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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
