It’s an important question and one that arises most often as a SaaS startup scales. Churn, masked by growth, becomes a limiting factor of growth. How much should the business invest in managing churn?
Our SaaS benchmarks from earlier this week tell us the average public SaaS company has a 3% monthly revenue churn or a 2 year lifetime and a sales efficiency of 0.8, which implies a 5 quarter pay back period on cost-of-sales and cost-to-serve.
Paying for an Uber is a breeze. I step out of the car and go on my way. Behind the scenes, Uber has identified me, recorded my fare, added a gratuity, and sent me a digital receipt that I can easily forward to Expensify.
That’s the way I want all my payments to be.
Paying for Uber with a mobile phone is less work than using a credit card, which is the biggest competitor for share of wallet of in-person payments. As one of my partners likes to say, credit cards are fast, convenient and easy. We’re all pretty quick on the draw for our wallets.
Anyone who has ever penned a blog post has asked, how long should this post be to maximize viewership? I’ve often wondered the same thing, particularly in the moment before I click the publish button and broadcast a perhaps-too-short-perhaps-too-long post into the Interwebs.
I’ve written 256 posts in the past 18 months and I sought to understand the impact of word count on every metric I could measure: page views, time on site, time on page, bounce rate, exit rate, retweets and favorite activity.
If a typical SaaS business loses about 2 to 3% of their customers each month to churn, the business must grow by at least 27% to 43% annually to maintain the same revenue.
The idea written as an equation:
Revenue Growth = Customers x Avg. Contract Value x (Growth Rate - Churn Rate)
At the beginning of a SaaS startups' life, when the company generates $1M in annual revenue, churn in absolute dollar terms is small, about $300k for the year. This number is particularly easy to write off if the company is growing quickly, perhaps tripling to $3M in revenue next year. Fast forward two or three years to a SaaS company generating $15M per year and churn is now $5M per year. Then two or three years later that number could be $10M or $20M.
One number investors use to benchmark SaaS startups across sectors and industries is sales efficiency. There are a handful of variants of this metric, sometimes called the magic number, but ultimately they all aim to provide some sense of the incremental revenue returned by sales and marketing investment.
To make it more concrete, if a startup invests $500k in marketing and sales this quarter and generates $1M in incremental revenue, net of the cost to provide the service, for the next 12 months, the sales efficiency would be 2.
For most startups, a website or mobile app is the primary place to establish and reinforce a brand, a critical part of building a valuable company. But brand health tends to be a hand-wavy, amorphous concept.
A founder and head of marketing at a company I worked with posed this simple but brilliant question to concretely gauge brand health:
If you removed the logo from the website/mobile app, could our customers identify the experience as ours?
Over the course of the past few months, I’ve built six projects that use APIs from Twitter, Google, LinkedIn, Mailchimp and others. These APIs enable me to extract data that I use to analyze this blog and build tools to be more effective.
Once I extract the data from their platforms, no API platform understands why or how I use the data. While web companies measure many things on websites and mobile apps, very few apply the same rigor to APIs.
On this blog, Twitter is the second largest source of traffic. Twitter yielded 21% of visitors in the last 30 days. Because I suspect that tweets containing my blog’s links don’t reach a very large proportion of my Twitter followers, I’m experimenting with traffic recirculation techniques by retweeting older articles periodically. Of the approximately 150 posts on Svbtle, I have recirculated 30.
Recirculation encompasses the science and tactics of enticing users to read more articles during one session and also increase the number of visits to a site. Understanding recirculation is the key to maximizing the value of content.
Deserve is a toxic word.
During my junior year in college, I trained like crazy to make the varsity boat on the crew team. Two workouts per day for six days a week during the four week Christmas holiday and on through winter training. That winter, I set a personal record for a 2000m sprint. In April, we left for Georgia and Augusta River for spring training where our coach seat raced the team to decide the varsity lineup.
Credit: O’Reilly
Startups, you are doing data science wrong. That’s the title of a post penned by Ryan Weald in GigaOm this week. Weald echoes DJ Patil’s idea: “product-focused data science is different than the current business intelligence style of data science.”
Weald points to a different model of data scientist, an engineer, not a statistician, who can perform queries and based upon some insights, improve the product with a few code changes and a push to git.