pp does PRODUCT start to become expensive, but you’d still consider purchasing it?”
      • “At what pp does PRODUCT become so cheap you question the quality of it?”
      • WTP for enterprise customers was $150-$250/mo
      • CAC ~ $3,000
      • LTV: $1,500
      • ==> “Oh shit!”
    • WTP for Churn Recovery for enterprise customers: $3,000 / month!
    • WTP for Revenue Recognition for enterprise customers: $2,500 / month
  • Implement a pricing process
    • Timeline for changing your pricing (repeat every quarter)
      • week 1-4: Customer/Market Research
      • week 5-7: Communication Plan, Impact Analysis, Customer Advisory Panel
      • week 8-9: Implement changes
  • Utilize a multi-price mindset
    • you want to have growth both from new and existing users
    • use a value metric (e.g. Wistia differentiates along “# of videos”)
      • do NOT use # of users
    • value metrics should:
      • Align to your customer’s needs
      • Grow with your customer
      • Be easy to understand

 

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About Christoph

Christoph lives in Munich, Germany and is bootstrapping his own SaaS application as a part-time entrepreneur.

He likes to write on this blog about anything of relevance to single-founder bootstrapped software startups.

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