1. SaaS METRIC OF THE WEEK: This week is another collection of metrics - this time from Olga Berezovsky, who runs the Data Analytics Journal newsletter, which digs down into standard SaaS metrics and the preferred Board KPIs to measure, be cautious about (ARPU, CAC, and LTV, Churn), and not to overlook (DAU/MAU, Expansion).
2. PRICING: Over the past decade, software pricing has shifted from per-seat licenses for legacy software to subscriptions with tiered pricing for SaaS. We are now headed into pricing based on actual usage as the primary pricing method (three in five SaaS companies now have consumption pricing deployed). Take a read of OpenView's latest guide to pricing transformations to see how you may need to review pricing for 2023.
3. CUSTOMER SERVICE: Add this to your bookmarks - I've already used a couple of these templates: 25 Customer Service email templates to cut response times.
4. ANNEALING: Crack open your Tech Dictionaries for the first entry of 2023: Market annealing is a company's effort to create a market pliable enough for early go-to-market motions. Often used when a company has a better idea than the market for what the market needs - check the article from a16z here - I would put all of Web3 and Quantum into that bucket.
5. PLG: (for complex products): While PLG is not a fit for many enterprise players yet - there is hope. Companies are starting to apply PLG techniques in totally new settings, such as complex (more enterprise-like)products.
6. QUIT? Sometimes after countless attempts, experiments, pivots, and money burnt, it's time to walk away - hard to do if you are full of grit and determination - but Accelerated has a great blog article this week with a framework on giving up.
7. CONTENT MARKETING: Whole new year, whole new content marketing strategy, right? Get up to date on the latest content marketing trends (via Stats you should know) with this article from Search Engine Journal. Also, be sure to read here on Startup content marketing mistakes and spot quiz hot-shot: How long should a Blog Post be? Hypothetically this long (but also literally not that long as it's a long-ass blog post).
8. MULTIPLES: The Clouded Judgement newsletter took a look at SaaS revenue multiples this week, and here is the news: Overall Public Median now sits at 5.2x - public multiples don't have a direct correlation to private multiples, but they are definitely a signal of the direction private valuations are trending.
9. LAYOFFS: Another big week for layoff announcements - this time from Google and Spotify. This prompted Tomasz Tunguz to look at startup layoffs and how they may differ between B2B & B2C companies. TL;DR - B2C companies suffer more cuts than B2B (likely due to longer-term contracts)
10. CASE STUDY: This is a great deep look under the hood of a startup's journey so far (six years in), covering equity allocation, expenses, product, growth challenges, and wins.
POD OF THE WEEK: We might not know what the future holds for Customer Success, but we're willing to go all-in on "efficiency" becoming the industry's word of 2023. Hear more on the future of Customer Success with Alli Tiscornia, chief customer officer at ChurnZero.
1. SaaS METRIC OF THE WEEK: a16z has the top 16 startup metrics that, from their VC perspective, are the most valuable to measure.
2. GROWTH: Silicon Valley has an obsession with growth. The 40% rule and the Mendoza line are examples of that. Tomasz Tunguz takes a view this week of growth rates and why they matter so much (it relates to the future values of a business and when that is created).
3. CYBER: With all kinds of cyber attacks happening lately, it's time to hammer this home: Regardless of the size of your SaaS business, for 2023, security should be part of your dev cycle, but also know your weak spots. Founder Institute discusses 6 points of vulnerability in a tech stack that may be a bit leaky. Security needs to be rolled up into the process: DevSecOps being the new port-portmanteau, or is that SecDevOps? - anywhoooo……beyond the DevSecOps article, Heavybit also has a great article discussing cloud security challenges (as apparently, if we extrapolate this out, 88% of SaaS is now sitting on public cloud).
4. EMAIL: In the middle of last year, Mailmodo launched a list of SaaS-specific Email flows and tips across customer flow from cold nurture to Churn prevention. It's a great article, and they are wasting no time this year by launching the State of Email 2023 Report - a 4 chapter report covering myths, benchmarks (SaaS has a higher open rate than average), and top tips for 2023.
5. M&A: As mentioned last week, Crunchbase forecasts that M&A activity in startups could pick up in 2023. Now is an excellent time to understand what's in an acquisition offer via this essential guide covering key terms and common issues.
6. RECESSION: Many of us are forecast to enter a recession in 2023. The good news is that software thrives during recessions because companies do a lot of optimization.
7. MARKETS: JP Morgans's Q1 2023 Guide to the Markets is now out, and they are noting that inflation and interest rates are peaking in the US. This is a good indicator that the slide in SaaS valuations is over - As they are inversely correlated to rising inflation (MRR gets less valuable as inflation increases).
8. PLG: Kyle Pola from OpenView has a roundup of four PLG growth tactics they have been excited about over the last two months that could help you grow faster.
9. MOBILE: Last year, consumers downloaded over 255B mobile apps and spent over $167B on them. In response, brands spent over $336B advertising on mobile platforms. This year, people will spend over 5 hours per day on their mobile devices. This and many more nuggets can be found in Data.ai's (formerly App Annie) State of Mobile report for 2023.
10. CASE STUDY: Grammarly - I'm a big fan, daily active user, and paid subscriber - but most users are on the freemium plan. So how did this product get to $90 million in revenue and last valued at $13 Billion? Here is the short version behind their growth, but here is the deeper case study on SEO, engineering, great content, and an embedded and rewarding product experience.
POD OF THE WEEK: Expanding on #10 above with Yuriy Timen, former Head of Marketing and Growth at Grammarly, discusses the ever-changing world of growth, emerging growth tactics, and how to find your growth engine.
BONUS: The fastest way to deliver the right software is to deliver the wrong software sooner.
1. SaaS METRIC OF THE WEEK: Net Dollar Retention is an essential metric in our new capital-efficient LeanOps world. It measures the revenue generated from expanding into your existing customer base. The SaaS CFO dives into how to calculate this metric (and comes with a free template).
2. FAIL: Here is a massive list of 200+ interviews with operators of both failed and active startups. There are a lot of wins and mistakes to learn from in this list (which is also sortable by Fails and Successes).
3. PRICING: In my last newsletter of 2022, many clicks happened for the podcast about the art and science of pricing from Lenny's Podcast. Is this because many of you have a New Year's resolution (NYR) centered on better pricing? Well, let's get started! Pricing Page Ideas have everything you want in pricing inspiration split out by freemium, one-time payments, consumption-based, and enterprise/premium (no Pinterest required). FYI to those who don't have this on your NYR list, 61% of companies in this survey adjusted pricing last year, which, on average, resulted in a 27% lift in ARR.
4. TECH TRENDS '23 (1 of 2): The 2023 Tech Trends report from CB Insights is out and can be downloaded here (59-page PDF) - if 2022 wasn't weird enough, Ambient health, immortality, menopause, house bots, virtual power plants, and smell-tech all make the list.
5. TECH TRENDS '23 (2 of 2): Fast Company also has its list of '23 trends (gleaned from over 40 domain experts). This one covers generative AI (Yes - we're talking to you, ChatGPT - literally), Web3, Security, the creator economy, and more.
6. M&A: Crunchbase forecasts that M&A activity in startups could pick up in 2023 - rising interest rates and the sudden increase in difficulty raising Venture Capital will pressure many venture-backed startups' short and mid-term sustainability and exit options.
7. JOBS: I predicted the newly announced layoffs from Salesforce in a newsletter post last year, and they, among other established tech companies, have launched many talented job seekers into the market who will be evaluating Early-Stage companies, with many making the leap. First Round Review has 20 top tips for any job seekers who may be considering making a move from Big tech to Startup. It's a very different beast.
8. MOATS: This is one of my favorite topics, as Moats are one of the best ways to provide a competitive advantage for your business, and they come in all kinds of different flavors. Jerry Neumann has an excellent blog post outlining most in his Taxonomy of Moats. Especially relevant in 2023 as Scale Moats are no longer Moat du jour.
9. ADVICE: What would 2022 you want to tell the entrepreneurs of 2023? Bookmark this link as First Round Capital (in a second appearance this week) has a great list of 30 best pieces of advice for entrepreneurs from 2022.
10. CASE STUDY: This one is for all you bootstrappers (or people trying to optimize more with less). It's the story inside Hotjar's bootstrapped PLG strategy that has so far taken them to $50 million+ ARR.
POD OF THE WEEK: From SaaStr to compliment #1 above: Churn is dead. Long live Net Dollar Retention (NDR) with David Kellogg
Welcome to the Benchmark Holiday special! This is a compilation of valuable benchmark data reported from across the webs in 2022 for you to put to good use.
1. SKOK: David Skok is a legend in the SaaS world, and I have written about his work extensively in the past, as well as convincing him to speak at an event. His former reports are now run in partnership with KeyBanc Capital Markets (KBCM), and the 2022 version is here - excellent benchmarks for any SaaS business.
2. EXPANSION 1. Acquiring customers is not enough for a SaaS company's sustained long-term success. Expansion strategies are pragmatic practices that any good SaaS company needs to grasp, as 46% of new ARR bookings are attributable to cross-sell/up-sell activities. Larger companies use this strategy more heavily than their smaller counterparts (2x more). This is likely due to relying on something other than pure acquisition strategies as the business matures.
3. EXPANSION 2: Expansion is such a big deal that OpenView Partners have gone to town to benchmark this metric with an extensive Expansion SaaS Benchmarks report in 2020 (downloadable PDF). Product Led Growth businesses lead the pack!
4. RETENTION: To complement #2 and #3 above, retention is deeply related to expansion regarding sustainable growth. Here is what reasonable retention goals should be benchmarked against (another downloadable PDF report) and how to strategically optimize for this metric. Churn still needs to be fixed overall. The YoY trend of a dollar churn is back to 12.6% this year. Similar to pre-pandemic levels.
5. PRODUCT LED GROWTH: As mentioned in #3 above (and from me from time to time in this newsletter), Product Led Growth (PLG) businesses lead the pack regarding expansion. PLG companies also deserve their own benchmark reports - so I got you covered with this one where you can benchmark 450+ PLG companies (it was only 250 a year ago - PLG is on a burn!).
6. CAC: This one is always nuanced. The report always breaks CAC down into blended, new, and up-sell/expansion so you can see the efficacy of spend to return. The median blended CAC comes in precisely the same as last year - $1.20 for every $1 of revenue realized. FYI it was $1.10 in 2019 and ($1.32) in 2020. New Customer CAC is up significantly YoY and at $1.78: 2021 ($1.67), 2020 ( $1.60), and 2019 ($1.34). This signals two things: 1. SaaS is increasingly competitive, and 2. CAC Payback is getting way longer. Upsell/cross-sell (see below) is still cheap at $0.61 per $1 of ARR earned (and down from $0.63 last year).
7. GROWTH: The 2021 growth levels were back up to a healthier 31% as the COVID disruptions settled (2020 was 20%!). This year is an ARR growth of 31%, and forecasts are always a few points more optimistic - still at the same 36% seen in 2021 and 2019. BONUS - you can see how that 31% is split by industry categories here.
8. MARKETING AND SALES: KeyBanc noted marketing spend dropped last year to 31% of ARR (down from 36%). KeyBanc correlated Sales and Marketing Spend to Growth Rates. In contrast, OpenView separated spend based on stage (33% average across the board). Both methods are interesting benchmarks. Sales employees range from 10-20% of all staff across the revenue stage - but that percentage increases at the higher end of town.
9. WEB VITALS: Optimizing a User Experience is key to the long-term success of any service or product. Google is all over this and launched Web Vitals a few years back, a program offering developers user experience guidance. It's benchmarking very Google-based metrics: loading, interactivity, and visual stability.
10. SPEND: The average SaaS company burns $52m to get to $100m in ARR, which takes under 9 years (8.7 to be exact). Figuring out how to optimize marketing spend and growth rate is crucial. This study doesn't show the benchmarks marketers want to hear: Results vary. While the median sales and marketing spend has dropped this year to 31% of revenue (down from 36%), to ramp up ARR growth, you gotta blow a lot more dough relative to revenue: the percentage of revenue in isn't much more than percentage growth spend out. Across all companies, Engineering is consistently the largest department, Customer Success and Product at about 10%, and Marketing at only 7%. This slide also has median headcount by stage - which is a great metric to track.