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The only 3 metrics that matter for SaaS (Unsexy Conference)

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What’s sexy about being unsexy? All the insights and startup/SaaS lessons shared at yesterday’s Unsexy Conference!

One presentation in particular caught my attention and that was by Zuora’s CFO, Tyler Sloat, “The Only Three SaaS Metrics That Matter”. We’ve had so many posts on SaaS success, implementing a dashboard for pirates, and lessons for SaaS companies to learn from and now here’s another from a revenue perspective.

The magic words are “recurring revenue”. Here are the 3 key metrics that matter for subscription economy companies:

1. Retention Rate

This is how much ARR (Annual Recurring Revenue) you retain every year.

2. Recurring Profit Margin

This is ARR less churn less non-growth spend (i.e. sales and marketing)

3. Growth Efficiency

How much it costs you to acquire $1 ACV (annual contract value).

He goes to break down examples of SaaS giants like Salesforce, Netsuite, and SuccessFactors. According to him, the ideal model is:

– 1:1 growth efficiency
– 90% renewals
– 50% recurring profit margin

Zuora Presentation on Ideal Subscription Model

Of course now the next question is, how do you achieve this model?

1) Maximize your recurring profit margins
He suggests automating quote-to-cash-renewals for a seamless process while also eliminating manual errors. You can also accept credit card payments instead of cash, and finally drive multi-year commitments for signups and renewals.

2) Focus on sustaining high retention rates
Make it easy for your customers to do renewals (even rewarding them with early bird incentives), enable your customer service reps to renew customers, and prevent monthly churn with new price plans (i.e. monthly vs annual, lower tiers).

3) Optimize your business for growth efficiency
Like any startup, keep on your toes! Fine tune your pricing strategies rather than keeping it stagnant (i.e. freemium, pay-as-you-go, tiers, editions). Then increase total customer value through upsells, cross-sells, add-ons, and finally make doing business simple. This means allowing self-service (we are in the customer era after all), running promotions and offering free trials. Be fluid!

See more of Sloat’s slideshare presentation here.

Jill Rubin

Jill is a senior marketing and business development executive with experience leading successful teams in both large companies and startups. She has taken companies from early stage to strong revenue growth and propelled established businesses to industry leadership positions.

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