Dan Martell - October 17, 2016


The 5 C's of SaaS Metrics


Episode Stats


Length

6 minutes

Words per minute

203.50319

Word count

1,278

Sentence count

60

Harmful content

Toxicity

3

sentences flagged


Summary

Summaries generated with gmurro/bart-large-finetuned-filtered-spotify-podcast-summ .

In this episode, I talk about the 5 C's of SaaS metrics and why you need to know them so you can focus on the right things to do to grow your business. 1. Cash 2. Churn 3. Billings 4. CMRR 5. CAC

Transcript

Transcript generated with Whisper (turbo).
Toxicity classifications generated with s-nlp/roberta_toxicity_classifier .
00:00:00.200 I should stop and like, I don't know,
00:00:03.160 I guess I could see it in the analytics,
00:00:04.680 like how long people waited until they bounced.
00:00:15.120 Five C's of SaaS Metrics.
00:00:16.840 In today's video, I'm gonna share with you guys
00:00:18.960 how to figure out what do you need to focus on.
00:00:22.240 The key elements, not everything,
00:00:24.640 because there's so many, I mean,
00:00:25.800 I've seen dashboards that are just littered with numbers
00:00:29.560 that when I ask, it's like, how often do you look
00:00:31.660 and make decisions with that number?
00:00:33.360 The answer is never, but you know what?
00:00:35.260 They like to have the data, and then there's
00:00:36.980 on the opposite side, there's people
00:00:38.340 that have no information, no numbers,
00:00:40.380 they just know that their revenues
00:00:41.880 kind of are moving a little bit,
00:00:43.580 but they don't know where the opportunity lies.
00:00:45.460 In this video, I'm gonna share with you
00:00:46.580 how to get clarity, focus, clear, five metrics
00:00:51.520 that are, like, when you're building a SaaS product,
00:00:53.800 you need to know these in almost daily, weekly intervals
00:00:57.620 so that you can make better decisions
00:00:58.920 amongst your product team.
00:01:00.020 You know, when I was building Flowtown,
00:01:02.020 we went out to raise money, our series A,
00:01:04.200 and the frustrating part for me,
00:01:05.660 and that's why I'm shooting this video,
00:01:06.760 was every time I talk to an investor,
00:01:08.520 it seems like each investor had their own interpretation
00:01:11.700 of the metric, right?
00:01:13.140 And I was just like, okay, how can everybody have,
00:01:16.000 you know, you're all making the same investments
00:01:17.580 in these types of companies, but you all have a different way
00:01:20.100 that you think and you slice the numbers.
00:01:21.700 So what I wanted to do, and I'm gonna link up the video
00:01:24.480 by Andreessen Horwitz on metrics and SaaS metrics in general,
00:01:28.180 And that is, to me, the Bible.
00:01:29.980 That's where you wanna go.
00:01:30.980 If you're curious about some of the elements
00:01:33.420 that we're gonna talk about today,
00:01:34.480 go read those definitions, because those, to me,
00:01:37.680 are the Bible and the authorities out there.
00:01:40.400 So, the first one is cash.
00:01:42.260 And cash may sound interesting and simple,
00:01:45.160 but the truth is, is there's a difference
00:01:46.500 between revenue and billings,
00:01:47.840 because those, again, is an area
00:01:48.940 where people get messed up with.
00:01:50.400 Cash, to me, is how much money you have
00:01:52.540 in your bank account minus the amount of money
00:01:54.700 that you owe to other people, typically payables.
00:01:57.140 That is your cash position.
00:01:58.980 It's very important as a SaaS product
00:02:00.740 to understand that number because if you know
00:02:03.320 what it costs to grow the business,
00:02:04.840 you know how much cash it's gonna take.
00:02:06.280 Or if you've raised money and you have a runway,
00:02:08.320 then you can divide the monthly overhead by the cash
00:02:12.260 and that gives you the amount of time you have
00:02:14.200 to figure out your business.
00:02:15.300 So number one is cash.
00:02:16.700 Two is churn.
00:02:18.200 Churn, churn, churn.
00:02:19.160 Everybody talks about churn.
00:02:20.500 There are several different types of churn.
00:02:22.660 The easiest one to measure is last month to this month.
00:02:26.360 How many customers did you lose?
00:02:28.020 That's your monthly churn, and then you can throw that
00:02:29.860 up to the annual churn to get that number.
00:02:32.900 But that is one that you need to have your pulse on
00:02:35.560 because it doesn't matter how fast you grow
00:02:37.700 or the traffic, if you've got a high churn,
00:02:39.540 then essentially you could be turning over 0.94
00:02:41.740 your whole friggin' customer base every six months. 0.94
00:02:44.440 I've seen this with startups. 0.98
00:02:45.580 Some companies, every three months, they have a huge churn.
00:02:48.880 You know, 20% month-over-month churn.
00:02:50.920 That's like five months, and your whole customers
00:02:53.480 that started five months ago are not the same customers
00:02:55.660 that you're serving today, and it's funny
00:02:57.460 because you can actually grow doing this,
00:02:59.660 but it makes it really hard to sustain, so churn.
00:03:01.700 Second is your CMRR, or Customer Monthly Reoccurring Revenue.
00:03:06.700 They're C's, these five are the five C's.
00:03:09.140 CMRR, some people call them MRR.
00:03:11.500 It's your monthly reoccurring revenue.
00:03:13.460 Now, the key with this one is it does not include,
00:03:16.360 because this, again, people want to throw in numbers
00:03:18.660 to make them sound better, one-time setup fees.
00:03:21.660 It does not include any equipments.
00:03:23.240 It doesn't include any other transactions to the monthly,
00:03:28.600 because sometimes it'll be like,
00:03:29.740 well, it's a monthly fee plus X amount for contacts
00:03:32.700 or imports or some other data point.
00:03:34.740 It's the monthly reoccurring revenue that is the CMRR.
00:03:38.800 You want to make sure that you know that.
00:03:40.100 Number four is CAC, CAC, CAC, CAC.
00:03:43.200 I mean, it sounds funny because if somebody does not know
00:03:45.140 what a SaaS company is, so that's step one.
00:03:47.040 You got to make sure when you talk about your product
00:03:48.880 or your company to your friends and family
00:03:50.500 that you explain SaaS.
00:03:51.920 I mean, you think all your friends live in the valley
00:03:53.640 and understand that term.
00:03:54.600 They don't, I just call them software companies,
00:03:56.800 but you start throwing in the word CAC,
00:03:58.400 they're like, excuse me, customer acquisition cost.
00:04:01.780 What does it cost for you to get a customer?
00:04:03.780 Here's where most people make the mistake,
00:04:06.280 is they don't look at, they use the blended number.
00:04:09.340 What's your blended CAC?
00:04:11.280 Investors do not want to know that,
00:04:12.680 and for you, you don't want to know that.
00:04:13.840 You want to understand what's your paid,
00:04:16.680 organic, and then blended.
00:04:18.940 So you want to make sure that you get all three of those
00:04:20.800 because everyone will have a different cost
00:04:23.160 associated to it.
00:04:24.140 Commissions that you're paying joint partners,
00:04:25.900 affiliates, paid ads, those are all gonna impact
00:04:29.300 your CAC per channel, so you need to make sure
00:04:31.520 you understand that.
00:04:32.740 And then fifth, least but not last, is your CLV,
00:04:36.480 your customer lifetime value.
00:04:38.420 Now, many entrepreneurs like to use their customer
00:04:41.260 lifetime value by using their revenue times the amount
00:04:44.760 of months that an average customer stays with them.
00:04:47.160 That is not the way you calculate it.
00:04:49.360 The right way is to do your contribution margin,
00:04:52.220 so how much money after you've got the revenue
00:04:55.040 plus you've associated the cost of goods sold,
00:04:57.060 how much money it took you to get that customer,
00:04:59.240 times the months that they stick around.
00:05:01.720 Now, your churn will dictate how many months.
00:05:04.560 So you gotta take that into consideration
00:05:05.880 and continue to update the equation,
00:05:08.280 but that is how you measure your CLV.
00:05:11.300 So the five C's to SaaS metrics are cash, churn,
00:05:16.300 C-M-R-R, Customer Monthly Reoccurring Revenue,
00:05:21.000 your CAC, your Cost Acquire Customer,
00:05:23.620 and your C-L-V, your Customer Lifetime Value.
00:05:27.160 Now, what I wanna ask from you is, below in the comments,
00:05:29.180 I wanna know what tools are you using
00:05:31.780 to manage your metrics, your churn,
00:05:34.320 anything that you're using to help understand
00:05:36.720 or get better optics in your business.
00:05:39.520 Leave a comment below, and if I get enough,
00:05:42.360 I might throw in a couple of my own suggestions for you.
00:05:44.800 So if you're interested, you go first,
00:05:46.660 and then afterwards I might pop in the comments
00:05:48.900 and share a few of my own.
00:05:50.500 As for usual, I wanna challenge you to live a bigger life
00:05:52.780 and a bigger business, and I'll see you next Monday.
00:05:55.200 If you like this video, be sure to subscribe to my channel
00:05:57.480 to get other tips on how to start and grow your business,
00:06:00.300 and I would also encourage you to join my newsletter
00:06:02.300 where I share free training videos, community contests,
00:06:05.520 and other opportunities to come to live events,
00:06:08.500 as well as if you're ready to get going,
00:06:10.040 check out these couple videos I got queued up for you.
00:06:12.380 Hope you're having an incredible day
00:06:13.380 and I'll see you next week.
00:06:14.800 You