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


Summary

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

Transcript

Transcript generated with Whisper (turbo).
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
00:02:41.740 your whole friggin' customer base every six months.
00:02:44.440 I've seen this with startups.
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