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SaaS – Why are Customers
buying SaaS? !
Readiness
RevenueProfitability
SuccessRelationship
3
Customers that want to shift from Capital Expenses (On-
premise) to Operating Expenses (SaaS) to fund
software purchases18%
Customers who want to quickly gain access to new
capabilities that they cannot obtain by
purchasing existing software products and
services
50%
Customers that wish to replace existing
licensed and/or client/server applicationswith SaaS
applications
Other
*Source: Gartner, Softletter, Forrester, GigaOM
15%
17%
Source: Selling the cloud, Group Bain
SaaS – Types of cloud adopters
Source: Selling the cloud, Group Bain
SaaS – Delivery ModelsCompute Platform App Platform Apps Online Services
Hyped or Platform Clouds Example
• Amazon• Shopify
• Google App Engine
• Microsoft Azure
• Force.com
• Adobe• Salesforce• Intuit• Tableau
• Google• Microsoft• Facebook
Hosting or Services Clouds Example
• Dedicated Hosting
• VPS Hosting• Managed
Hosting
• Shared Hosting w/ PHP, Tomcast, Jboss, .NET and more
• Shared Hosting web apps, ecommerce
• Managed Apps, Hosted Exchange
• Domains• We Marketing• Secondary
Domain Services
Source: Selling the cloud, Group Bain
SaaS – Pricing
6
1. Play the averages
• Offer a competitive package at a competitive price
• Win on product and go-to-market execution; do not disrupt profit pool
3. Free disrupter
• Full functionality for free to gain clear market-research leadership.
• Revenue to come from cross-selling and upselling
5. Premium
• Take the high road-invest to have the best product
• Charge more than competitors and establish a premium brand
2. Something for everyone
• Tiered packages targeted at different customer segments
• No free offer, aim to win profit pool, not disrupt it
4. Freemium
• Offer most functionality for free to grow base
• Upsell advanced functionality (e.g., multi-user) and cross-sell other services
6. Integrator
• Offer an integrated proposition at a competitive price
• Maintain profit pool but win through broadest and complete offer
New entrants, very small firms Wave SuccessFactors
LinkedInDropbox
Intuit QuickBooksSalesforce.com, TableauAdobe Creative Cloud
Source: Temkin Group
SaaS – Cloud Readiness
Source: Temkin Group
SaaS Cloud
Readiness Index
TREAT YOUR
ASCUSTOMER
KING
SaaS – Customer Success Metrics
• Retention Rate (RR) – Also known as Churn
• Customer Segmentation
• Customer Lifetime Value Ratio (CLV)
• Net Promoter Score (NPS)
• Customer Effort/Easiness Level (CES)
• Customer Satisfaction (CSAT) Level
• Service Quality Expectation Level (CEL)• Customer Experience Level
• Largest Customer %
1
Source: Temkin Group
SaaS Range of
Net Satisfactio
n Scores for IT
Companies
Source: Temkin Group
SaaS Customer Experien
ce Ratings of Tech
Vendors
Source: Temkin Group
Forgiveness
Rates (TFR)
Source: Temkin Group
SaaS Net
Promoter
Score for Tech Vendor
s
SaaS – Why do customers churn?
Source: SaaS Churn: Measure Revenue or Customer Retention?
• attracting the wrong audience• mis-spending on customer
acquisition (likely over-spending)
• without an “ideal customer” definition
• wasting time / effort / energy dealing with low-value customers
• messing things up at different parts of the customer lifecycle and causing some cohort to not engage / dis-engage and leave
From SaaS Provider Side:
16
(1): Excluding the benefit of upsellsGross churn is the percentage of ACV from existing customers that is expected to be lost on a one year period due to non-renewals, not taking into account the benefit of upsells or increased usage.
5% – 7% Annual churn translates to 0.42 – 0.58% monthly churn.
Source: SaaS Churn: Measure Revenue or Customer Retention? Pacific Crest , Private SaaS Company Survey Results
SaaS – Gross Churn
SaaS – Gross Churn as a Function of Contract Length
Source: Pacific Crest , Private SaaS Company Survey Results
SaaS – Gross Churn as a Function of Contract Size
18
Source: Pacific Crest , Private SaaS Company Survey Results(1) Gross churn is on a dollar basis and does not include the benefit of upsells
SaaS – Gross Churn as a Function of Primary Distribution Mode
19Source: Pacific Crest , Private SaaS Company Survey Results
SaaS – Gross Churn as a Function of Primary Distribution Mode
20Source: Pacific Crest , Private SaaS Company Survey Results
(1): Negative net churn means that respondents expect the existing customer base to expand with upsells and renewals greater than non-renewals
• In Trial
• Average Deal Size (ADS) or the Average Revenue Per Client (ARPC)
SaaS – Revenue Metrics• Contracted Monthly or contracted annual recurring revenues (CMRR or CARR) • Revenue growth rate • Revenue per User or Subscriber (RPU), can be looked at as a monthly or annual metric
• Revenue Per Account (ARPA)
SaaS – Critical Cost, Expense and Profitability Metrics
• Cost of Revenue • Sales and Marketing Expense • Cost of Customer Acquisition (COCA)• Customer Acquisition Cost Ratio (CAC)
• Cost of Customer Maintenance (CtM)
SaaS – Cash• Net Cash from Operations https://experiencematters.wordpress.com/tag/
compuware/
MARCHFEBRUARYJANUARY
CANS
RECYCLED= 1000 CANS
THE
SaaS – Operational Metrics• # Completed Tasks• # Health Checks• # Phone Calls• # Open Tasks• # Overdue Tasks
• # of playbooks completed• # of customers managed annually• # of training sessions completed• # of weekly touch points• # of QBRs
In Trial
Time to Close Close Rate
Software to Services Ratio
Source: Pacific Crest , Private SaaS Company Survey Results
SaaS – Annual Renewal Rates
90%Percentage of contracts up for renewal in a given year renew ($ basis)?”
SaaS – Pricing Metrics
