how to drive top-line growth with customer success management metrics

2014 Gainsight, Inc. All rights reserved.

Drive GrowthCustomer

Success Metrics

May

2014


Housekeeping

• Q&A panel on your right • Recording for colleagues who can’t make it• All attendees will receive slides• Twitter hashtag #customersuccess


Today’s Panelists

Lauren KelleyCEO & Founder@opexengine

Allison PickensDirector of Business Operations & Finance

@pickensallison


What We’ll Cover

1. OPEXEngine Benchmarking 2014 2. Customer Success Metrics3. Tying CSM Metrics to Financial Growth4. Q&A

Management by MetricsThe Smarter Way to Manage Your

Software Company

Lauren Kelleywww.opexengine.com

About Trusted Financial Benchmarks for the Tech Industries 8th year helping small and medium-sized software, SaaS, Internet and other tech

companies manage and plan for growth Partnered with Netsuite, Intacct, Adaptive Planning, Oracle and the Software and

Information Industry Association (SIIA) Proprietary survey data from hundreds of private and public software companies

since 2006 Partnered with EDGR/RR Donnelly to deliver on-demand Financial Insights Reports,

on-demand comparison reports based on real-time database of over 16,000 companies

6www.opexengine.com

“We found OPEXEngine’s reports to be square on with what we needed and a critical source of data for our management team. High quality data – like OPEXEngine – is rare and worth paying for.” Jim Lejeal, CFO, Rally Software

Confidential and Comprehensive Benchmarking

www.opexengine.com

“We’ve participated in OPEXEngine’s confidential software benchmarking for the past four years and find the data highly useful. As a fast growth, mid-sized, public software company, we are data-driven in our management and planning processes and OPEXEngine’s software benchmarking is a critical information source for detailed financial and operating metrics.” Ralph Bryant, VP Finance, RightNow/Oracle

“The OPEXEngine benchmarking report is a key element of our planning process, it helps us set the right targets for our cost structure 2 to 3 years out.” Stephane Panier, CFO, GoodData

Private CompaniesAll Participating Companies

7

Key Factors Early stage, private or later stage public

Are you Salesforce.com or a $10M venture backed company?

Goals: Growth vs. Profitability?

Sales and marketing model: do you sell larger contracts to enterprise type customers, or small subscriptions to

SMEs?

Peer AnalysisWho do you compare yourself with?

“The great thing about the OPEXEngine data is that there are several peer groups to look at. You can look at metrics for private

vs. public companies, metrics for companies in your revenue band, or with similar headcount. So many other metric reports are

too focused on public companies. Public company data just isn’t that relevant to us.” Mike Morgan, CFO, Bomgar

Corporation

“At T2 Systems, we migrated our customers to the SAAS business model in 2005. Since then, we struggled to find key benchmark data that we could use to determine the quality of the Company’s financial metrics. OPEX Engine easily filled that void for our team by providing us with key data points ranging from customer acquisition costs to revenue per employee. OPEX is one of our strategic planning tools.” Jim Zaloudek, CFO, T2 Systems, Inc.

8www.opexengine.com

Best PracticesBenchmarks drive performance and accountability Save time making data-driven decisions Bring your performance targets in line with market leaders and grow faster Reduce expense in line with peer group norms Have better conversations with line management with neutral, 3rd party benchmarks Track model changes by peer companies and competitors

“As CFO at two different successful companies, we participated regularly in the OPEXEngine Software and SaaS benchmarking and got terrific value in the process. OPEXEngine benchmarks all the key business metrics we needed and is unique because you can’t find this kind of information for private companies anywhere else. Participating in the benchmarking process was straightforward and a useful exercise for my team. The benchmarking allowed me to support and collaborate with the CEO and other exec team members, plus the board, in a way that I couldn’t have done without the benchmarks. With the OPEXEngine benchmarks, I had better and more productive conversations with line management. OPEXEngine does something that you can’t find anywhere else, since the data comes from the participants directly, and OPEXEngine works with each company to ensure the data is clean and comparable.” Dan Kossmann, former CFO Initiate Systems (bought by IBM) and Outstart (bought by Kenexa)

9www.opexengine.com

SaaS versus Traditional License Model Differences

• Less visibility • More predictive

• Sales predicts revenue; sales-driven P&L • Finance predicts revenue; model-driven P&L

• Fewer moving parts, fast moving levers • More moving parts, slow building business

• Value of customer relationship drops off after 1st sale

• Maintaining customer relationship is key: renewals and upselling

• Customer choses and pays for all IT to run the software

• Vendor runs and maintains all software and hardware to deliver SaaS offering

• Contracts structured for revenue recognition • Contract drives the process, cost, and customer interactions

Software-as-a-ServiceTraditional Software

SaaS – A Metrics Driven Model

Revenue Metrics:• CMRR• Net new CMRRCustomer Metrics:• Total # and net new subscribers• Contract value per customer• Customer lifetime value (CLV)• Customer acquisition cost (CAC or COCA)• Monthly gross margin per customer• # months to break even• Omniture’s Magic Number for putting on gas

in sales and marketing

Churn/Renewal Rates:• Customer Renewal Rate• Dollar Renewal Rate

Cost of Revenue• Cost of Goods• Cost of Services

Hosting Expense• Third party• In-house

Virtually none of these indicators were tracked 10 years ago

www.opexengine.com

Definitions: The Devil’s in the Details

MRR CMRR Cost of Customer Acquisition Renewal versus Retention Customer Churn (Net?) Dollar Churn

Most key metrics are not GaaP metrics – there’s no accountability for how you define them. Adapt them to your business, but be cautious when

understanding other company’s data.

SaaS Renewal RatesKeep customers satisfied, avoid churn and begin up-selling

13

2013 OPEXENGINE OPERATING BENCHMARKS FOR SOFTWARE AND SAAS VENDORS PRIVATE SAAS

HYBRID PUBLIC COMPANIES PUBLIC SAAS

Average Recognized Revenue $21,246,957 $264,813,000 $219,433,211 Churn Rates Customer Renewal Rate During Year (as a % of Customers Up for Renewal) 86.0% 97.2% 95.0% Dollar Renewal Rate During Year (as a % of Total $ Value Up for Renewal) 93.5% 97.7% 98.0%

Source: OPEXEngine Benchmarking, 2013 All Rights Reserved

www.opexengine.com

Early-to-Later Stage Private SaaSReaching profitability earlier, then kicking into high gear growth mode

www.opexengine.com 14

2013 OPEXEngine Software and SaaS Confidential Benchmarking

All Private Companies

Saas: Less Than $10 Million

Saas: $10 Million - $20 Million

Saas: More Than $20 Million

PRIVATE COMPANIES

Average Recognized Revenue $24,738,701 $6,263,747 $15,003,561 $40,808,762

2012 over 2011 YTY Revenue Growth Rate 30.50% 30.50% 14.80% 58.00%Total Expenses 122.90% 141.10% 115.40% 123.00%

Dollar amount of investment capital taken over company's life $27,500,000 $4,800,000 $10,450,423 $58,500,000

Source: OPEXEngine Benchmarking, 2013 All Rights Reserved

Revenue Growth Rates at IPO


Source: OPEXEngine On-Demand Financial Insights Reports, All Rights Reserved

Market Valuation and Revenue Growth Alignment


0.004.008.00

12.0016.0020.00

-20.0%

20.0%

60.0%

100.0%

Revenue to Market Cap Multiplier Annual Revenue Growth

Source: OPEXEngine On-Demand Financial Insights Reports, full year 2013

2013 Public SaaS Sales & MarketingExpense to Revenue Growth

Source: OPEXEngine On-Demand Financial Insights Reports, 2013

17www.opexengine.com

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Annual Revenue Growth S&M Expense as a % of Recognized Revenue

Operational Trends for 2014

Advanced Customer Success Management

Security Performance and redundancy Expansion into international markets Return of the channel


Software and SaaS Benchmarking 2014Extended deadline for registered Gainsight webinar participants – thru

May 15 ONLY


Find out more about growth benchmarking:www.opexengine.com

Business, like sports, is about

constantly benchmarking your

performance and using that data to

improve.


[email protected]

617-674-4218

www.opexengine.com


mailto:[email protected]


DRIVING FINANCIAL SUCCESS WITH CUSTOMER SUCCESS METRICS


What Friction?


How Do We Steer?


Time for an Upgrade


1. Batting Average

# Customers Renewed In Period

÷# Customers Renewable In

Period

Are customers voting with their signature on the

value of your product or service?

Best-in-class:> 90%


2. Net Revenue Retention

Beginning of period ARR/MRR + ARR/MRR from tailwind – ARR/MRR from headwind

÷Beginning of period ARR/MRR

What’s the net dollar impact

from Customer Success?

Best-in-class:> 120%


3. Headwind

ARR/MRR of churn dollars including price decreases

and downgrades

÷Beginning of period

ARR/MRR

How much drag do you have on your growth?

Best-in-class:< 10%


4. Tailwind

ARR/MRR of up-sell dollars including price increases

and upgrades

÷Beginning of period

ARR/MRR

How much acceleration do you have to new

bookings?

Best-in-class:> 20%


5. Magic Number

ARR/MRR of renewals in period + ARR/MRR of up-

sells in period

÷Fully-loaded cost of

Customer Success team + extended team

What’s the cost-effectiveness of

Customer Success?

Best-in-class:3-5X or higher


We’ve Got CSM MetricsNow what?


MAKE IT ACTIONABLE WITHCUSTOMER SUCCESS WORKFLOW


How we use Gainsight

• Reduce churn

• Drive growth

• Manage your team

• Get proactive


Stay on Top of Churn


Explore Data to Identify Root Causes


Intervene Just in TimeAlert/Manage Risk



• Reduce churn

• Drive growth


• Get proactive


Forecast and Plan Growth


Drill Through to Take Action


Get a Complete Customer Picture



• Reduce churn

• Drive growth


• Get proactive


Manage Your Team



• Reduce churn

• Drive growth


• Get proactive


Keep Customers in the Green


Start Being ProactivePredict risk and opportunity with data science


File-sharing Co.

• AMs used to handle 50 accts max

• Load-balanced 3000 accounts based on anticipated alerts

• Kept the team small and lean: 100 accts/AM for$3M savings/year


QUESTIONS?PULSE.GAINSIGHT.COM


Thanks For Joining!

how to drive top-line growth with customer success management metrics

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