12 Key Levers of SaaS Success

12 Key Levers of SaaS Success

David SkokForEntrepreneurs BlogGeneral Partner, Matrix Partners

Goals

Present a simple model to understand a SaaS business1

2 Show what levers a CEO can pull to get the most impact

A QUICK PREAMBLE

Search for Product/Market Fit

Scaling the Business

Search for Repeatable & Scalable & Profitable Growth Model

The Three Phases of a Startup’s Lifecycle

Predictable, Repeatable, Scalable, Profitable Growth

Scaling the Business

Search for Product/Market Fit

Search for Repeatable & Scalable & Profitable Growth Model

One Sign That You’re Getting There:

Bookings - (NOT Revenue or ARR!)

Quarters

Simple Model for aSaaS Business

A Funnel

The Full SaaS Funnel

OnboardRetain

Expand

Loyal Customerswho are advocates

The Beautiful Thing about Funnels…

Governed by very simple Math

Two Key Levers Top of Funnel Flow(Quantity)

ConversionRate

Bookings Top of Funnel Lead Flow

ConversionRate

AverageDeal Size

Secondary Funnel Metrics

CAC

Time

Two Sales Motions

Touchless Self-Serve

• No Sales People• Based on Free Trial

Sales People Needed

The Simple Case: Touchless Self Serve

Visitors toWeb Site

Sign up forFree Trial

ClosedDeals

Funnel Metrics are Essential

"IF YOU CAN NOT MEASURE IT, YOU CAN NOT IMPROVE IT."

- LORD KELVIN

The Key Metrics

VISITORS

CAMPAIGNS TO DRIVE TRAFFIC

TRIALS

CLOSED DEALS

CONVERSION %

CONVERSION %

OVERALL CONVERSION %

Not All Lead Sources are Equal

Visitors

Trial

5%

10%

$5,000Customer

Google Ad Words FaceBook Ads

Visitors

Trial

2%

20%

$8,000Customer

OVERALL CONVERSION %

(BY LEAD SOURCE)

Cost per lead

LTV

ROI by Lead Source

Fix Conversion Rates First

• Fix before spending heavily on Traffic growth

• Three starting points:• Improve Product/Market Fit• Find the Optimal Customer Segments• Clear, Simple, Powerful, Messaging & Positioning

Funnel Conversion Rate Problems

Suspects Suspects

Suspects

SuspectsSuspects

Suspects

Suspects Suspects

Suspects

SuspectsSuspects

Suspects

The Source of Most Problems

Vendor-centric funnel design

Suspects Suspects

Suspects

SuspectsSuspects

Suspects

Suspects Suspects

Suspects

SuspectsSuspects

Suspects

NOT MOTIVATED TO DOTHAT THEY ARE

CUSTOMERS WILL DOSOMETHING

YOU ARE HOPING YOUR

IN OTHER WORDS…

YOU DESIGNED YOUR FUNNEL THE WAY YOU HOPED IT WOULD WORK…

BUT YOU MAY NOT HAVE THOUGHT ENOUGH ABOUT

THE CUSTOMER’S POINT OF VIEW

JBOSS EXAMPLE

EMAIL ADDRESS BEFORE FREE DOWNLOAD

IMPACT

CUT THE DOWNLOAD RATE BY MORE THAN 10X

FRICTION CONCERNS

Get Inside Your Customer’s Head

MOTIVATIONS

FRICTION CONCERNS

Redesign, or Try to Use What Motivates Them

JBOSS EXAMPLE

• Making $27,000 a month selling documentation

• Solution: • Give away documentation

to get their email address

EXAMPLE:DRIVING TRAFFIC TO YOUR WEB SITE

GETTING FOUNDNot going to find your site unless:

- Top of Google search

- Referred to by an influencer

friction &concerns

LESSONS FROM WEBSITE GRADER

• Free tools drive viral spread

• Low customer work required

• High value delivered

• Score leverages competitive urge, and acts as a trigger

• Builds trust through clear demonstration of expertise

LESSONS FROM WEBSITE GRADER

Shows how the product team can impact the funnel

MICROFUNNELS

Take key steps in your funnel…

Free Trial

… and break them into micro-steps

Free Trial

Get Access to current data and import

Invite Colleagues

TestFeature

Wow!Moment

Identify Bottlenecks

Get Access to current data and import

Invite Colleagues

TestFeature

Wow!Moment

Fix Using the Same Analysis

FRICTION CONCERNS

Get Access to current data and import

Redesign

SelectSample Data

Invite Colleagues

TestFeature

Wow!Moment

Ideally we’re doing…

BusinessGoals

DecisionCriteria

BuyingProcess

Customer

Funnel Design

So far we’ve looked at the simple case

Touchless Self-Serve

• No Sales people• Based on Free Trial

What happens when the sale is more complex and needs a sales person?

Sales People Needed

Without Sales People

Visitors toWeb Site

ClosedDeals

Simple linear relationship

ConversionRate

But when you add in Sales People…

Ramp Time

Sales Capacity

Limit

Growth Comes in Discontinuous Units

The Unit of Growth

Sales Person

Supported by Leads & Customer Success

Sales Person

$’sMarketing

Spend

SDR’s

Leads Customer Success,Renewals, etc.

What Drives Bookings?

No. ofSales People Productivity per Rep

(Average)

xPPR

Let’s look at each of these in turn…

Number of Sales People

One of the most common reasons for missing plan

Didn’t hire sales people fast enough

Sales Hiring

• You will need to build an in-house recruiting machine

See my blog post:“Recruiting: The 3rd Crucial Startup Skill”

Two Metrics to Track

Q4-16 Q1-17 Q2-17 Q3-17 Q4-170

2

4

6

8

10

12

14

16

18Number of Reps versus Plan

Reps

Q4-16 Q1-17 Q2-17 Q3-17 Q4-17$0

$500

$1,000

$1,500

$2,000

$2,500

Assigned Quota vs Plan & New ARR

Assigned Quota Plan

$k

Lost Bookingsdue to slow hiring

Q4-16 Q1-17 Q2-17 Q3-17 Q4-17$0

$500

$1,000

$1,500

$2,000

$2,500

Assigned Quota vs Plan & New ARR

Assigned Quota Plan

$k $500k

Over Assignmentof Quotaneeded tohit plan

=1/85%Q4-16 Q1-17 Q2-17 Q3-17 Q4-17

$0

$500

$1,000

$1,500

$2,000

$2,500

Assigned Quota vs Plan & New ARR

Assigned Quota Plan

$k

85%

PPR: Productivity per Rep

• Quality of sales hires

• Sales Training and Onboarding

PPR: Sales Training and Onboarding

• Sales People: One of the most expensive resources

• Yet, typically little effort is put in to sales training in early days

• High payback• Worth having the founders spend time to develop & deliver a lot of the material

Monitoring PPR

Charts3

PPR over time

Q1 Q2 Q3 Q4$100

$110

$120

$130

$140

$150

$160

$170

Average Productivity Per RepN

ew A

RR

boo

ked

- $k

/ qua

rter

PPR Looked at by Rep Tenure

Q1 Q2 Q3 Q460

80

100

120

140

160

180

Average Productivity Per Rep - Grouped by Rep Tenure

6 - 12 months 12-24 months >24 months

New

AR

R b

ooke

d - $

k / q

uarte

r

PPR by Individual Rep

Rep Q2-15 Q3-15 Q4-15 Q1-16 Q2-16 Q3-16 Q4-16

John 120 165 180 145 80 110 195

Mary 80 110 135 155 150 145

Fred 60 35 75 40 55

Alice 85 145 160 180 145

Joe 60 110 85 130 145

Mike 155 170 145 190

Sarah 35 45 70 45

Sue 80 145 175 165

% of Reps at Quota

Q1-16 Q2-16 Q3-16 Q4-1630%

40%

50%

60%

70%

80%

90%

100%

% of Reps above75% of Quota

Q1-16 Q2-16 Q3-16 Q4-1630%

40%

50%

60%

70%

80%

90%

100%

% of Reps above100% of Quota

There’s one other thing that drives PPR

Adequate Lead Flow

THEMAGIC OFFUNNELMATH

Raw Lead

Marketing Qualified Lead

Sales Accepted Lead

Opportunity

Closed Deal

20%

80%

25%

20%

Funnel Math

Raw Lead

Marketing Qualified Lead

Sales Accepted Lead

Opportunity

Closed Deal

20%

80%

25%

20%

Closed Deal1

Opportunity5

Sales Accepted Lead20

Marketing Qualified Lead25

Raw Lead125

Reverse Funnel Math

Allows Us to Compute Leads Required per Rep

x

No. ofClosed Deals

=Reverse FunnelConversion Rate

Marketing QualifiedLeads Required

This Becomes the Contract Between Sales & Marketing

Marketing QualifiedLeads Required Sales

Marketing

SDR’s

The Backend of the Funnel

Closed Deals

LoyalCustomers

who areAdvocates

Renew ExpandOnboard

It’s all about LTV

Top Factors Affecting Renewals

• On-boarded successfully?

• Champion still at the company?

• Customer getting meaningful business benefits?

• Is the product Sticky?

Dollar Renewal Rate is King

See my SaaStr 2016 presentation

CustomerRenewal Rate

>Dollar

Renewal Rate

SUMMARY12 Key Levers for SaaS Success

Simple Team Focus:Optimize your Funnel

Funnel Optimization Meetings

• Start by diagramming your funnel

• Draw the micro steps for key partse.g. free trial

Funnel Optimization MeetingsParticipants

Sales Marketing

Product“Sparketing!”

Key Levers

1. Product/Market Fit

Key Levers

3. ConversionRate

2. Top of Funnel Lead Flow

4. CAC

Key Levers

5. No. ofSales People

(Recruiting)

Productivity per Rep(Average)

6. PPR7. EnoughLeads

Key Levers

LTV

8. Pricing

9. Customer Retention Rate

10. Dollar Retention Rate(Ability to “Land & Expand”)

Key Levers

Cash to Finance the Business

11. Months to Recover CAC

Key Levers

Building a Great Organization

12. Recruiting, Onboarding & Management

For more details on all these topics: forentrepreneurs.com

Presentation Slides:

forentrepreneurs.com/saastr-2017