Business Performance

By | June 23, 2012

Cloud Business Performance

Cloud Producers

2012 June PEG:

Refer to: 2011_SaaS_Benchmarking_Report.pdf (application/pdf Object), a useful business performance benchmarks for publicly traded SaaS Producers.  However, there is no differentiation between SaaS Producers (on the basis of dominant operating monetization strategy and the consequent primary value proposition and/or investor expectations with regards to risk/reward and profit margins).  Also, the data has not been extrapolated to address other types of Cloud Producers (e.g. IaaS) or privately-held SaaS Producers.

ROI Calculation

2012 July 7 PEG:

Refer to: Three Steps to Calculating B2B Social Media ROI for a quick marketing ROI calculation that I’ve reworked for cloud.

  • Determine the customer lifetime value (CLV – or lifetime value (LTV)) of a sale.
  • Average revenue generated per buyer (converted to net present value (NPV)?). Average revenue is the sum of the average upfront revenue (initial one-time charge (OTC)) and the product of the average contract length multiplied by the average recurring revenue. For example, $10K OTC + (3 yrs avg contract length * $30K ARR) = $100K LTV.

  • Determine the average customer acquisition cost (the investment).
  • Divide the current year’s sales (and marketing?) costs (or costs to reach steady state?) by the number of new buyers (vs. new contracts which may include contracts with existing buyers due to service expansion negotiated by the Delivery Executive – i.e. those contracts are not due the efforts of sales and marketing). For example, ($10M sales costs / 20K leads) * (40 leads / sale) = $20K sales costs / sale

  • Calculate the ROI
  • Subtract the average sales cost per sale (average customer acquisition costs, investment) from the CLV (average revenue per sale), divide the result by the average sales cost per sale, and multiply by 100%. For example, [($100K LTV – $20K average sales cost per sale) / $20K average sales cost per sale] * 100% = 400%

Another variant is to calculate the additional revenue generated by the Delivery Manager (assumes that Sales is not engaged for the life of the contract) and to factor that by the additional Delivery costs (both numbers converted into NPV?). Or determine ROI of customer retention.

Churn and Retention

A discussion in the LinkedIn SaaS Group talks about metrics based on churn and retention.  The first clarification is in regards to whether the retention is of customers or employees.

Employees

Longevity of new entry level hires; of professional hires.  Hire referrals from existing employees and from past employees.  Retention of employees via acquisitions.  Employee career development.

Customers

Stickiness of Buyers.  How many sign up for multi-year contracts.  Contract renewal.  Contract expansion.  Growth in profitability per buyer.  Growth in users.  Pipeline conversion.

Related Metrics

See the post on Sustainability Metrics


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