Metrics and data

When setting out to build a company, it is important to understand the potential market size, especially if you plan on raising venture capital. Venture capital funds follow a power-law curve, or simply put, a small % of firms capture a large % of industry returns. Because of this, investors will want to see that your company is capable of a huge exit to help improve its returns. While some investors will tell you that they do not care about an accurate calculation of your addressable market, they will want to understand how your company can turn into a large company. Learn more about calculating your TAM, SAM, and SOM below: What is Total Addressable Market (TAM) As put by the team at Corporate Finance Institute, “The Total Addressable Market (TAM), also referred to as total available market, is the overall revenue opportunity that is available to a product or service if 100% market share was achieved. It helps determine the level of effort and funding that a person or company should put into a new business line.” Related Resources: What Is TAM and How Can You Expand It To Grow Your Business? How to Model Total Addressable Market (Template Included) Real-life Example of TAM For a TAM example, let’s say we are a software company called Adventure App that is helping campers find lesser-known camping spots. Let’s say that we charge customers $10/mo for our application. Using a bottoms-up approach we know that the average consumer would spend $120 a year ($10/mo X 12 months). Next, we’d need to calculate how many customers exist in the space. Using research and our own data, we believe that there are 20,000,000 consumers in our market. That would lead to a total addressable market of $2.4B ($120 X 20M consumers). How to Calculate TAM There are multiple approaches when it comes to calculating your total addressable market. The most common being: Tops Down Approach Bottoms Up Approach Value Theory Approach Learn more about calculating TAM and use our free template to get you started in our post below: Related Resource: Total Addressable Market Template Importance of the TAM One of the more infamous examples of TAM is Uber. Initially, Uber modeled their TAM based on a luxury black cab service in select markets. In reality, Uber has transformed into a global company offering everything from shared rides to food delivery. Uber used both a top-down approach and modeled their future based on the past Related Resource: Total Addressable Market: Lessons from Uber’s Initial Estimates Uber is a case study on the importance of using the correct approach to an addressable market. What is Serviceable Addressable Market (SAM) TAM implies that you capture 100% of your addressable market. Of course, this is not realistic. Serviceable addressable market, or SAM, hones your market sizing one step further. As Steve Blank describes it, “The serviceable available market or served addressable market is more clearly defined as that market opportunity that exists within a firm’s existing core competencies and/or past performance. The biggest consideration when calculating SAM is that a firm most likely can only service markets that are core or directly adjacent to its current customer base.” Related Resource: TAM vs. Sam vs. SOM: What’s the Difference? Real-life Example of SAM Continuing with our Adventure App example from above, we’d want to continue to tweak that number with our serviceable addressable market. As Steve Blank put it above, “…a firm most likely can only service markets that are core or directly adjacent to its current customer base.” Your business will depend on what you define as “core or directly adjacent” to your customer base. For Adventure App, let’s say that we believe that only 5M of the 20M potential consumers are in the geography we can support. That would mean that our SAM would be $600M ($120/yr X 8M). Alternatively, you could calculate this by taking TAM of $2.4B and multiplying it by % of the serviceable market, 25% (5M/20M). How to Calculate SAM SAM requires equal parts art and science. It is on you to determine what % of the TAM you believe is core to your product it can vary how it is calculated. You will need to use publicly available data plus your own internal data to make sure your best assumption for what you can reasonably service. Importance of SAM Serviceable addressable market is important because it will give you a more realistic look at how large your business can be. 100% market penetration is not realistic (as demonstrated in TAM) so it is important to continue to hone in what % of the market you can realistically service. What is Serviceable Obtainable Market (SOM) Serviceable obtainable market, or SOM, dials in your addressable market 1 step further. As we wrote in our blog, Modeling Total Addressable Market, “ SOM is the percentage of the market that you can actually reach with your product, sales, and marketing channels. This should be a realistic view of the customer base your company can pursue.” Related resource: Service Obtainable Market: What It Is and Why It Matters for Your Startup Real-life Example of SOM While our example above shows that Adventure App has a serviceable market of $600M, we will want to hone that further to give an obtainable view of your market. Using past data and public data, we know that Adventure App can penetrate 20% of our serviceable addressable market. That means that our SOM would be $120M ($600M X 20%). How to Calculate SOM Like a serviceable addressable market, there are a few ways to approach your SOM. Depending on how much data you have available will depend on how you calculate your SOM. For example, if you know your market share % you can use that against your SAM. If you do not know your true market share %, you can use the best data available to model the % of your SAM you believe you can capture. Importance of SOM SOM is important because it is the most realistic view of your business and your place in the market. It should offer a better short-term view and can be leveraged to set realistic goals and forecasts over the coming year or years. The Similarities and Differences Between the Three Markets TAM, SAM, and SOM all serve their own purpose but share many similarities and differences. They are all cut from the same thread. They are all versions of the addressable market but slowly narrowed down to be more realistic. They are all based on roughly the same estimates and slowly add in more restrictions as you hone in on the market. For More Information on Markets Visit Visible Today Want to learn more about calculating and tracking your total addressable market? Check out our free Google Sheet template here.

In 2020 we launched the Founders Forward Podcast. The goal of the podcast is to enable founders to learn from their peers and leaders that have been there before. Over the last 7 weeks our CEO, Mike Preuss, has interviewed a different founder or startup leader every week. Related Resource: 11 Venture Capital Podcasts You Need to Check Out Here are some of our favorite quotes and takeaways from the first 7 interviews: Lindsay Tjepkema, Founder of Casted Our first episode of the Founders Forward was with Lindsay Tjepkema. Considering she is a podcasting expert, we figured there could not be a better first guest. We chat all things podcasting and alternative media types. However one of the tidbits we found most interesting was Lindsay’s outlook on venture fundraising. Oftentimes fundraising can be a frustrating journey but Lindsay views the process as an opportunity to promote her business and tell her company’s story. Give the full episode a listen here. Amanda Goetz, Founder of House of Wise House of Wise is Amanda’s second go as a startup founder. However things are no less difficult than her first time around. Her first journey was spent worrying about legal aspects and the basics of getting her business running. That was easy with House of Wise but she has faced new challenges (and opportunities) during her second journey. Give the full episode a listen here. Jeff Kahn, Founder of Rise Science Jeff has 10 years of sleep science experience and research. Before starting Rise Science Jeff spent time publishing academic articles and supporting world-class athletes and teams with better sleep. Jeff Kahn is a true expert in all things sleep. During our interview with Jeff, we chatted about how sleep can improve a founder’s leadership skills and productivity. Give the full episode a listen here. Aishetu Dozie, Founder of Bossy Cosmetics Aishetu Dozie started her career in banking and eventually made the transition to starting a cosmetics company. Just like any founder, her first time journey has been full of highs and lows. Aishetu, like many founders and leaders, has struggled with imposter syndrome. We love her thoughts below on how she has tackled imposter syndrome. Give the full episode a listen here. Kyle Poyar, Partner at OpenView Ventures OpenView Ventures is credited with coining the term “Product-Led Growth.” As Kyle and the team at OpenView continue to help SaaS companies grow and become market leaders he has seen it all. From the early days of defining PLG and the impact of COVID-19 Kyle is full of first-hand stories and the data to back it up. Check out how Kyle defines and thinks about PLG below. Give the full episode a listen here. Yin Wu, Founder of Pulley Yin Wu has been through Y Combinator 3 times and has successfully exited 2 companies. Over the course of her founder journey it is safe to say that she has spent a good amount of time fundraising and chatting with investors. Yin likes to bucket investors into 3 categories to structure who she should be chatting with and raising from. Give the full episode a listen here. Cheryl Campos, Head of Venture Growth at Republic Over the past 3 years, the funding options for startups have continued to transform. Over her 3 years at Republic, Cheryl has watched as the market has changed and crowdfunding has become a more viable option. Check out Cheryl’s thoughts on the new funding options below. Give the full episode a listen here. We have plenty of new episodes recorded and ready to share in 2021.

On episode 8 of the Founders Forward Podcast we interview Nate Turner, Co-Founder of Ten Speed. Ten Speed helps “companies accelerate funnel growth by quickly growing traffic to existing content.” Prior to starting Ten Speed, Nate was the VP of Acquisition & Marketing Operations at Sprout Social (and their first marketer). Nate helped take Sprout Social from a modest startup doing a $100k in revenue to a publicly traded company doing over $100M in revenue during his time there. About Nate Nate leveraged SEO and other top-of-funnel growth tactics to help Sprout Social become the software juggernaut it is today. He has taken his learnings to Ten Speed where they help startups optimize existing and create new content to grow all aspects of their funnel. Our CEO, Mike Preuss, had the opportunity to sit down and chat with Nate. You can give the full episode a listen below (or in any of your favorite podcast apps). What You Can Expect to Learn from Nate How Nate helped Sprout Social scale revenue to $100M+ How product impacts pricing and revenue How Sprout Social won in a crowded market How organic search can be a lever for growth Why companies should optimize existing content to grow organic traffic How early stage founders should think about budgeting for SEO and written content The biggest mistake he sees early stage companies make with SEO Related Resources Ten Speed Nate’s Twitter Nate’s LinkedIn

On episode 5 of the Founders Forward Podcast we welcome Kyle Poyar, VP of Growth at OpenView Ventures. OpenView Ventures is an expansion stage venture firm with an extreme focus on software (SaaS) companies. Unique to OpenView is their team of in-house experts, like Kyle, that portfolio companies can call on to help tackle a growth issue. OpenView coined the term product-led growth. If there is one person who knows the ins and outs of PLG, it’s Kyle. About Kyle As Kyle and the team at OpenView continue to help SaaS companies grow and become market leaders he has seen it all. From the early days of defining PLG and the impact of COVID-19 Kyle is full of first-hand stories and the data to back it up. In addition to learning the basics of PLG we had the opportunity to dive into OpenView’s annual SaaS survey, the 2020 Expansion SaaS Benchmarks Survey, and uncover trends in 2020 and discuss what lies ahead for 2021. Mike Preuss, CEO of Visible, had the opportunity to sit down and chat with Kyle. You can give the full episode a listen below (or in any of your favorite podcast apps). What You Can Expect to Learn From Kyle Define and understand product-led growth Why PLG is more a “dimmer switch” than an “on or off switch” How public PLG companies are performing What channels perform the best for PLG companies Why PLG companies are extremely good at SEO Why PLG companies start growing most efficiently at $5M ARR How to compensate product leaders How to find the right VCs for your business Related Resources Kyle’s Twitter The 2020 OpenView SaaS Expansion Benchmark Survey The OpenView Labs Blog

Over the last 5 years at Visible we have heavily invested in creating a blog and curating resources in our weekly newsletter to help give founders an edge. We’ve decided that it is time to test a new medium at Visible so we launched the Founders Forward Podcast (learn more about the actual podcast here). About Lindsay Podcasting is a medium we know can work so decided it was time to take the leap. Naturally, we thought there would be no better first guest than Lindsay Tjempkema, CEO and Founder of Casted. Casted is the first and only podcasting platform built for B2B companies. Our CEO, Mike Preuss, had the opportunity to sit down with Lindsay to chat all things podcasting. Lindsay offered countless tips and advice for founders and marketing leaders looking to start a podcast at their company. Give the episode a listen (below or on any podcast player) or check out our favorite takeaways: Who is it for? Why are you doing it? Before making the leap to start a podcast you need to understand (1) who is it for? And (2) why are you doing it? If you can answer those two questions, you’ll be able to find better guest, create better content, and overall have more success. As Lindsay put it, “It’s just like any other form of content or any other approach to anything marketing related. Who is it for? Who’s my audience? What are they interested in? What do they want to know? What are the goals that you have for the show? What are you trying to achieve? Are you trying to build relationships? Are you trying to help people dive deeper? What’s your why? Because without those two pieces of information you’re going to try to appeal to everyone. Which when you try to please everyone, you end up mildly even entertaining at best anyone.” In turn, the more dialed you have your who and why, the easier it is to measure. If you don’t know why you are doing something, it is almost impossible to measure. If you have a solid understanding of your audience and what your goals are, the leap into podcasting will be much less intimidating. Fuels Other Content A podcast can be a great source to inform your content roadmap and other content decisions. If you focus on having a great conversation with someone your audience wants to hear from, let the rest of the content flow from that. In turn, one conversation can make your content and marketing teams more efficient as they repurpose and reuse the original podcast. https://website-staging.visible.vc/wp-content/uploads/2020/12/Lindsay-—-wring-out-podcast.mp4 As Lindsay went on to explain, “What areas could I dive into to create some supplemental written blog content? Is there a white paper here? Is there a way to equip my sales team to give them the insights and the perspectives and the quotes and the quips that I captured in this interview? Really think about what else you can do with that show because then you’ll be reaching people across other channels and giving them the opportunity to dig in across different formats to really engage in what you’re saying.” Putting the energy and time into distributing your podcast is key to success. If executed properly, it can actually allow you to produce more content with less work. Find the Right Guest Going into the Founders Forward podcast, we were advised to “aim high” for our first set of guests. This would allow us to feature a big name and have an anchor for future guests. While Lindsay says this is certainly true, you also want to make sure you are having on the right “experts” for your field. As Lindsay explains, “if your audience needs to hear about what it’s like to be new to the career force and just graduated from school, they’re going to want to listen to people who just finished their first two or three years of school. Which many of us would not think of as experts by the definition of famous people.” No matter the field or guest type it all comes down to knowing who it’s for and why you’re doing it. By being able to answer these questions, you’ll be able to make sure you have the right guest for your audience. Think in Seasons One of the first questions someone may have when exploring a podcast for their company is, “how long should I give it?” How do you determine when you’ve had success? Is there a magic episode # where you should know or pivot by? Lindsay likes to advise companies to think in seasons, not episodes. By thinking in seasons and allowing a set of episodes to be recorded and distributed you’ll be able to hear from your audience and make necessary adjustments and test new ideas. Regardless of how small the audience, you will have people listen in the first season. And you’ll make an impact on their lives in some way. Listen to these core listeners. Give yourself seasons so you can take a pause, get feedback from your listeners, and make the necessary tweaks. Creating an Internal Podcast One of the unexpected tidbits we got out of Lindsay was how she and the team at Casted use podcasts internally. The first way is for their board meetings (which we wrote more about here). In short, Lindsay and the founding team records a quick snippet on the state of the business and sends it over to the board in advance of the meeting. Board members are busy and this allows them to ingest the necessary information before the meeting in an easy way. The second way is their product notes podcast. After every product push, the product team leader records a quick podcast explaining the changes and why they made them. This allows for the entire company to be aligned around a new feature. When sales and marketing reps are hearing the decision making directly from the leader, they can better message and relay the product launch to customers. All in all, podcasting can be an incredibly valuable tool for your startup and marketing efforts. To start, make sure you can define who your podcast is for and why you are doing it. From here, the options are endless for where you content can go. We thank Lindsay for taking the time to chat with us. To learn more from other founders, leaders, and investors, check out the Founders Forward Podcast here.

On episode 1 of the Founders Forward podcast, we are joined by Lindsay Tjepkema, Founder and CEO of Casted. Casted is the first and only podcasting platform built for B2B companies. Being our very first episode of the Founders Forward we could not think of a better guest than Lindsay. If there is one thing we know about Lindsay — it is that she knows podcasting. About Lindsay Lindsay shared all sorts of interesting tidbits for founders and startups looking to explore podcast and new media types. We had the chance to dive into her life as a founder as well — we chat board meetings, fundraising, leadership, and more. Mike Preuss, CEO of Visible, had the pleasure of interviewing Lindsay for our very first episode. The full episode is below (and transcript further down). You can also listen on any of your favorite podcast apps. What You Can Expect to Learn from Lindsay Why invest in a podcast at your company? How to measure podcast success, find the right guest, and create great content. Leverage podcasting for board meetings and product launches. How Lindsay approached fundraising and why she actually liked it. How to set boundaries and balance with work. The importance of conversation and connection. Some related content Lindsay’s Twitter Casted We created the Founders Forward Podcast to learn from people like Lindsay. For the founders out there debating a podcast (or alternative media type), Lindsay is a great guide to lean on and listen to. As you scale your business, having the right guides at your side can make all of the difference. Each episode we’ll talk to fellow founders, investors and experts. We’ll dive into their zone of genius as well as hear about their past mistakes to give you a better chance of success. Podcast Transcript Learn more about our favorite podcasting tips here, or give the full episode a read below. Mike: Welcome everyone to season one, episode one of the Founders Forward podcast. Today I’m joined by the founder and CEO of Casted, Lindsay Tjepkema. And I thought this was just super fitting because this is our foray into podcasting, and we need someone to guide us through the treacherous waters. Maybe not treacherous, but the world of podcasts. And this is what Lindsay and Casted do for a living. Lindsay, you probably do a better job of explaining Casted than I can. I’m gonna turn it over you, but essentially, from what I understand, you are like the only branded podcast experience there is on the web right now. Lindsay: Yeah. Thank you so much for having me. It is such an honor to be your first guest. Basically, you’re right. I mean, what I do for a living is podcasts about podcasts. So I am here for it. Casted in a nutshell, you got it just about right. We are the first and right now the only podcast solution around B2B podcasting. It’s a content marketing platform that enables content marketing teams for B2B brands to use their podcasts, to really fuel their sales and marketing strategies as a whole. Mike: I love it. When did you start this business? When did you start Casted? Lindsay: My day one was April 29th, 2019. So as we record this, we’re, you know, about a year and a half into it. Why invest in a podcast? Mike: I love it. And so podcasting has clearly exploded. It feels like there’s a podcast for just about every single topic. Visible, we’re a team of 10, we’re small, I’m the founder of the company. We’ve known each other for a couple of years now, but you mentioned like everyone should have our podcasts. Like why should I care and have a podcast for Visible what’s your take on it? Lindsay: Right. Well, I have a couple of answers on that. Podcasts do something that no other form of content can, you know, everyone that’s listening to this podcast right now, your very first episode, is connecting with you and with me and with both of our brands in a way that all of the other great content that we’re producing just. I told you this, I think first time we met, I love the content that you guys put out there because as a founder of a company, I’m looking for that information that you’re providing about how to work with my board and when to be thinking about different stages of the process and how to be approaching new things that I as a founder haven’t run into before. So you all are creating really, really exceptional content. But, this content that your audience is consuming right now helps them to connect and build a relationship and trust. And really that human to human level that no other content does. So to me, that should be the basis of every single content strategy is how can we capture the insights of experts in whatever topic or area of interest that we have? Capture their insights, capture their unique perspectives and use that as a show to create real human level connections with our audience and then spin more content out from that across other channels. Finding Podcast Listeners Mike: That was an amazing answer. And so one of the things that I’m trying to wrap my head around though as a founder is back in 2010, it was all about content, content, content, and particularly blogs building my SEO strategy. To me, this kind of feels the same, right? Everyone knows it’s a strategy or playbook you should probably be running but there’s a ton of options out there. How, how do I get people to listen to the founders forward? I can create it but it doesn’t mean they will come. So how do I get people to listen to this podcast? Lindsay: Right. Well, I mean, it’s just like any other form of content or any other approach to anything marketing related is I always say first, think about who’s it for. Who’s my audience? Who are they? What are they interested in? What do they want to know? And then why am I doing it? Who’s it for and why am I doing it? What are the goals that you have for the show? What are you trying to achieve? Are you trying to build relationships? Are you trying to help people dive deeper? What’s your why? Because without those two pieces of information, you’re going to one, try to appeal to everyone, which when you try to please everyone you end up mildly entertaining at best. Then if you don’t know why you’re doing it, it’s really hard to measure success. So, then to answer your specific question around, like how do I get people to listen, if you can really hone in on who’s it for that’s when you can provide those unique insights and dig deep. With the guests that you have in your show in areas that your audience would probably want to ask them questions on too, you can ask different questions than other podcasts or other content providers would not get into and really get into unique, original content that will be all the more engaging for your audience. So that’s how you create the good content. But then what you do with it from there is what, one of the reasons that Casted exists. It’s something that I see so often is people leaving behind, so much value because they publish their show and then they go on to the next thing, which yes, sometimes it’s the next episode, but then quite often as the 8 billion other things on your to-do list, which as founders we know is there’s a lot. But if you’re going to put the effort into capturing an interview. Definitely, definitely take another beat and take the time to bring it out. So publish the show and then think, okay, what’s the related content I could pull from this? What are the clips that I could pull to share on social media? What areas could I dive into to create some supplemental written blog content? is there a white paper here? Is there a way to equip my sales team? Give them the insights and the perspectives and the quotes and the quips that I captured in this interview. Because then you’ll be reaching people across other channels and giving them the opportunity to dig in across different formats to really engage in what you’re saying. Defining Podcast Success Mike: Yeah, that makes so much sense. So knowing that let’s say we have this beautiful, why, which I think we do. We know it’s founders, right? And we want to get close to founders and starting a startup is hard and it’s a journey and so we want to find experts to help our community of founders with a problem they’re facing. I think we have a way to measure that and we plan on investing in this podcast, right? We’ve found someone to do some editing for us. We have an awesome intro song ready to go. We have eight people lined up for the first season. How long should we give it? Is there a way we know like we should pivot this? Or maybe this isn’t the right strategy for us? Is there a timeframe? Is it a gut feeling? Is it a metric? Lindsay: Yeah, definitely give it time. Quite often we see in the space in general, across all of marketing, all of podcasting, people will, we’ll give it a few episodes and then say, “Oh, you know, it’s not where I want it to be,” whatever that means, and give up and kind of throw in the towel and say, “well, that didn’t work.” Give it a couple of seasons. Really watch it. See what kind of feedback you get. And keyword there being seasons. I do really like to advise people to look at it one season at a time, not necessarily one show at a time. Start with your first season. You said you have like eight, let’s go with that. So do the first eight, take a minute, take a pause and then come back in and dive into another topic that’s within, you know, this Founder’s Forward area of interest. Or find a different subset of guests that you could have on or toy with the length or format of the show and do little minor tweaks based on the kind of feedback that you get. That will help with success. You will impact the lives in some way of some group that’s listening. And so listen to what they have to say. And if you give yourself chunks to do one season at a time that gives yourself the opportunity to take a pause to maybe not quite pivot but to make those changes without it feeling really jarring to your audience, right? You can make those little changes and they’ll grow to expect those tweaks along the way. Measuring Podcast Success Mike: Okay. And how do you guys measure your success? Is it top of the funnel for you or is it bottom? How is Casted measuring the success of Casted? Lindsay: Good question. Actually in a lot of ways. And I think that’s, something that anyone that gets into podcasting should also think about. There is no one metric it’s certainly not, you know, some magical number of downloads. If that was the case, then we would all be trying to achieve that number and then be like, “Oh, there we go.” Success is going to fuel revenue. Now, it’s a little different for everybody, but that’s why, again, while you have to know who’s it for and why are you doing it so that you can look at all the indicators that contribute to, “am I getting to my why?” So for us, we look at overall listenership. Is a show growing? Do we have new listeners coming all the time? And do we have returning listeners? Did they listen before? And do they keep coming back? Are they listening to the whole show or most of it? We also pull clips from the shows, like how successful are those clips? Or the things that we’re sharing on social media, leading to people to come and listen to the show, and then engagement? That’s all show level and that’s fine and good, but you know, if I’m a marketer, that’s not enough. Like what else? Right. Are people going through? And from my episode page, are they engaging in the other content that we have? Are they going on and reading the related blog posts? Are they clicking into the information that we’ve shared along with that episode? Because that indicates engagement and that really indicates somebody who’s really interested in learning more about who we are, what we do, what we’re sharing as far as our content is concerned. We also have different integrations. We have a Drift bot that allows us to actually engage with our listeners while they’re listening. As long as they’re on our show page, we can recommend other related content, see if there’s any questions that we can answer. So it’s that kind of real-time engagement that helps us to understand how we’re doing. And then also through our integration with HubSpot. Just beyond like metrics and how many, but actually who? Did Mike come and listen to our show? Yes, he did. He listened to 97% of the show. And then, you know what somebody else from Visible listened too, even just like any other activity that you can see in your CRM really helps to fuel. One, are we successful? Two, what can we do now? Think about the big picture Mike: That’s why I love what Casted is doing and why we’re starting the Founders Forward podcast. It feels like it kind of lifts and elevates everything we’re doing across all of our different experiences on our site. From a concept we’re writing to how we engage with people that are on a trial. It feels like for me, downloads is really not a metric. I care about it’s going to be like, how do we create really unique and differentiating nuggets of wisdom from people that we can use from the podcast and in different parts of our marketing site. Am I thinking about that the right way? Lindsay: I was literally going to say, “you’re thinking about that exactly the right way.” Because there is no one size fits all downloads are one indicator and if that’s all you have, cool. Are they going up? But when you have the opportunity to look at the bigger picture, and especially those of us who are founders, you have the opportunity to lead from the top. Even if the top is just a couple of people to say, “We’re going to look at this show as a big picture thing. We’re not going to look at any one metric and decide whether it’s succeeding or failing. We’re going to say, okay, what kind of anecdotal feedback are we getting? When we do talk to someone and they say, Oh yeah, I listened to your podcast.” What does that conversation turn into? Are they a little bit more engaged with, is there a little bit more trust there? That’s an indicator of success. And then also, what else are we doing? Are we more effective and efficient as a team? Because we have this starter content that we’re pulling more out of and we’re able to do more with less, which again, as a founder is something that we’re looking to do all the time. So, yeah. It’s you gotta think big picture, you got to think, from these conversations, think about it less as I’m recording a podcast episode and more as I’m recording a conversation that I’m going to make a podcast out of it, but I’m also going to do a lot of other things too. Distributing Your Podcast Mike: Yeah, for me, it’s like a forcing function for me not to be lazy. It’s like, okay, I have an hour with Lindsay today. We’re going to record this. And then there’s a ton of other things that are going to happen, because of that forcing function of us having an hour to sit down and chat with one another. Lindsay: Okay. Mike: Okay. And last thing, as it relates to our journey, as we launch this podcast is there like one thing or gotcha that you think we’re going to run into? Lindsay: Yeah, I hate to sound like a broken record but kind of what we just talked about. I think a lot of people think all I need to do is just, you know, hit record and that’s my show. Well, it’s not that simple. it’s also not that hard, right? So you just, you find great people that your audience wants to hear from. You interview them it turned into a show, but it is a lot of work, there’s time involved. There is a lot of effort, which is kind of what we just talked about. All the more reason to make sure you’re getting a lot of value out of every single interview you do. How are you making sure you’re just wringing it out and that you are not just for a moment but ongoing, constantly coming back and saying, “what else can I do with this show? What else can I do with this interview?” I think that’s honestly, the biggest thing is looking for immediate success with minimal effort. And I also don’t want to make it seem like it’s really hard because if you do look at it holistically, like everything we were just talking about, what else can you get out of every show? Every time I record a podcast it’s on top of my blog on top of my social media strategy. On top of all these other things, it doesn’t have to be that way. It’s what if you just think about your podcast first and all of those other things that are on your to-do list flow from it. So it’s going back to the exact question you asked is what is a mistake that we see quite often. I think the flip side of that is where do we see the greatest success it’s with the companies that think about their podcast and in those interviews first as fuel for everything else and how they can, as a result, be more efficient, be more effective, be a little bit more lazy and saying, okay, everything’s going to feel out of this one resource of content, which is going to make everyone’s lives easier. Finding Your Guests Mike: Okay. Now you mentioned something in there that does not in the outline I sent you and put you on the spot. so you mentioned great guests. Is there any truth to like the guests list, like, should I shoot high? Should I try to get Mark Zuckerberg on the podcast because that kind of anchors my future guest list versus, having my brother, Matt, who’s in the background right now as our production Lindsay: He’s like what kids? What’s wrong with me? Mike: I could do that cause he’s my brother. Let’s talk about guests. Is there any truth to that? How do you recommend, I think about the guest list for the podcast? I’m sure some of it’s the why and why we’re doing it, but is there truth to like trying to aim high and get like a list type person right away? Lindsay: Absolutely. Which is why I’m here. I’m just kidding. I would say yes, but also no. So yes, in that when you have, you know, you said Mark Zuckerberg find if you got him, if you got Oprah to come on your show, would that spike your listenership? Of course, because it’s a big name. If you can get Oprah on your show and get her to Tweet, like, Hey, just did a great recording with Mike and Visible, check out their new show. What would you have a spike in listenership? Sure. But what if your audience doesn’t want to listen to Oprah? Right. I always say go find a great expert, capture their perspective. So on and so forth expert does not necessarily mean famous influencer in this space. It could, sure. I was actually just talking to someone yesterday, who was just asking for podcast advice and stuff and not a great fit for Casted, but has had the most ridiculously amazing people on their show because that’s what makes sense for them. Find the experts for your audience But that’s not what expert always means. If your audience needs to hear about what it’s like to be new to the career force and just graduated from school and what it’s like to be a newcomer to the career world. They’re going to want to listen to people who just finished their first two or three years of school, which, you know, many of us would not think of as experts by the definition of famous people. So again, it’s all about who is your audience and what are, who are the experts you’d want to hear from? They could be interns, they could be engineers, they could be product leaders, or CMOs, or your customers. Your customers are really great guests, your partners. It comes in all shapes and sizes, which again is why it’s so, so, so important to know who it’s for and why you’re doing it. Because if Oprah did come along to a show where she was not going to be a great fit, you’d have to say no, probably say, how else can we use Oprah because she’s amazing. Maybe we spin up another show, but yeah. You know what I mean? The other danger of having just quote unquote, the expected experts is that you’re going to get the same exact interview that everyone else has done with the name your person and it really is a mix because yes, it could be the big names because they’re big names for a reason. People like to hear from them. But don’t discount the people that haven’t really been heard from before, because they have really, really exceptional insights to your audience too. Starting an Internal Podcast Mike: Great to know. And so we’re going to shift gears just a little bit. So I got wind that you had a board meeting this week so one, How did it go? Then it sounds like you also use Casted or create a podcast for your board. How does that work? Podcast for Board Meetings Lindsay: Yeah. Board meeting went great, thanks for asking. Part of why it went so well is that we do use Casted for ourselves for an internal podcast. And I say that facetiously, but also truthfully, one thing that we do is, you have founders listening, so I’m sure that they can relate. When you have your board you send pre reads ahead of your meeting, right? So you send your agenda and all the things you’re going to vote on and things you’re going to talk about and things that, you know, all of the data that you want them to ingest before you spend a couple hours with them. So we were no exception. I put that together as well. But then along with that, I send a podcast that is myself and anyone else is going to be in the meeting. This time around, it was myself, my two co-founders and our marketing director, talking through, “Hey board, this is what we’re going to go through.” Q3 was really great for all these reasons. Pass it on over to the revenue update. Here’s what we’re going to go through. And here’s some of the highs and lows from revenue this month. And it’s nice because our board gets to hear literally from us, our voices talking about how things are going and what to expect. And then the feedback I’ve gotten has been this is really great because literally I’m gonna drop the name of Scott Dorsey, he is on my board. He’s fantastic. He’s like I was preparing for the meeting and he was like, “I got up and walked around and could have your voice in my ears while I was making my lunch.” It gives them more flexibility. All of our board members are really busy but we want them to engage in what we’re providing them. Mike: Do you go off the cuff or is there a script you’re sticking to you when you’re doing that board reading? Lindsay: For those, we all script it out because it’s pretty specific to the information that we want to share in that. In each of our one little clips it ends up being like a 15 minute episode when you put all of our different voices together. I think otherwise, as you can tell I’m a little bit long-winded I think it would very quickly turn into a 40 minute episode. Mike: I love that idea, especially since board members are busy. So if they’re traveling or walking around and they can pop you in and listen it’s almost like an earnings call for a startup really in a way, where like it’s you or your executive team talking to the board. Podcasts for Team and Customers So that’s cool. And then do you use it internally as well for team communication? Not just your investors and your board, but are you doing like an internal podcast for the team? Lindsay: Well, we do. It’s actually not me though. At least not yet. When we get bigger it might be. One of my co-founders, Adam Padrino, who heads up the product side of the business. Every time we have a release he does a release notes podcast. And if I’m not mistaken, I think that started out as like an internal podcast that we actually ended up changing to be for our customers and more public facing as well. But that started out to be like, Hey, this is the release. This is what’s happening. The related resources were a little video clips about what it looked like and how it worked. And the show notes were more information about the release and it was him literally talking through what the release is and how it changes things and where it fits in. Mike: So cool. That’d be like, if you wrote an investor update for every single one of our customers every time we changed the product. But yeah, I love that. That’s cool. Lindsay: Well, and if you go back to just to tie it all together it sounds funny, but it’s true — it’s a way to be a little bit more lazy. Or you could say more effective or more efficient is that if Adam, our head of product goes through and talks about why we built this, how it works, what it is, the rest of our team can then speak more eloquently about it can pull content you can write about, it can create the webpage update about it, it enables everyone else to do their job so much easier because they already heard straight from the product leaders from the founder’s mouth. Our Founders Forward Questions Mike: I love it. Okay. This is the part of the episode where we shift gears and focus you, Lindsay, the founder. I know you had a marketing agency. Is this your first startup though? Where you’ve raised money? Lindsay: Yeah. I did my own thing. I consulted on my own for awhile but this is my first foray into founder life. Mike: Do you find board meetings? Stressful? I always stress myself out before the board meeting. Lindsay: You know,I’ve only had a few. Stressful? There’s good stress and there’s bad stress. So I think it’s definitely a forcing function to get everything together, which I think is good. I don’t get nervous, stressful. Like I actually really, really love that time with my board because they’re your biggest cheerleaders and also your biggest challenges to make sure that they’re cheering for you, which is why sometimes the redirection or identification of blind spots is hard to hear. We all want this to succeed. But I don’t know, stressful feels like a strong word.It’s a lot of work, but then I always try to not make it a lot of work because there’s so much other stuff to do, so. Mike: I’m assuming you did this one virtual, given COVID, was this your first one virtual or have you been doing the remote since you started? Lindsay: Actually we’ve never had one in person. Heah, because we got started right when I think my first board meeting first official board meeting was March 18th. The Fundraising Journey Mike: Okay. Awesome. And earlier this year, I think at least publicly announced you guys raise some capital in February. one, congratulations. I know it’s hard to do. What was that journey like? Any takeaways? For our audience that are just getting started, maybe pre-seed type company seed founders. What was that journey like for you as a first time founder and anything you’re like, Oh man, that was like a mistake I made or I love that I did that? And that really worked well? Lindsay: Sure. I’m trying to figure out how to sum it all up. It’s interesting because right when you find your stride, it’s all over. Like then you find your stride because you bring in the money and everything before that, it’s like, “well, was that good? Did I Bumble it? I don’t know.” I guess we’ll find out, you know, if they invest or not. I enjoyed it. There’s nothing better than being able to talk to person, after person, after person about your company. This entire thing that you’re building. That’s a great feeling and it’s exhilarating and it’s exciting to be able to share your passion with somebody else and actually to invite them to be a part of it. Like that’s really cool and that’s very fun. That’s also the hardest part because it’s your baby. And when you share something with so many people, and you get so many nos, that’s hard. I mean, that is the hard part, but and in all, I think that if you, if you maintain that stature of this is my thing, I’m really, really proud of it and I am so convicted that what I believe is going to happen is going to happen, share that passion and that you really, really, truly are. You’re not asking for money, you’re inviting someone to be a part of it. And I think that if you keep that stature, it’s felt by the other party. And even if it’s a no, if you can come away, having allowed them to see that passion and that fire that you have for what you’re building, that will only do good things for the company long-term. Mike: Did you treat it as a numbers game? Did you talk to a lot of investors or did you take a more pointed approach? Lindsay: Hmm. Somewhere in the middle. Definitely talked to a lot of people and even those that I didn’t feel like we’re going to be a great fit. One thing that happens once the word gets out that you’re raising money, all kinds of entities, all kinds of different funds, pop up, which is great. And I looked at it as practice. Like no matter what,it’s always good to know more people. It’s always good to get in front of more people. You never know what’s gonna come to fruition. You never know who they’re going to know. So that said, I did not say yes to every single outreach. I was also very careful about what I shared. But every at-bat is practice. And so I talked to a lot of people, probably a total of gosh, 75 pitches or so if that’s the number that’s out there, and a lot of them, it was just, it was really great. Practice if nothing else. And then there were the ones that were like, okay, this one is what I’ve been practicing for. I think this one is a great fit. I really liked them to come in. I’d really like them to think really, really highly of me. And therefore, all of the other practices, all the other at bats, come to a head for that, you know, hope for a home run. Mike: Yeah. Okay. So 75 it’s a lot. I think a lot of people underestimate the amount of time it takes to raise capital. And I think we also probably underestimate how many conversations we need to have. 75 is probably the median, if not like on the low side, maybe for a seed round. We’re going to try to figure that out as we continue to talk to guests, but okay. So this is your baby, you have been doing this since April, 2019. It’s stressful. Right? I’ve been, I’ve been doing this now for six years. How do you stay sane as a founder? Like how do you unplug in, is it a TV working out family time? How do you separate work and starting a company? What do you like to do to keep yourself sane? How do you separate work and starting a company? What do you like to do to keep yourself sane? Lindsay: it’s interesting. You didn’t say the words, but people talk a lot about work-life balance, or you know, how do you unplug or how do you turn off work? It’s just that, I don’t ever take off. Like I have three kids I don’t ever take off my mom hat. I’m never like, well, I’m not your mom right now. I lean in and I lean back. I love my kids. I love Casted. I love everything. That is a huge part of my life. It is there for a reason. So the goal is not to turn it on and turn it off, it’s to set up boundaries along the way so that it all fits and so that you can be everything all the time. And so that means that I have to put up healthy barriers with work. We’re fully remote right now, who knows how much longer we will be. I can’t work all the time. I shouldn’t all the time be like, “Nope, I’m going to skip dinner.” I’m just going to eat dinner in my office, you know, “Hey honey, kiss the kids goodnight for me.” Like it has to be a constant daily decision to lean in and lean back on every part of life so that you have energy for everything.So that tomorrow I sit down at my desk strong, healthy, ready to go and I close up the day at the end of the day and go kiss my kids strong, healthy, and ready to go. And so it’s boundaries and balance. And then yeah, taking care of myself, I try to get good sleep. Some nights are better than others. I spend time with the kids. I’m a health nut. So I think that actually physically taking care of yourself is super, super, super important. What you put into your body and how you take care of comes back to you when you ask it to work hard for you. How have you stayed healthy during COVID? Mike: Health nut. What have you done in COVID? Has it been a diet? Has it been working out? What tips or tricks do you have? Lindsay: I try to work out every day, even if it’s like, “Oh, today was crazy. I’m just going to do a five minute quick workout, or go for a walk.” But yeah I try to work out, as much as I can and then just being healthy. Like if you fuel your body with quarantine treats all the time, you’re gonna feel it and you’re going to be sluggish the next day and that pitch isn’t going to go as well. I eat really healthy and I drink a lot of water. Just all the typical things, eat healthy, get sleep. workout, drink a lot of water. There is a Michael Polen, I think quote that’s like eat food, not too much. Mostly plants. Like just do that and you’ll feel better. Mike: I knew you were coming on. I needed to have higher energy today for our first podcast ever. So I only ate sweet potatoes yesterday. Lindsay: Just sweet potatoes. Little worried about you. When do you feel like you’re not working? Mike: Just boiled chicken and sweet potatoes and super clean. Okay. Last few questions, three questions, that were planning on asking everyone that joins the podcast. We’re huge fans of the zone of genius and that’s defined as, when do you feel like you’re not working? So I guess for you it is every day at Casted or when you are in like your flow state, where you’re like, I’m not even working? Lindsay: So it’s going to sound super duper cliche, but it’s doing this it’s I’m doing podcasts or speaking. That is the most fun thing is just having conversations about the things that I’m passionate about, which are exactly what we’ve been talking about is, you know, podcasting and content marketing and leadership and starting a company. That is flow. Before we know what the conversation’s over and time is up and it’s onto the next thing. Then I think the next layer out of that onion is learning. I think that’s one of the coolest things about being a founder, is all of the things you get to do for the first time, which is also a lot, but I mean, you’re just constantly learning. If your brain was getting wiped out tomorrow, what’s one thing you would write down tonight? Mike: Okay, next question. This one comes from Max Yoder. Max is great. And I sent him some questions and he said, well, the one I like, so I’m giving credit to this. So we’ll see how this goes. Lindsay: Okay. Mike: If your brain was getting wiped out tomorrow, what’s one thing you would write down tonight? Lindsay: Yeah. I’m trying to decide whether to be like leader Lindsay, Mom Lindsay You could be super facetious and be like, well, there’s lots of things written down already. I mean, you know, something about my kids and my family to make sure that was still intact. That’s the most important thing. Things that I would write down, actually it’s funny cause it’s Megan Brazina’s chocolate chip cookie recipe and she actually works at Lessonly with Max Yoder cause it’s the best chocolate chip cookie recipe on the planet. But as far as like, you know, Leader Lindsay. Let’s like, let’s bring it back home to this audience and what we’ve been talking about, just the importance of connection and conversation. I’m an introvert which surprises some people since I’m very chatty. So it’s really easy for me to retract to my own cave and just go heads down and do the things. But something that I’ve been working on over the last couple of years, particularly through quarantine, is to stay connected with other people. It actually is something that I need a reminder about because it’s so natural for me to just be on my own, but then I’m not okay. I’m a better leader, I’m a better founder, I’m a better partner, I’m a better mom, a better all the things when I invest in my community. The people that are around me to challenge me and help me grow and to love on me and to support me. So I’d write that down. Cause that’s something that I should probably write down anyway is to remind myself, like go connect with other people. Don’t try to do this alone. Who is someone you’d like to give thanks to? Mike: Okay. I love that. And our final question before we wrap this one, I think is going to be interesting to you in terms of what people say. On Monday morning, Visible has been fully remote since we started and on our all hands, we go around and talk about priorities for the week, but then more importantly, someone gets thanks to a team member for something that they did for them the week before. Is there anyone you want to give thanks to right now that maybe you haven’t thanked before or someone that just really helped you out over the past year and a half since you started? Lindsay: So many people. So like my answer that I just said is about community and how we’re stronger together. So, so many people. I think, you know, again, especially given this show and who you’re speaking to founders, I’m going to thank my co-founders. I know that’s two people, but I’m going to take it anyway. Adam Padrino, Zachary Ballenger, just full sto. They’ve been amazing. We’ve been an incredible team. We have grown together as humans and we’ve grown this business and together done some really, really incredible things, both business-wise and culture within our team and hired some incredible people and got to work with some fantastic customers and create this incredible product. I mean, it wouldn’t be what it is today without them. We wouldn’t be going where I know we’re going to go if it wasn’t together. So there you go. They’re going to squirm cause they hate attention. Mike: One mistake I’ve made is that I don’t have a co-founder. So that’s one thing I will certainly change in the next go around is I wish I had that. That’s a whole nother episode Lindsay: We could talk for a long time. Mike: I can just talk to myself about it. It’ll be an internal monologue with myself. Well, Lindsay, I can’t thank you enough for one taking your time out of your busy day and then to really being our guide, for the Founders Forward podcast as we get this going. So thanks so much for joining us. How do you think we did for episode one? Lindsay: I am so excited that you’re doing this show. Obviously I’m biased because everybody on the show knows by now that I’m super biased about podcasts, but you all are doing such amazing content. This is going to be a really, really incredible show. And I’m so honored to be a part of Mike: Thanks so much. All right, everyone, we’ll see you for episode two. The Founders Forward is Produced by Visible Our platforms helps thousands of founders update investors, track key metrics, and raise capital. Try Visible free for 14 days.

What is the SaaS Business Model? The typical business model for a SaaS business is a unique and exciting one to dive into. Software as a Service (SaaS) companies are not going away anytime soon and there is much more innovation that will continue to come from SaaS businesses. Looking at companies like Salesforce, Slack, and Zoom (just to name a few), it’s clear that the business model works. But how and why does it work? Read on for a complete breakdown and understanding of the SaaS business model. SaaS or “Software as a Service” is a delivery model for software where a centrally located, cloud-based software is licensed to its customers via a subscription model. This might be annual, monthly, per user, or by package level but a company can be consider a SaaS company if they are hosting their software on the cloud and licensing it out. At the core through all of these stages, the business model is based on a subscription payment set-up. This is core to the business and the building block of the model. A SaaS company may offer various types of subscriptions for different products or various end-users, but the subscription model is key to the foundation of the business. Due to the fact that SaaS companies are hosted on a centrally located cloud, they are in a unique position to constantly be updating the software and pushing those updates to users. This update and growth process for SaaS products is much quicker then in-house hardware that used to require very manual processes for the end-user. The subscription model combined with the consistent updates typically present with SaaS products leads to a higher customer retention than other business models. SaaS companies aid this by baking in very high-touch customer success teams to their sales cycle, continuing to work with and serve the customer even after an annual or monthly subscription is committed to. A SaaS company follows a business model typically goes through 3 phases: early stage, growth stage, and mature stage. All stages involve different levels of funding. For a deeper dive on that specific component, read more here. Related Resource: 20 Best SaaS Tools for Startups The early stage of a SaaS company is focused on building out a product-market fit and securing some early, loyal customers. The team is typically bootstrapped or operating on a very small seed or friends and family round. The team typically stays small at this stage as well. The growth stage in the SaaS business model is focused on scaling extremely quickly by taking on funding via Venture Capital or Angel investors and pushing the limits of your product’s success by taking some risks, scaling the team, entering into incubators, taking on more strategic advisors, and selling up-market. This stage is all about establishing metrics to track success and working to go above and beyond those in order to keep growing the business. Related Resource: Who Funds SaaS Startups? The mature stage kicks in when success is proven, the audience is present and hungry for the product, and the focus is now on growing and retaining customers vs. proving out the concept. The focus now can shift to continuing to fine-tune the business via pricing updates, continued product growth and development, and brand building. Related resource: 11 Top Industry Events for SaaS Startups Stages of a SaaS Business Model As we mentioned in our Startup Funding Stages Guide, “There are multiple stages of startup funding: Seed, Series A, Series B, Series C, and so forth. Startups should be conscientious about the funding rounds that they will go through, which are generally based on the current maturity and development of the company.” The same idea holds true with respects to a SaaS company. A SaaS business model is one of the most attractive to a venture capitalist. The lifecycle and funding stages likely look something like this: Related Resource: 23 Top VC Investors Actively Funding SaaS Startups Related Resource: How to Start and Operate a Successful SaaS Company Seed Funding Seed funding is a startup’s earliest funding stage. Often, seed funding comes from angel investors, friends and family members, and the original company founders. Series A Funding “When a company is first founded, stock options are generally sold to the company’s founders, those close to them, and angel investors. After this, a preferred stock can be sold to investors in the form of a Series A. Series A allows investors to get in early with a business that they truly believe in. It’s a mutually beneficial relationship for both the company and the future stock holders.” Series B+ Funding “Once a business has been launched and established, it may need to acquire Series B (and beyond) funding. A business will only acquire Series B funding after it has started its operations and proven its business model. Series B funding is generally less risky than Series A funding, and consequently there are usually more interested investors.” Important SaaS Business Model Metrics While diving deeper into the SaaS business model, it’s important to understand the key SaaS metrics that will inevitably pop-up along the way. These key SaaS Metrics are critical to track in order to understand the health of a SaaS business. MRR (Monthly Recurring Revenue) Not to be confused with ARR (Annual Recurring Revenue), MRR is how much money your company can be expected to bring in every month. Going beyond the basic meaning, MRR is a functional metric through which you can gauge your company’s income and success. MRR growth equals business growth – the same goes for shrinking MRR most likely equaling a negative impact on the business. MRR trends are incredibly important to subscription-based businesses, because they compound over time. CAC (Customer Acquisition Cost) The sum total it takes for your team to acquire a customer. This includes the time of the sales reps but also the marketing dollars spent. Tracking your customer acquisition cost tells you a lot about how your company is operating. If the dollars and time spent to acquire a single customer is higher than the MRR or ARR that customer brings in, that can be a huge red flag for the business. Over time, your customer acquisition cost will also tell you whether it’s getting more difficult or easier to acquire new customers. You’ll be able to look at trends to see when acquiring customers becomes more affordable, and if there are specific seasons during which customer acquisition is more expensive. LTV (Lifetime Value) Here at Visible, we consider LTV of a customer to be the most important metric you can track. LTV is the average customer revenue multiplied by the gross margin percentage divided by customer churn rate. Another way to think about it is MRR or ARR X Customer Lifetime. Understanding LTV is important in assessing the overall health of your company as well as justifying CAC costs to your investors. Some good news as you’re starting your business – you can track CAC and LTV right in Visible. Churn Essentially, churn is loss. You can have customer churn – the number of customers that cancel their subscription to your business annually or monthly. You can also have revenue churn – how much money is lost annually or monthly. Churn is expected in most businesses but maintaining an acceptable rate in comparison with the growth of your business is a key metric to understand, measure, and track. You can accept about three to five percent of your small to medium sized businesses portfolio every month or less than 10 percent annually. As enterprise level businesses go, aim for a churn rate less than one percent. Your churn rate should continue to decline in subsequent years until you reach negative churn. Customer Retention This SaaS metric refers to how long you are able to maintain a customer per your subscription model. This could be annually or monthly. Healthy retention can also be customer growth. If a software is user-based or has multiple product components, upsell and expansion can be possible leading to annual retention exceeding 100%. Healthy customer retention may not mean you maintain every customer every year, but you ultimately are seeing growth in the business through a balance of renewals, upsells, and contract expansions. Successful SaaS Business Model Examples There are thousands of SaaS businesses in the world today with more growing every year. Despite the model being a popular and growing business practice, 93% of SaaS startups fail within the first 3 years due to a lack of product market fit, run into cash flow problems, or experience more churn than growth. Diving into a few examples of successful SaaS businesses can be a helpful way to better understand the business model. Salesforce is one of the most recognizable SaaS companies and was a true Trailblazer in the space. You can read a brief history of the business here. Salesforce has been so successful because it was one of the first companies to truly implement the SaaS Business Model successfully and has intelligently scaled by continuing to not only update it’s products, but by acquiring products where they see new opportunity effectively retaining customers and upselling them into new products as well as constantly expanding out into serving new industries. They are a mature company now with roughly 30,000 employees globally and a heavy focus on customer story-telling and partnership as a way to stay top of mind in the SaaS world. An extension of the SaaS model that has emerged and has proven to be successful is the “Freemium” model. This pricing structure allows a portion of the product to be used for free by a user or team with full features being available through a subscription. This model works because it allows users and teams to get hooked on a product, have a positive experience with it, and share it internally and externally. This model is a good way to prove product-market fit and keep CAC down by having the product and its use take on a viral aspect with customers being bought in to a point that when the ask comes in to purchase the full software, the education that typically happens around a sale has a lot less friction associated with this. Two companies with extremely successful Freemium models are Slack and Zoom. Both tools can be used for free by individuals, teams, and even larger organizations but have limits on things like storage, meeting times, and seat #s that are only available when an enterprise package is purchased. Pros & Cons of a SaaS Business Model Like any business model, there are of course pros and cons to diving down any particular path. Pros of a SaaS Model Rapid growth – if you find product-market fit early and are able to secure funding, the possibility of growing your company to a Billion dollar valuation is very real and can happen extremely quickly. Ease of deployment – because SaaS lives in the cloud, it can be easy to make quick fixes to your product and sell to and serve customers from virtually anywhere. Predictable revenue – the subscription model affords you the ability to fairly consistently understand how much money you can expect to make. There is no seasonality in a subscription model and annual or monthly contracts provide security that many other business models cannot guarantee. Cons of a SaaS Model Upfront costs – If you aren’t able to secure funding right away, it can be tough to maintain the capital and manpower needed to grow your company quickly enough to be successful. It’s common to not see profitability in the first few years, so it can be a hard business model to follow by truly bootstrapping. Specifically the cost of a team, CAC, and cost to build out the infrastructure to host your cloud software are major factors to consider. High risk – growing fast also means you can fail fast. Taking on a lot of capital and scaling quickly can bring reward but if something changes in the market, your business could crash and burn overnight. Churn – although revenue may be predictable, if the wrong combination of events takes place in a year (major competitor comes to market, market needs change, economic changes occur), you may see a huge bout of churn in a renewal cycle. This extreme shift could be almost impossible to bounce back from. SaaS Business Model Growth Strategies In addition to the “Freemium” model shared above, there are many other growth strategies that can be implemented in a SaaS Business model. A few popular ones include: Customer Stories and Referrals If your SaaS is integral to the way a company does business, you may be lucky enough to have customers who are super fans and love advocating for the value you bring to their day, their work, and their business. Capitalizing on these success stories through marketing content, speaking events, or even referrals can be a smart way to grow your business in an authentic way. These customer stories are good proof points to why you work. Referrals can often lead to better conversations earlier on with prospective customers or even help your sales team break into accounts that have been historically tricky to sell to. Here is an example from one of our customers: Thought Leadership If your company is selling into a specific space, a common strategy is to try and become the “expert” in that space. If your company blog or community group can provide value to your end-user outside of your product, that credibility will spread. Lattice does a great job of this. They have built a free 10k plus HR community group for any HR leader. They keep this space completely focused on their ultimate end-user but never focus on the product, simply provide a space for that community to meet. From there they are able to source content and ideas on what to write about in their blog and share on their podcast, effectively providing value to their end-user before even attempting to make the sale. This name recognition and “expert” status makes the use-case for the product feel more in-line with what the user group is actually interested in. 3rd Party Resources Companies that actively spend time building up great customer reviews on sites like G2.com or work to be analyzed for trusted reports like Forrester, can use that credibility as an outside proof-point for why their product is valuable when selling into new customers. Social Media and Influencer Marketing This strategy is all about going where your end-user is. Build a brand and a voice via social media sites that are popular with your customer. Showcasing your companies voice and personality as well as commenting and sharing insight into trending topics can be an easy way to grow your awareness in an industry. Influencers, or well-known folks in a specific space, can be valuable on social media as well. If a top marketing influencer endorses your marketing SaaS software, folks may come inbound based on that person’s recommendation. Connecting with and offering trials to influencers can be a great way to get this started. Additionally, identifying an exec at your company with a strong following can be a great way to build your company brand via that individual. Folks on LinkedIn, for example, are much more likely to engage with what a person has to say then what a branded company page does. Tools to Help You Optimize Your SaaS Business Model We recommend a few tools to start when jumping into a SaaS business model. Free or premium versions are great, but it’s important to invest in tools that allow you to measure the key metrics listed above and track overall business health. CRM – A customer relationship management tool is key to maintaining an accurate and complete data-base of all of the accounts your team is actively selling to, are active customers, or who have churned. A complete picture of the relationships your company works with will allow you to measure growth and track CAC, MRR and churn. Salesforce, Hubspot, and Oracle all offer quality options but starting out you can build a basic CRM via spreadsheet tools – it will just be a lot more manual. Analytics Tool – Invest in a tool that will allow you to accurately measure all the metrics for your company. We recommend google analytics or manually tracking your metrics via a spreadsheet tool if you don’t have the budget to invest right away. Looker and Tableau are great options once you have budget to spend. Visible – We of course have to share how we can help with growing our SaaS business model, too. Once you take on funding, we are the most complete tool for sharing updates with your entire team and managing existing and potential relationships with investors. You can learn more and check out a free trial of us here.

What does product-market fit really mean? The first goal of every startup is to find product market fit. But what is product market fit in the first place? How do you know when you have it? The most famous and widely accepted definition of product market fit is one that Marc Andreessen coined in 2007, “Product-market fit means being in a good market with a product that can satisfy that market.” Andy Rachleff has expanded on this definition, adding that product market fit means identifying who you’re trying to serve (the market), what you’re going to offer (your product), and how you’re going to deliver upon that offering in a way that allows you to capture the value created by the product (your business model). How do you achieve/find product-market fit? Achieving product-market fit is about identifying needs in the marketplace and testing different ways of satisfying them. You must be thoughtful about how you can serve customers, and iterate quickly with your product based on their reaction to your offering. It’s also critical to understand your potential business model and how that relates to the market you’re trying to serve. Learn how Yaw Aning, Founder of Malomo, found their first customers when searching for PMF below: Defining Your Target Customer The process of defining your target customer is the first step in finding product market fit. This step is about choosing your market. If you don’t know who you want to serve, you’ll have no idea what to build, and instead spend time and money on building a product that no one needs. It is key here to identify a sufficiently promising market. As this post by Andreessen Horowitz explains, a great product in a lousy market has no chance of succeeding, while a decent product in a great market has a much greater chance of finding product-market fit. Identifying Your Value Proposition Once you’ve identified a market and customer you’d like to serve, you’ll need to develop a value proposition to test in the marketplace. This value proposition does not have to be perfect. In fact, you should expect to iterate upon it and potentially decide to change it altogether. After all, the Twitter team started by building an app for podcasting, and Slack started off as a video game. If you assemble a talented team that works well together and don’t stop iterating, you can eventually identify the value proposition that makes sense for your market. Building Your MVP The MVP is designed to be your first entry into the market. Popularized by Eric Ries and his Lean Startup Playbook, an MVP is meant to help you test your value proposition. Today, many companies are using no-code or low-code platforms like WebFlow and Bubble to create basic versions of products and testing them in the market. These tools enable non-technical founders to test their ideas in the marketplace before building a full-fledged product with a team of engineers. You often won’t know for sure if customers value your product until you put it into the market. This is why it pays to move quickly and release your product before you feel ready. This is especially true if your product is a mobile or web application that is easy iterate on (medical device or biotech founders should tread more carefully). Reid Hoffman, the founder of LinkedIn, has often said that ‘if you aren’t embarrassed by the first version of your product, you launched too late.’ Find Product-Market Fit Before Scaling You should work to solve for product market fit before you worry about finding the perfect growth strategy. Andy Rachleff has said that you should work on solving for your value hypothesis before solving for your growth hypothesis. A 2011 study by Startup Genome found that 70% of the 3200 startups they studied scaled prematurely. To avoid being one of the 70%, focus on finding product market fit before you focus on growing your business. It’s tempting to raise giant sums of money and shoot for the moon – you just first need to make sure that you’ve built something in the right market that people really want. Indicators of Product Market Fit Once you’ve released your MVP into the wild and started iterating, you’ll likely wonder how to gauge whether you’re making progress toward product market fit. In fact, Facebook executive Alex Schultz has said that a major cause of startup problems happens when founders think they have product market fit, when they really don’t. It’s easy to get caught up in vanity metrics that don’t indicate whether or not your product is succeeding. You should identify what metrics are real determinants of progress in the market – things like new revenue, customer retention, and NPS can be good examples of metrics to focus on. Perhaps the greatest measure of product market fit is your ability to grow without much investment in sales or marketing. Word of mouth growth is an outstanding sign that you’re on the right track. But, at the end of the day, product market fit is often clear. “As Eric Reis says, if you need to ask whether or not you have product-market fit, you don’t.” Word of Mouth Growth ‘Word of mouth’ is a vague term that marketers use to describe the phenomena that happens when your product grows organically based on positive reviews from users. It’s difficult to measure, but many agree that it is one of the most powerful forces in the marketing universe. If your product grows through word of mouth, without significant spending on advertising, it can be a great sign that you’re on the path to product-market fit. Keith Rabois recounts an excellent story about Square growing exponentially with every new hardware device that was sold. Other potential users were seeing the Square point of sale device in person and becoming customers. To Keith and Jack Dorsey, this was a clear sign that they were finding product market fit. In their case, they had found a clear path to viral growth as well. Keep Testing to Find Product Market Fit One of the best ways to find product market fit is by looking at the process through the lens of the scientific method. You can develop a hypothesis around what users will want and then test it in the market. By viewing it in this way, finding product market fit can become a game. This frees you to overcome the fear of shipping. Rather than trying to build the perfect product at the start, you can continue building as you gain more clarity based on market feedback. When people like Reid Hoffman talk about the importance of shipping early, they don’t mean that you should intentionally create something terrible. Rather, you should err on the side of releasing your product into the market because the feedback you’ll receive in return will provide information that can either support or falsify your hypothesis. Sometimes, the feedback you get can take you down a new road altogether. Startups are cash constrained, and need to find product market fit before they run out of money. It’s often better to release too early and get this critical feedback before you blow through half of your cash on what you believe to be the perfect idea, only for it to backfire. Related Resource: 7 Startup Growth Strategies How can you tell when you've achieved product-market fit? When product market fit happens, it sometimes feels magical. Other times, it’s less obvious. In a consumer application that is built on viral marketing, it may be glaringly obvious when you hit product market fit – growth rates might explode and you could have a quick hit on your hands. In other areas, the process might take longer. If you run an enterprise SaaS business with a 6+ month sales cycle, it will take longer to see the fruits of your labor. Tyler Tringas of Earnest Capital calls this “the long, slow, SaaS grind.” If product market fit isn’t always obvious, how do we know when we’re on the right track? In the case of the SaaS app, it may be realizing that you’re gaining new customers via word of mouth, or churn rates are very low. In other cases, an incredibly well received MVP (minimum viable product) could be an indicator of potential product market fit. Finding product market fit can be more of an art than science, but there are some things you can watch out for. How do you measure product-market fit? At its core, product market fit means that you’ve built something that solves a real problem for people or businesses in a large enough market. When you have it, potential customers will often start seeking out you to use your product without the need of marketing spend. If you believe that you’ve found product market fit, and can reliably predict your customer lifetime value, it could make sense to step on the gas with sales & marketing spend as a part of your growth strategy. Paypal after all was burning $10M/month at one point in their journey as their customer acquisition strategy revolved around giving users a free $10 to use their product. If your customers are loving your product and it has a high lifetime value, then a Paypal-esque strategy may make sense. Regardless of your strategy for finding product market fit, here are 2 things to observe when measuring your progress: Know Your Customer Lifetime Value When measuring product/market fit, you’ll need to make sure that you’re in a market & selling a product that makes your customer lifetime value high enough to pursue for the long term. If you sell a SaaS product that costs $10/month on average, but costs $10/month to support due to its complex nature, then you probably don’t have product market fit. On the other hand, if you have a product that sells for $1000/month and costs $5000 to build up front, you could have an excellent win on your hands (provided that churn is sufficiently low). Pricing is one of the toughest things to figure out in startups, but it’s critical to be aware of your customer lifetime value & the potential size of your market when making early decisions. What’s Your NPS? NPS (net promoter score) is a way to evaluate how likely your customers are to recommend your product to other people in their network. It’s been heralded as a key metric to track in recent years to evaluate customer satisfaction and gauge how effectively their company will grow via word of mouth. While it’s not perfect (qualitative metrics are notorious for having variance), it’s still a good thing to measure to determine how well your product is resonating. You should also look at other indicators related to NPS. How excited are your customers about your product? Are they posting about it on social media, or telling you about how it’s changed their lives? What about churn rates? A high NPS with a high churn rate usually means that you’re missing the mark. Improving product-market fit requires you to iterate Iterating on product market fit, as we mentioned earlier, requires you to take action and evaluate the results of that action. This process mirrors the scientific method – you start with an insight, do background research to observe what’s already been done, and formulate a hypothesis in the form of an initial product that you release into the market. Even if you receive a lackluster response, you formulate a new hypothesis & iterate on your product, repeating this process. Sometimes, you’ll find that you were totally off in your initial product, or that your product was used in unexpected ways. If everyone knew how the market would react to new product offerings, there would be no point in building and developing new products! This is why it’s critical to get your product into the hands of users early to test your offering. Most software businesses are perfect for this model – it helps to produce products that can be iterated upon immediately. Companies that produce hardware or more security-intensive products can also benefit from demonstrating prototypes to early adopters and getting early feedback on your concept, or offering pre-orders. The worst thing you can do is spend months or years building a new product that you realize nobody wanted. You’re better suited releasing an early version and building along with market feedback. Another great option is releasing an MVP and then launching a kickstarter campaign or offering pre-orders. Madelin Woods, a founder in our community, is a great example of this. She created prototypes of her burrito-eating tool ‘Burrito-Pop’ that generated buzz amongst friends & acquaintances. Her Burrito Pop Kickstarter fundraise generated enough funding to get version 1 to market. Collect Data Consistently to Shorten Feedback Loops Setting up short feedback loops is also critical. The more quickly you can get feedback from the market on your idea, the better, as compound interest applies to the iteration of products. You’re better off iterating 100 times on your offering, than spending 100s of hours on developing one version. It’s beneficial to keep an eye on metrics that are key indicators of growth & usage. At Visible, we measure key indicators of product engagement and conduct regular customer development calls when we build new product offerings. Mike, our CEO, will take demos and sit in on calls as we build. You can adopt the same mentality as you work to find product/market fit. Build Quickly to Iterate Quickly You can only iterate as fast as you can build. Using best practices for product development, we at Visible work in 6 week cycles where we choose key initiatives and ship product quickly. It’s key to have your product team working well together to ensure that your team is free to ship product on a consistent basis. Ryan Singer of Basecamp’s Shape Up provides an outstanding framework to help you ship product more quickly with less stress and headaches. The Visible product team endorses this process of development as it has helped us ship consistently on big projects every 6 weeks. Be Ok With Changing Your Mind As Winston Churchill said: “To improve is to change; to be perfect is to change often.” It’s critical to avoid the ‘sunk cost fallacy’ – continuing to invest in products just because you’ve already spent time or money on them. You must be willing to abandon projects or initiatives that no longer make sense for your business. Before you have product market fit, you cannot be too stubborn about the route you want your company travel. If Stewart Butterfield at Slack would have insisted on developing a video game, he could never have built the workplace app that runs thousands of companies around the world. This is challenging to do as a founder, as you and your team may need to abandon things you’ve worked hard on in exchange for something different. One of the greatest skills an early stage founder can have is inspiring their team to change directions when it’s needed. Finding product market fit is the first challenge of building a company. If you stay focused on users, operate in a large enough market, and keep iterating, you’ll always have a chance. Once you have it, it’s time to pour more talent and capital onto the fire to grow your business – but that’s a topic for another day.

In a SaaS business, it’s critical to understand how your sales and marketing spend is affecting your annual recurring revenue (ARR) growth. In order to better help you understand how efficiently you are growing you need to understand your SaaS magic number. So what is your SaaS magic number? The SaaS magic number is a way to evaluate whether or not you should continue to invest in customer acquisition, or take your foot off the gas. Related resource: How to Start and Operate a Successful SaaS Company Why Use the SaaS Magic Number? Lars Leckie popularized the ‘Magic Number’ as a SaaS metric in the mid-2000s, citing it as a way to help companies decide ‘how much gas to pour on the fire’ of your startup. Subscription businesses are fortunate to have clearly definable payback periods, but it’s critical to understand the influence of today’s spending on future performance. The magic number helps SaaS companies determine the impact of sales and marketing spending on ARR growth. So why track the SaaS magic number for startups? Understand Your Sales & Marketing Efficiency Ultimately your SaaS magic number is a metric intended to uncover just how efficient your go-to-market efforts are. By measuring your magic number, you’ll be able to better forecast future ARR growth and make sure your team is scaling in an efficient manner. Evaluate Where to Spend Because your magic number helps you understand your efficiency, you can easily translate this data to find the specific channels and go-to-market methods to put your focus, and dollars, behind. How to Calculate Your SaaS Magic Number There are many great resources that explain how the magic number is calculated. The SaaS CFO has an excellent in depth breakdown on the topic. Here is the SaaS magic number formula: (Current Quarter Revenue – Previous Quarter Revenue) *4 / Previous Quarter Sales & Marketing Spend Let’s say that you spend $100,000 on sales and marketing last quarter to create a monthly recurring revenue (MRR) increase of $25,000 for the quarter. This $25,000 will become $100,000 in ARR, provided that churn is minimal. In this case, your $100,000 in sales and marketing spend has earned you $100,000 in new ARR, resulting in a SaaS magic number of 1.0 for the quarter. This implies that you’ll pay back your sales and marketing expenses within a year. SaaS Magic Number Benchmarks A SaaS magic number of 0.75 or greater is said to be a sign that you should continue to invest in customer acquisition, while anything less than 0.75 means that you should reevaluate your spending. Many in the SaaS community view a magic number of 1.0 or greater to be ideal. However, you need to be careful not to view this in isolation. While the magic number is great at helping you determine how efficiently you can create new revenue, it won’t show the whole picture. Check out the SaaS magic number benchmarks below: Less Than 1 Between 0.75 and 1.0 is a relatively green zone and represents that you can continue to invest in your sales & marketing efforts. However, if you’re magic number is much lower than that there might be something noticeably wrong in your process. For example, churn could be abnormally high or your customer acquisition costs (CAC) might (learn more about CAC ratio here) not warrant your current pricing model. The goal here is to improve period over period to get closer to a magic number of 1 or greater. Equal to 1 As we mentioned above anything around 1.0, warrants further investment. Your current go-to-market process is likely working and it is time to start putting fuel on the fire. As Lars Leckie puts it, “if you are above 0.75 then start pouring on the gas for growth because your business is primed to leverage spend into growth.” Greater Than 1 If your magic number is greater than 1 you likely are building a well-run machine. Revenue growth should almost feel easy at this point. You should pour on more investment and can test new channels and customer acquisition models along the way. Other Metrics You Need To Use With the SaaS Magic Number Your magic number may be great, but it doesn’t tell the whole story – be sure to factor these metrics in when evaluating your sales & marketing spend. Churn Rate Is your churn rate low? If your sales and marketing expenses are helping you generate new ARR, it doesn’t matter how effective you are at acquiring new customers if you can’t keep them for long. Customer retention is key to a solid SaaS magic number. Gross Margins What are your gross margins? If you have high COGS (and thus, lower gross margins), then you should keep in mind that the sales and marketing expenditure payback period will be longer. Just because your magic number may be greater than 1, doesn’t mean you should ramp up spending on customer acquisition until you know how long it will take to truly pay back the cost of those new clients. Cash Flow How much cash do you have to spend? This may seem self explanatory, but you should be careful not to break the bank just because you’re efficient at acquiring new customers. Downturns and unexpected events happen – be sure you have your cash flow modeled and keep it in check. You won’t be able to service your new customers if you run out of cash. How to Track Your Key SaaS Metrics The SaaS magic number is only one of many metrics that you should be tracking – be sure to check out our Ultimate Guide to SaaS Metrics to make sure you’re keeping an eye on every area of your business. Track your key SaaS metrics, share investor updates, and engage your team all from Visible. Try Visible for free here.

What is Annual Run Rate? Annual run rate is the rough estimate of a company’s annual revenue based on existing monthly or quarterly data. Annual run rate has been around for a while, and is not to be confused with annual recurring revenue – an important metric for subscription business models. Both are sometimes abbreviated as ‘ARR,’ but you should know that annual recurring revenue only applies when you have monthly or annual subscriptions as a source of income. While annual recurring revenue is obviously useful for companies who sell yearly subscriptions to large enterprises, it can also be used to project total ARR for companies that sell a product with monthly recurring revenue. You can calculate this by simply multiplying MRR x 12. You should also exclude one-time on-boarding or setup revenue, and factor in your anticipated churn rate when creating annual projections. How to Calculate Annual Run Rate Annual run rate on the other hand can be used to project the future performance of any business. A company could use run rates to help calculate annual burn rate and prepare for future demand. Annual run rates are calculated by using current or past performance to estimate what your business will do in the future. For example, if you’ve done $100k in Q1 revenue and $150k in Q2 revenue, you could predict that you’ll do an additional $250k in revenue for the rest of the year, bringing you to an annual revenue run rate of $500k. Annual Run Rate Examples To help you illustrate how to calculate your annual run rate, we’ve put together an example below: For the example, we have $12,000 in monthly recurring revenue and 12 months in a year. So we take $12,000 x 12 months to equal an annual run rate of $144,000. When Are Annual Run Rates Useful? Tracking annual run rates tends to be more useful when you need to predict future demand, and also when calculating annual burn rates. Both of these situations require you to allocate resources properly for the health of your business. They can help you determine how much inventory you need to hold if you’re a DTC brand, or how many new sales reps you’ll need to hire if you’re an enterprise SaaS company. In addition to this, they can help you determine how much funding you’ll need to reach profitability. Predict future demand By keeping track of your annual run rate, you’ll be able to better predict future demand. This not only helps with hiring plans, go-to-market strategy, and operational metrics but will also help lay the groundwork for inventory and funding needs. Determine inventory needs An annual run rate is an easy way to project your inventory needs oven a given period of time. However, seasonal businesses or those with volatile growth should be cautious when using run rates. For example, Amazon should not use their performance during the holiday season to project annual revenue, just like you probably shouldn’t use your mid-pandemic April 2020 metrics to predict the rest of the year. Determine funding needs An annual run rate is also a great tool to help early-stage companies determine their funding needs and timeline. You’ll be able to keep a close eye on your cash efficiency. Or even better, you can demonstrate past and future success to entice potential investors with your ARR. When Shouldn’t You Use Annual Run Rate? As we briefly mentioned earlier, there are certainly a few downsides to ARR and reasons that companies should not track it. Seasonality Many industries face seasonality and changes in buying patterns throughout different seasons. For example, a D2C company that thrives during the holidays will not want to use their data from peak season as it will demonstrate unrealistic growth and revenue. One-time sales and expiring contracts Additionally, companies that have one-time sales or large onboarding fees should avoid using an annual run rate. One time sales will not correctly portray the actual go-to-market and sales figures to give you the data you need to make informed decisions. How to Use Run Rates Effectively At Visible, we recommend being conservative with your run rate calculations to maximize the quality of your decision-making. Be careful about annual run rates – they can lead to incorrect forecasting, as not every quarter is the same. Growth can be nonlinear and the past is not the future. Overly optimistic run rates can kill companies, so you should err on the side of overestimating your expenses, and underestimating revenue. Share your run rate with investors and team members using email Updates and automated Dashboards using Visible. Try Visible free for 14 days. Other Helpful Metric Resources: Our complete guide to SaaS metrics Another great primer on SaaS metrics with advice from NetSuite & HubSpot executives How to calculate your natural rate of growth Monthly Recurring Revenue (MRR) Explained: Definitions + Formulas Customer Acquisition Cost (CAC): A Critical Metrics for Founders

Finding Your SaaS Metrics The software-as-a-service industry has experienced rapid growth in the past few years. Typical SaaS companies have added staff at rates exceeding 50 percent a year. At the same time, not every SaaS company grows at the same rate. Rapid growth and the nature of this sort of business can also expose startups to certain vulnerabilities that other kinds of companies may not have to contend with. On the positive side, digital companies should have access to the right SaaS metrics in order to track and manage growth. Take a moment to understand these important performance indicators to make certain they’re properly collected and analyzed. With the explosion of the SaaS industry has come the explosion of the resources and data surrounding the industry. There are more SaaS metrics benchmarks available than ever before to make sure that your company is on the right track. Related Resource: Check out our free Google Sheet Template to track your key SaaS Metrics here. Related Resource: How to Start and Operate a Successful SaaS Company Churn Rates New companies may focus upon customer acquisition. Still, businesses almost always find they spend less keeping loyal customers than always having to seek new ones. The nature of SaaS billing makes it even more important to ensure customers keep renewing their monthly or annual subscriptions. Typical forecasting depends upon customers keeping their accounts active. With that in mind, consider a couple of churn rates to track: Customer churn rate: This simply refers to customers lost within specific time periods. Hopefully, you can also enhance these SaaS metrics with information about why the churn rate may have either spiked or declined under various circumstances. Revenue churn rate: A SaaS business model may include various prices, based upon the number of unique accounts or levels of features or services. Hopefully, customers upgrade over time; however, if they’re not, SaaS companies should find out why. Customer Value & Cost Metrics SaaS businesses should track various SaaS metrics that help them compare the costs and revenues associated with acquiring and keeping customers. This helps them understand if they need to improve marketing, retention, and various other areas. Customer Lifetime Value You can estimate the lifetime value of your customers by following these steps: Estimate your customer lifetime rate with this formula: 1/average churn rate. With an average churn rate of one percent, for example, your CLR would be 100. Divide monthly revenue by the number of customers to calculate your average revenue per account, or ARPA. For example, 100 customers and a monthly revenue of $100,000 would work out to an ARPA of $1,000. Finally, calculate the customer lifetime value, or CLV, by multiplying the ARPA by the CLR. In the example above, your CLV would be 1,000 X 100 = $100,000. You can use the CLV to help you estimate the lifetime value of each customer. Companies can also use this handy metric to illustrate their value to investors. Customer Acquisition Cost After estimating how much value an average customer contributes to a SaaS business, it’s important to balance that against the price of acquiring them. Obviously, businesses need to compare these two numbers to demonstrate their business model’s viability. To accomplish this SaaS companies track their customer acquisition cost. The customer acquisition cost is the monetary cost it takes to acquire one new customer. Presumably with a SaaS company the cost of acquisition will lower as they acquire more customers. Simply divide all marketing and sales expenses by the number of customers acquired during a given month. If a SaaS company spent $10,000 to gain 10 new accounts, the CAC would be $1,000. Related Resource: Customer Acquisition Cost: A Critical Metrics for Founders Months to Recover Acquisition Cost Figure out how long it takes for a business to recoup their acquisition costs by using customer acquisition cost, monthly gross margin, or MGM, and monthly recurring revenue. Your formula would look like this: CAC / (MGM X MRR). Acquisition Cost to Lifetime Value Ratio Such metrics as acquisition costs and lifetime value are only truly informative when compared to each other. Some financial experts will say that your LVR should exceed CAC by a factor of at least three. Ratios closer to one mean that you need to trim expenses. On the other hand, too large of a ratio may mean that you could spend more to gain even more business. Customer Scores Since SaaS businesses live and die by their ability to maintain customer subscriptions, they should consider SaaS metrics that help measure how well they keep customers active with their product subscriptions. For instance: Customer engagement: To create a customer engagement score, each business will need to figure out unique measures that apply to their product. Some examples could include how often customers login or stay logged in. Customer health — Net Promoter Score: Similarly, companies should create customer health scores using factors that may indicate the likelihood of keeping accounts active or letting them expire. Seeking input from various players, like sales and customer service, can help develop good customer health scores. Marketing Scores Since new companies need to focus mostly upon custom acquisition, marketing scores will offer important insights for both marketers and upper management. These SaaS metrics for marketing include: Qualified marketing traffic: As your customer base grows, so will your traffic. For marketing, you need to separate prospects from existing customers when you analyze website visitors. Qualified marketing and sales leads: Depending upon the SaaS product, the customer lifecycle can vary considerably. You can work to identify which step in the customer journey your leads are in. For instance, a qualified marketing lead may have already downloaded a marketing eBook or used a free demo. A qualified sales lead may have made a phone call and is ready for another contact. Lead-to-customer rate: Sales and marketing can evaluate their effectiveness by analyzing ratios that tell them how many of their leads turn into customers, how long that takes, and so on. Taking steps to improve LTC rates should increase revenues. Why SaaS Metrics Matter? Good SaaS companies have a great chance to boom as their business model grows more popular. Still, SaaS companies may have their own vulnerabilities. For instance, some companies struggle to manage rapid growth as much as they might struggle to manage slow growth. While a business onboards many new customers, they also need to keep on eye on pleasing the customers they have already attracted. At the same time, these digital businesses should have the luxury of easier metric collection. As is illustrated in the examples above, it’s not enough to simply collect gross numbers of website visitors or total revenue. Rapidly growing companies need to find the metrics that will help them make vital business decisions that can improve important business processes. That way, SaaS companies can attract investors, know who to hire, and adjust marketing and sales strategies to acquire and retain their customers. Related Resource: Top SaaS Products for Startups Related Resource: Who Funds SaaS Startups? Related Resource: 20 Best SaaS Tools for Startups The journey as a SaaS startup founder can often feel like you’re alone on the journey. Finding a reliable SaaS metrics benchmark can be an easy way to see how you are stacking up to your peers. With more data at our fingertips than ever before, there are more SaaS metrics benchmarks and tools available than ever before.

You can’t improve what you don’t measure. Implementing metrics at your startup is a surefire way to bring focus to your entire organization. As David Skok, General Partner at Matrix Partners, puts it, “One of the greatest things about putting in place the right metrics is that showing them to people will automatically change their behavior to try to improve the metrics. Furthermore, the metrics make it clear what levers they can use to change performance.” In addition to helping your team focus and grow. Metrics are often the first thing a potential investor will ask to see during a fundraise. As your company moves further and further through the venture fundraising lifecycle – from Seed to A to Growth rounds – the numbers gain importance in the overall story for the fundraise. How do you know what metrics to track for your startup? We’ve laid out a few basic metrics to get you headed in the right direction. Startup Sales Metrics Metrics are vital to track in every aspect of a startup but are especially important when it comes to sales. Generally speaking sales metrics can be measured on an individual, team, or organization basis. By setting up a strong system to track your sales metrics you will be able to make better informed go-to-market decisions. Revenue Metrics Revenue is the lifeblood of a for profit organization. Revenue can come in many shapes and sizes. There are startups that track monthly recurring revenue, annual recurring revenue, service revenue, and more. There are generally two types of revenue for a SaaS company – the first is Subscription Revenue (called MRR or ARR). This is product focused revenue that is recurring and predictable — especially if you are able to sign customers to longer term agreements. Investors prefer this type of revenue because it signals a high quality product with a path to long-term profitability. The second type of revenue is Services Revenue which often comes in the form on one-off (read: not predictable) consulting engagements or implementation fees. Because of the human-capital intensive nature of providing these services, they are far less profitable and scalable than Subscription Revenue. Related Reading: What is a Startup’s Annual Run Rate? (Definition + Formula) Annual Contract Value (ACV) ACV is “the value of the contract over a 12-month period.” If you are seeing an uptrend in ACV over time (which is generally the goal), then your company is likely doing one or many of the following things: Shifting to customers with a larger budget – more seats, usage, etc. Employing a more effective sales strategy to convince customers to invest more heavily in your product Building a product that continues to improve and provide increasing value Effectively upselling existing customers Increasing your annual contract value will allow your company to increase customer acquisition costs. Pipeline Value The pipeline value is exactly what it sounds like, the value of all active deals in your sales pipeline. For example, if you have 10 deals that are actively be sold but at different stages you can calculate the value of all deals with their likelihood of closing. For those 10 deals, let’s say they are all worth $100 and: 3 are new deals with a 30% chance to close 3 deals have sat a call and are interested in buying with a 50% chance to close 4 deals have received a contract and are ready to sign with a 90% chance to close That would be (3 new deals x $100 x 30%) + (3 calls sat deals x $100 x 50%) + (4 contract deals x $100 x 90%) = $600 in pipeline value. You can also break this number down by different stages. For example, the pipeline value of your new deals from the example above would be $90. Understanding your pipeline value gives you a good understanding of the health of your current pipeline and can help with future forecasts. Activity Sales Metrics Activity sales metrics can be used to track individual reps and teams efforts on a daily or weekly basis. A few examples of activity sales metrics would be number of phone calls made, emails sent, demos sat, etc. Tracking these numbers can be helpful for a few reasons. The first is so you can understand where an individual or team may be lacking if they are struggling to hit quota or numbers. They can also be used to create and build a predictable cadence with your potential customers. This data can be used to understand where and when your customers are buying to improve the likelihood of closing a potential customer. Startup Marketing Metrics Setting up and tracking marketing metrics can be an intimidating endeavor. There are countless metrics to track. From individual campaigns to website traffic metrics there is a lot to cover. However, properly picking and tracking your startup’s marketing metrics will set up your go-to-market team for success down the road. Without getting too bogged down by the countless metrics, we’ve shared a few of our favorites below: Customer Acquisition Costs As we have written in the past, “Customer acquisition cost is the sum total of the amount that it takes your business to acquire a customer, including time from your sales representatives and marketing and advertising expenses. The customer acquisition cost definition: the total cost it takes to bring a customer from first contact to sale.” When you sit down and think about it, a lot goes into acquiring a new customer. You may be running multiple paid campaigns online, have a dedicated marketing team, and are contributing to in-person events. Let’s say that all of your cost dedicated to acquiring customers was $10,000 for the month and you brought on 50 new customers. That would be a customer acquisition cost of $200. In order to be a successful business that means that your CAC needs to be less than the revenue that your customers will bring in the door. CAC can tell you a lot about the sustainability of your business and marketing efforts. Related Reading: Breaking Down the Nuances of Annual Contract Value (ACV) Customer Lifetime Value In order to understand how sustainable your customer acquisitions costs are you need to understand the lifetime value of your customers. Customer lifetime value is the amount that the customer will spend with the business throughout their relationship with the business. Calculating lifetime value can change greatly depending on your business. For example, a SaaS company may have a customer paying a monthly subscription fee for years (their total lifetime value) where a real estate company may only make one transaction with a customer. Constantly tracking your LTV is a great way to keep your CAC in check and make sure you are the path to a profitable and sustainable business. LTV:CAC Ratio The LTV:CAC takes the 2 metrics mentioned above and keeps it to a digestible and easily understandable metric. You simply take your customer lifetime value and divide it by your customer acquisition costs. Ideally you want this number to be greater than 3. In general, a good lifetime value (LTV) to customer acquisition cost (CAC) is 3:1. If a customer is being brought in for $100, their lifetime value should be at least $300. Otherwise, you will be spending too much drawing in your customers; it will become important to fine tune, streamline, and optimize your marketing and your advertising. If your ratio is 1:1 this would mean that you are not making any money on new customers and will eventually run out of cash and go out of business. Related Reading: Unit Economics for Startups: Why It Matters and How To Calculate It Website Traffic No matter the business, essentially every business has a website today. Getting leads to your website is a great way to increase marketing and sales metrics across the board. Having a deep understanding your website traffic is a great way to tweak and improve content, website copy, button copy, paid campaigns, and more. You will want to understand where your website traffic is coming from. This is generally referred to as the source. This can generally be bucketed into organic, paid, social, referral, and direct traffic. Knowing where your traffic is coming from will help inform your decisions for where to spend your time and budget. Example of a startup website traffic breakdown below: Next you will want to understand what pages and content is converting well. For example, if you have a page on your website that converts to your call to action at a higher rate you will want to implement the ideas behind this page across the website. You should always be testing buttons and content copy to improve the likelihood of website users taking a specific call to action. Startup Customer Success Metrics Once you have a customer in the door, the work is not done. Being able to retain and grow your current customer base is the easiest way to grow your business. In order to do so, you need to have the right metrics in place so you can optimize what is working well when it comes to your customer success efforts. Net Promoter Score If you’re not familiar with NPS, it is used to gauge the loyalty of a firm’s relationships. It is used by more than 2/3 of the Fortune 1000 and it can measure a company, employer or another entity. You have likely received an NPS survey yourself. It’s a score of 1 to 10 usually with a question of “How likely are you to recommend X to your friend or colleague?” X could be your company, your customer support experience, an event, etc. If you answer 1 to 6 you are considered a detractor and at risk of customer churn, 7 & 8 are considered passives and 9 & 10 are considered promoters. To get your score take % Promoters – % Detractors. This creates a scale ranging from -100 to 100. 0 to 49 is considered good, 50 to 70 is Excellent and 70+ is World Class. To give you an idea for the 4 Major Airline Carriers in the US the scores are as follows: American: 3 Delta: 36 Southwest: 62 United: 10 On the other hand of the spectrum Apple clocks in at 89. Customer Churn Customer churn is the % of customers (also called “logos”) that you lose over a given period of time. Let’s say that you have 10 customers and lose 2 of them over the past month. That would be a customer churn rate of 20%. Keeping your churn rate in check is an easy way to grow the business. Revenue Churn On the flipside revenue churn is the % of revenue dollars that you lose over a given period of time. Taking the example in the section above, let’s say that the 8 customers who did not churn are paying $100 and the 2 customers that did churn are only paying $10. That would be a churn rate of 2.4% ($20 in churned revenue divided by $820 in total revenue). For world class companies they may actually have negative churn. This means that they are expanding current customers at a greater rate than they are losing customers. Customer Retention Rate As the team at HubSpot put it, “Customer retention refers to the ability of a company to — you guessed it — retain customers. Customer retention is impacted by how many new customers are acquired, and how many existing customers churn — by canceling their subscription, not returning to buy, or closing a contract.” Startup Operations Metrics At the end of the day, every metric impacts how your business operates. If the metrics above are not falling into place, the chances of your business operating for the long run are slim. You need to constantly have a deep understanding of where you company’s financials stand. Burn Rate As Investopedia defines it, “The burn rate is the pace at which a new company is running through its startup capital ahead of it generating any positive cash flow. The burn rate is typically calculated in terms of the amount of cash the company is spending per month.” Burn rate is an essential metric for every early stage startup leader to have their eye on. If your burn rate gets out of hand it is important to bring it in as soon as possible. Potential and current investors will have their eye on your burn rate to make sure you can sustain your current business practices for the future. Months of Runway Months of runway is exactly what it sounds like — the number of months your business can go on until it is out of cash. This is particularly important for early stage companies that have yet to find product market fit or are still in the early stages of developing their product. You can find your months of runway by taking your cash in the bank and dividing it by your net burn rate. Related Resource: How to Calculate Runway & Burn Rate Revenue per Employee While revenue per employee is not the most informative metric for internal purposes it can be a great metric to benchmark against your peers. For example, if you are a seed software company comparing yourself to a publicly traded software company many of your metrics will not be comparable. However, revenue per employee allows you to break it down by the size of your business and have a benchmark to share with internal employees. Related Resource: EBITDA vs Revenue: Understanding the Difference Total Addressable Market Total addressable market (TAM) is the estimated size of the market that your business can attack. As we wrote in our “Total Addressable Market Templated”, “TAM helps paint the picture of how big the opportunity is and if the business deserves to be venture backed.” While TAM is not something that is tracked regularly it is important to have an understanding of your addressable marketing when you set out to fundraise. Related Resource: A Guide to Building Successful OKRs for Startups Startup Metrics Dashboards/Templates Building A Startup Financial Model That Works Check out our blog post and guide for building your first financial model (plus, a template to help you size your potential market). Check it out here. Andreessen Horowitz Startup Metrics Template Andreessen Horowitz (a16z) is one of the most prolific VC investors in the market today. With investments across a number of different stages, sectors, and business models, they have seen first hand the lack of (and the need for) standardization in the way private technology companies track metrics and present those metrics to current and potential stakeholders. While their well known post, called “16 Startup Metrics“, dives deep into a number of great metrics for different business models – Marketplaces and Ecommerce in particular – we focused this video on SaaS metrics and how companies can use Visible templates along with other sources to benchmark themselves against others in the market and set themselves up for fundraising success. Check out a video explaining their metrics below: Rockstart Digital Health Accelerator Startup Metrics Template As with any early-stage company, focus is key. This is why Rockstart puts each company’s Most Valuable Metric front and center on the business dashboard. The primary reason to have a single, understandable metric for your business is to cut out the noise that comes with trying to track (and take action on) every single thing so that you can hone in on the one thing that drives your success. Read any startup post-mortem and you’ll quickly realize the negative impact that lack of focus can have on a company. In the digital health sector, companies don’t all fit within the same bucket from a business model perspective. The first Rockstart Digital Heal Accelerator class has hardware companies (like Med Angel), marketplaces (like Dinst), and SaaS businesses (like Mount) who all likely have different true north metrics.

In case you missed it, our CEO, Mike, wrote about Natural Rate of Growth in his weekly newsletter last week. In short, OpenView Labs recently featured a new SaaS metric they are coining “Natural Rate of Growth.” Read the original blog post form OpenView here. With the emergence of product led growth (PLG) companies there is a need for new metrics. The traditional SaaS metrics and growth rates are becoming out of date. Essentially, Natural Rate of Growth removes paid channels to calculate growth. As OpenView states, “One way to think about it is how fast a company grows without even trying—before layering on incremental investments in sales and marketing. We’re looking to pinpoint the percentage of your recurring revenue that comes from organic channels and starts with your product.” The formula to calculate Natural Rate of Growth is pretty simple. We’ve shared a Google Sheet template you can use to get started below: Natural Rate of Growth is simply 100 (X) Annual Growth Rate (X) % Organic Signups (X) % ARR from Products Annual Growth Rate = Simply your ARR growth from year to year % Organic Signups = From the OpenView blog post, “An organic signup is any signup that you didn’t have to pay for. These new users come from referrals, organic search, organic social and direct to your website.” % ARR from Products = From the OpenView blog post, “We’re looking for how much of your incremental recurring revenue comes from users who started by using the product, whether via a free trial, free product, open source product, freemium version or paid self-service product. Those users who immediately went down a sales-assisted path before getting into the product, for example those who requested a demo, do not count.” Simple enough. OpenView goes on share benchmarks for what a good, better, and best Natural Rate of Growth looks like. To give you an idea, Slack’s Natural Rate of Growth is 55%, Zoom’s is 93%, while HubSpot’s is 14%. Thanks to OpenView labs for creating something new and compelling. We hope the template helps you PLG/SaaS companies. Remember that market defined metrics can be a great proof point when fundraising and benchmarking your company to other SaaS companies.

Publishing this on the weekend…It would be a lie if I said I was A/B testing engagement. I ended up in an all day workshop Friday with some university students — it is always refreshing seeing what the next generation is working on. I digress… I recently came across a great blog post by OpenView called “The New SaaS Metric You Should Be Tracking“. In short, the argument is that current SaaS metrics are dated and as go-to-market models shift to product led growth we should evaluate these businesses with a new set of metrics. The core thesis is that PLG companies don’t have the same immediate growth rates as SaaS companies of yesteryear since they take time to compound. In the post, they introduce a metric called “Natural Rate of Growth”, how to compute it and some associated benchmarks. NRG is essentially a growth metric that removes paid channels such as BDRs, paid ads, events, etc. It primarily accounts for organic, direct and referral customers. We built an easy Google Sheet to calculate your rate here. I felt that this was worth sharing because many companies are adapting their go-to-market motion as the macro environment is changing. Market defined metrics are great proof points in fundraising as well as benchmarking yourself to other SaaS companies. Reminder: Here is the Google Sheet.

A few years back Dave Ambrose, Managing Partner at Steadfast Ventures, shared a template full of KPIs for ecommerce startups and founders. Since Dave’s original template, we’ve surveyed a few of our customers and friends to make some tweaks and add in new metrics. Special thanks to Dave and the team at Italic for allowing us to share their key KPIs. Italic is an ecommerce company that sells “unbranded luxury goods straight from the source.” With $13M in venture funding and customers across the globe it is vital for Italic to keep a tab on their metrics across the funnel. Related Resource: 10+ VCs Investing in E-commerce and Consumer Products Using the E-commerce Metric Template Related Resource: Key Metrics to Track and Measure In the eCommerce World The setup of the template should be simple and ready to use and customize to your own liking out of the box. We’ve set the data to monthly but feel free to change to weekly, quarterly, etc. From here the template is broken down into 4 major metric categories — Customer Breakdown, Acquisition, Behavioral, and Operational. Customer Breakdown Metrics This is a simple breakdown of where your new customers are coming from. For the template, we’ve included the following channels:These channels can vary from business to business to make any changes to the names/sources. Acquisition Metrics Acquisition metrics are particularly important when it comes to monitoring an ecommerce business. Our friends over at Italic like to break down their acquisition costs by paid and blended. This allows them to analyze how their paid channels are performing to the rest of the business. To learn more about customer acquisition costs, check out our guide here. Jeremy Cai, CEO of Italic, explains LTV tracking and benchmarking: “Typically it’s the amount of spend a customer has by a certain point (i.e. 6 month LTV, 12 month LTV, 2 yr LTV, etc) and people hope to see growth in this over time. For most higher ticket items, frequency will be close to 1 so they don’t expect LTV to grow very much but for subscription (toothpaste, razors) or higher replenishment items (consumables, beauty) then LTV growth is critical.” Behavioral Metrics These are the metrics that can help measure how customers are behaving and moving through the funnel once they have started the purchasing process. Put simply, Jeremy explains it as, “Basically it’s Add to Cart > Checkout Started > Checkout Completed, with a general 50% falloff between each step.” Operational Metrics These are the financial and operational metrics that make sure your business is healthy and running as expected. These metrics show how efficient your marketing and go-to-market efforts have been. Dave Ambrose keeps an eye on these metrics as an indicator to what ecommerce companies “are taking off.” Use Template Now Connecting the E-commerce Metric Template with Visible Naturally, the template connects to Visible in a few quick steps. Once you have the template added to your Google account head over to Visible. From here, you’ll want to make your way to the “Metrics” section and select “Add a new data source” –> “Google Sheet.” After you’ve authenticated your Google account you’ll see the ecommerce template. Select the sheet and the correct tab from the sheet. As the sheet is setup with the date in row 1 and metrics in column A there is no need to make any further changes. Click “save” and your new metrics will be brought into Visible. You can easily chart and share these metrics using Dashboards and Updates. Raise capital, update investors and engage your team from a single platform. Try Visible free for 14 days.