Just a quick post to share the slides from the presentation I gave today at the KiwiSaaS conference to discuss the SaaS metrics that matter in 2023 and 2024.
The presentation has three sections:
First, an introduction which quickly reviews the ways the startup world has changed in the past 6 months. Simply put: Toto, I have a feeling we’re not in 2021 anymore.
Second, a three-step set of recommendations for what to do about that: (1) extend your runway, (2) make a plan to re-earn your last round valuation, and (3) enable your next round, likely in 18-24 months, by focusing on the metrics that matter in this new world.
- Phrasing these strategies in terms of songs/albums: (1) Staying Alive, (2) Get Back [to where you once were valued], and (3) Born to Run [convince VCs that, “tramps like us, baby, we were born to run” — i.e., that we have a lean machine where ARR is a predictable output of VC investment.]
- Note that I also did a Balderton webinar (Balancing Growth and Burn in 2023) on this topic with David Thevenon.
Third, a one-slide-per-metric review of the set of metrics that matter in 2023: ARR growth, free cashflow margin, Rule of 40 score, subscription gross margin, burn multiple, ARR/FTE, CAC ratio, CAC payback period, NRR, and GRR.
- This includes an explanation of why I excluded (what I view as old school) churn, lifetime value (LTV) and LTV/CAC analysis from those metrics. That explanation is also available in considerably longer form in my SaaStr talk: Churn is Dead, Long Live NDR.
The presentation is chock full of links to interesting articles (e.g., an amazing 75-page interview transcript with Sequoia founder Don Valentine as part of an oral history of Silicon Valley, a great breakdown on stock-based compensation by Janelle Teng) and it includes a slide on people to follow and sites to visit if you are interested in this material. An image of it is pasted below, the presentation itself has live links.
The slides of the presentation are embedded below.
For those who don’t use Slideshare, the presentation is also available on Google Drive.
Thanks to KiwiSaaS for inviting me, the audience for putting up with a remote live presentation, and to the sources I included as data in the slides — particularly RevOps Squared, on whose 2022 SaaS Benchmarks survey I relied fairly heavily.
Dave,
It was a privilege to hear you speak at Southern SaaS last week, thank you. I’ve been an avid reader of your posts for quite some time.
I was intrigued to hear your remarks about unit economics metrics such as customer lifetime value and the CLV:CAC ratio, which are so powerful for informing decisions within a SaaS business. You cited as the reason to pass as problems with unrealistic customer lifetimes
In my view, using churn rate to calculate customer lifetime will inevitably lead to an incorrect estimate of customer lifetime, by definition, because the implied underlying assumptions of the churn-based approach are mostly false.
As a robust alternative, I have been working on a method to calculate CLV that doesn’t use churn and instead provides a statistically sound approach to calculate customer lifetime value with a high degree of confidence. I believe that having a sound customer lifetime addresses the issues you identified with using churn in CLV calculation, and brings all these powerful unit economics metrics back into play. Would you reconsider the “flawed metrics” view you expressed on slide 8? It seems to me that it’s absolutely not the metrics that are flawed, but the improper customer lifetime calculation.
Paul Grey, 19metrics.com
Sorry I’m replying twice here but it’s better than not replying. Thanks for your kind comments.
You clearly understand my point: that bad lifetimes pollute all the downstream metrics like LTV/CAC. I tend to then say, “just use NRR.” You’re saying, “but we can fix lifetime.” Analytically you’re undoubtedly correct. Fix lifetime and you’ll fix a lot if not all of the problems I talked about.
However, I’m still not moved off NRR/GRR as the go-forward key metrics as there is, for lack of a better term, a considerable degree of “fashion” in which metrics investors like, when. I feel that orange is the new black here and if the herd moves to NRR/GRR then a better LTV may not win the day if you’re trying to raise money. If you’re trying to understand your business, then it’s likely more useful. See my general rants on investor vs. operator metrics.