This will be my last post of 2022, so it's a forward look at the Holiday season, 2023, planning, and beyond. Have a great holiday season, and thanks for your continued readership. See y'all in 2022.
1. SaaS METRIC OF THE WEEK: Here is a good list of 10 growth metrics to track for 2023. No surprises here: Churn, LTV, CAC, CAC Payback (see #10 below), but the Quick Ratio is good, as is Customer Health Score. One that needs to be added to that list, though, and referenced in a newsletter I'm unable to link here from Matt Cameron (he has no web version of his newsletter) is Velocity! Here is an older slide from Matt's SaaStr presentation explaining that formula more, or watch the presentation in its entirety.
2. GROWTH: Gartner predicts an acceleration of business software spend in 2023, up to 11.8% growth from 9.8% in 2022 - monetarily, that is $100B, and more importantly, SaaS spend in the enterprise is forecast to grow 17% to $195 Billion. Cloud spending overall is expected to grow 22.1% in 2022 (from 18.4% in 2021)
3. eBOOKS: Holiday season is here, and who doesn't want to tuck into ebooks covering marketing, sales, development, web3, etc. - there are over 600+ free here. Also, take a looksie at these 28 Free AI, Machine learning, Data Science, and Python eBooks - ready for download directly to the device of your choice now.
4. FINANCIAL FORECAST: Your 2023 new financial year is just around the corner! Now is always the second best time to get started on getting started (the first being two months ago). This is an excellent article with a complimentary excel download from The SaaS CFO - it's a SaaS Financial Plan for Startups (and also works for most SMBs). It also comes with a handy complimentary video tutorial for the worksheet.
5. OPERATIONAL PLAN: Because your new strategic year is just around the corner and now is the second best time to get started getting started, Dave Kellogg has a great How-to guide on presenting your fantastic new operating plan to your board.
6. BUDGET: This could be a whole newsletter by itself: How much do you plan on spending on your 2023 operational plan? SaaS Capital has a wonderful B2B SaaS Spending Benchmark report to best forecast what to send on sales, marketing, CS, COGS, and R&D. And because 2023 will be the year of LeanOps - here is how to manage burn and extend your runway into 2024 from Capchase.
7. UNCERTAINTY: Will '23 bring a double-dip recession, extra inflation, and a new pandemic? We are in uncertain times, so when considering #4, #5, and #6 above, read this article from First Round Capital covering 6 tactics for rethinking planning in uncertain times.
8. COMPENSATION: Bookmark this free library of 20 sales compensation plans that can let you scenario plan into 2023. This is seriously next-level content marketing that has a significant amount of value.
9. SAASOPS: How many SaaS apps are too many in an Enterprise organization? According to the State of SaaSOps Report from BetterCloud, organizations are currently using 130 apps on average! Organizations are still using more SaaS apps than ever, but growth has slowed slightly in '21 and '22. But the net gain of SaaS apps used is still up 18% this year, with more to come in 2023, according to Gartner (see #2 above).
10. CASE STUDY: Speaking of uncertainty (see #7). Salesforce, the world's largest SaaS company, broke with established practice for its Q3 reporting and said it would not provide financial guidance for next year as "they just didn't know.". What is even more profound than that statement is in their underlying metrics: With some back-of-the-napkin/Twitter math, they currently have a CAC Payback period of 155 months (yeah - just short of 13 years)!!!! Certainly a case study for many sales and marketing layoffs in the new year.
POD OF THE WEEK: One of the best growth levers you can work on for 2023 is pricing and monetization. So check the podcast about the art and science of pricing from Lenny's Podcast.
1. SaaS METRIC OF THE WEEK: Ever heard of the Mendoza line? Well, it's a rule of thumb metric and a numerical that can help SaaS Companies answer that incredibly frequent question, "How fast do I need to be growing to be attractive to a venture investor?
2. LAW: Not the litigious kind - from CBInsights is a 67-page report covering the 11 laws driving success in Tech, such as Amazon's 2-pizza rule, the 80/20 principle, and more.
3. FRAMEWORKS: Beyond the above laws, a successful framework can distill complex processes or models to make execution more of a simple recipe. Kinda why OKRs exist. Sarah Tavel has compiled a great list of compelling Frameworks covering: The 10x model, The hierarchy of engagement, Hype cycles, and more!
4. IDEAS: Here is another framework for managing them - I found this a beneficial article with a template that is now on my wall! An HD version of it is here. A little bonus is a compilation of mental models that entrepreneurs and investors leverage to develop new startup ideas & venture theses from the same author.
5. CUSTOMER OPERATING SYSTEM: What exactly is the difference between Customer Success and Customer Support? Get started here to understand the nuances. They are both parts of the same customer journey spectrum. Totango posits, in this recent SaaStr Annual presentation, that we need a fresher look at Success and Support that they coin the "Customer Operating System" (Like the presso? Here are the Google Slides deck).
6. ENGINEER vs. ENTREPRENEUR: I love this article as it manifests the battle that lives in my head: Engineers love to get it right, and Entrepreneurs love to get it done. Such a simple statement that materializes in so many ways.
7. REVERSE TRIALS: Crack open up your tech dictionaries to add in this term. Reverse Trials are a play on freemium, where new users start with a time-limited trial of all your paid features. At the end of the trial, they can either buy or downgrade to an entirely free tier. This article also explains how Airtable does this well. The benefit here is that, emotionally, the users experience loss aversion, where the pain of losing something is twice as powerful of a motivator as the pleasure of gaining.
8. PRODUCT vs. SALES: Notion has the article we all want to be ask as we strategically head into 2023: Should my Go-To-Markey strategy be Product-Led or Sales-Led?
9. GROWTH: This is a pretty good summary of the year that was 2022 in SaaS from Capchase's recent Pulse of SaaS report - In 2022, bootstrapped SaaS companies are doing better than those that are VC-backed. Mainly as they lead the pack in terms of capital efficiency/LeanOps.
10. CASE STUDY: ChatGPT - I'm guessing you have probably heard a thing or two about ChatGPT this week - if not, it's a conversational AI model that can interact with users in a more human-like way, and it's a significant breakthrough that's demonstrating how things are about to change with the way we interact, do things and experience things digitally. Travis Jamison has a great long-form article breaking down many use cases ChatGPT and its future offspring will change (including poetry).
POD OF THE WEEK: RevOps Squared chats about all things SaaS metrics, focusing specifically on how to use metrics to inform your decision-making. Listen here.
Last month I reviewed the KeyBanc Capital Markets 13th annual SaaS survey for Private Markets (you can download it here) and offered a warning as the number of respondents has dropped significantly: Now 110 vs. 424 in 2019.
Another player in town, Openview, is also benchmarking privately held SaaS businesses with a PLG Lens. Their 2022 SaaS Benchmarks Report has a much broader sample size and combines over 3,000 respondents' results (and 660 this year) which make up this week's Top 10 (and can be downloaded here as a PDF); it's a much different story than in 2021 - but we still take it to 11:
1. GROSS RETENTION: OpenView's SaaS survey found that early-stage companies ($2.5m to $10m ARR) are seeing gross retention decrease relative to 2021. Those earlier-stage businesses should be focused on Churn as a primary KPI. PLG lead companies see best-in-class retention (128%) and have highly efficient growth engines (63% Rule of 40).
2. BURN: 2022 values profitability over growth rate, and most companies are cutting burn, regardless of cash runway or Growth Rate (see why with #3 below). LeanOps is the whiplash to what is happening both in the VC world and Public Market - also reflected by the rapid handbrake on minted Unicorns from Q4 '21 to Q3 '22 (from 139 to 24).
3. RULE OF 40: In 2021, OpenView observed that "investors have forgotten all about the Rule of 40." This year's response: the Rule of 40 "back from the dead." Cash is no longer cheap, and multiples have plummeted. Efficient Groth Engines and LeanOps practices are essential - PLG lead companies also stand out in this category with 63% tracking with the Rule of 40).
4. FINOPS: This slide could be a newsletter all in itself. A very meaty section that breaks down core FINOPS metrics by stage - headcount, funding amount, ARR, etc. This shows what it takes to raise funding in today's environment (Bold numbers are median performance).
5. CAC PAYBACK: According to KeyBancs report, New customers, on average, take 2 years and 2 months to become profitable. OpenView has a different take, and the answer depends on the market. Companies selling to consumers/SMB segment have shorter buying cycles/lower CACs than those selling to enterprise customers, and PLG outperform their peers (again).
6. NET DOLLAR RETENTION: This metric can be paired with #5 above. Being strong in both these metrics allows you to fuel high growth and stay efficient. Growing and staying efficient is only possible if you're strong in these two metrics. Great NDR is 116% in SMB and 125% in Enterprise.
7. REVERSE TRIALS: This is a crucial lever with those of us at PLG-Land: Reverse Trials allow users to try premium features during the trial. Companies are maximizing the upfront value for users and increasing the likelihood they will convert through usage paywalls.
8. PRICING: Just like Software Products - pricing is never done. 61% of the companies surveyed adjusted pricing in the last year, and, on average, this resulted in a 27% lift in ARR. Side note in that slide: 55% of respondents have at least tested usage-based pricing.
9. SALES AND MARKETING: This is similar to KeyBanc, who noted marketing spend has dropped this year to 31% of ARR (down from 36%) KeyBanc correlates Sales and Marketing Spend to Growth Rates, whereas OpenView separate spend based on stage (33% average across the board though). 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.
10, EMPLOYEE DISTRIBUTION: 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.
11. REPRESENTATION: Or Women-Led Growth: Less than one-third of leadership roles are filled by women at most early-stage companies. Here is the kicker: EVERY BUSINESS with at least one-third of the team women has a greater growth rate than those that don't, regardless of stage.