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Metrics: Talking About Churn And Retention In The Board Room
Moderator: David Spitz – PacCrest Marc Linden, CFO at Intacct Kathy Lord, VP Sales/CSM at IntacctDave Kellogg, CEO at Host AnalyticsAlison Homlund, VP CSM at Host Analytics
Materials Prepared forPanel Discussion
Metrics: Talking about Churn and Retention in the Boardroom
Note: Includes only customers with >$5k ACV and annual / multi-year contracts
$ implied ACVcustomers t-1 endt end
$ implied ACVcustomers t-1 endt-1 end
Selected Public SaaS Company Churn Reporting Methodologies
Source: Company filings
COMPANY METRIC METRIC FORMULA
Subscription revenue
retention rate
Revenue retention rate
Renewal rate
Annual subscription
revenue retention rate
Dollar-based net expansion rate
Note: Excludes commissions owed and customers with sidekick-only subscriptions
$ sub revenuecustomers q-4q
$ sub revenuecustomers q-4q-4( )Trailing 4
Qtr. Avg.
$ implied MRRcustomers t-1 endt end
$ implied MRRcustomers t-1 endt-1 end
$ recurring revenue customers t-1t
$ recurring revenue customers t-1t-1
# vehicles addedcustomers t begt-
# vehicles customers t begt beg
# vehicles lost customers t begt
)(
$ recurring revcustomers t-1 endt
$ recurring revcustomers t-1 endt-1
$ ACV non-renewing
$ ACV expiring100% -
t
t
$ annualized sub revenuecustomers t-1 endt end
$ annualized sub revenuet-1 endcustomers t-1 end
$ agg. MRRcustomers t-1 endt end
$ agg. MRRcustomers t-1 endt-1 end
$ contracted MRR customers m begm end( )Wtd
Avg. $ contracted MRR customers m begm beg
* 12
4
Apples & Oranges!
5
Source: Company filings
Company Name Value at IPO
Q2 128.0%
Q2 3.5%
Rally Software 127.0%
Responsys >100%
RingCentral ~99%
SciQuest 100.0%
ServiceNow 96.0%
SuccessFactors >90%
The Ultimate Software Group 96.0%
Veeva 187.0%
Workiva 97.3%
Workiva 108.4%
Yodlee 123.0%
Zendesk 120.0%
Zendesk 122.0%
Company Name Value at IPO
2U 144.4%
Amber Road 102.0%
athenahealth 97.0%
Bazaarvoice 89.7% / 91.9% (9 mo.)
Benefitfocus >95.0%
Box 130.0%
Brightcove 93.0%
Carbonite 82.0%
Carbonite 85.0%
Castlight 109.0%
ChannelAdvisor >100%
Constant Contact 97.4%
Cornerstone OnDemand 95.8%
Cvent 97% Subscription115% Marketing
Demandware >100%
Company Name Value at IPO
Eloqua >100%
ExactTarget 110.0%
Five9 100.0%
Fleetmatics 1.8%
HubSpot 90.3%
Jive Software 95.3%, excluding upsells113.6%, including upsells
Kenexa 89.6%
LifeLock 85.4%
LogMeIn ~80%
Marin Software >100%
Marketo ~100%
New Relic 115.0%
Paycom 91.0%
Paylocity >92%
Proofpoint 90.0%
Key Factors to Question
6
Source: Company filings
• External vs. internal?
• Gross vs. net?
• GAAP vs. ACV / ARR?
• What is the base period?
• Dollar vs. unit / customer?
• Pure subscription vs. inclusion of other potentially recurring business?
• Bonus: Costs to acquire / support upsells & expansions?
156 respondentsNote: Survey responses as of June / July 2014
Annual Gross Dollar Churn“What percentage of total ACV on a dollar basis churns in a given year (excluding upsells)?”
# of Responses
Annu
al G
ross
Dol
lar
Chur
n
Median ≈ 6%
59
48
20
13
16
0 10 20 30 40 50 60 70
<5%
5-10%
10-15%
15-20%
>20%
7
Results from 2014 Pacific Crest Private SaaS Company Survey Results
243 respondentsNote: Survey responses as of June / July 2014
30
15
15
39
34
35
75
0 20 40 60 80
<90%
90-95%
95-100%
~100%
100-105%
105-110%
>110%
Median ≈ 103%10
0%+
Net
Ret
enti
on
(Ups
ells
grea
ter
than
chu
rn)
Net
Chu
rn
(Chu
rn g
reat
er
than
ups
ells)
Net Dollar Retention (Including Upsells and Expansions)“How much do you expect your ACV from existing customers to change,
including the effect of both churn and upsells?”
# of Responses
Results from 2014 Pacific Crest Private SaaS Company Survey Results
8
CAC on New Customers vs. Upsells vs. Renewals
9
“How much do you spend on a fully-loaded sales & marketing cost basis to acquire $1 of ACV from a customer?”
Source: 2014 Pacific Crest Private SaaS Company SurveyNote: Survey responses as of June / July 2014Respondents: New ACV from New Customer: 159, Upsell to Existing Customer: 151, Renewals: 153
$0.60
$0.10 $0.06
$1.44
$0.46
$0.26
$1.07
$0.18$0.12
$0.00
$0.25
$0.50
$0.75
$1.00
$1.25
$1.50
New ACV f rom NewCustomer
Upsell to ExistingCustomer
Renewals
75th percentile
25th percentile
Median
10
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• Preliminary churn numbers issued at end of quarter• Forecast whether late renewals will happen or not• May revise numbers if we get surprised (which rarely
happens)
• Upsell is taken in the quarter it happens• Period churn vs. contract churn
• Early renewals have no effect on net churn/renewal rates
• Aside: can ergo calculate two CAC ratios• One inclusive of CS costs and expansion (all new ARR)• One exclusive of CS costs and expansion (new business
• What are you measuring – contract or customer?• Renewal Rates - # vs $
• Define what expected renewals are (CMRR)• Define what is a lost customer• Define period of measurement and frequency
• Monthly measurement, reported as annualized rate • Reported in period where contract is due (not pure CMRR)• # lost if not normal renewal; $ equals delta CMRR (archive makes it
• Handling Early renewals• Reps are encouraged to get renewals ASAP• Count in the period when renewal is due for both # & $• Quota & commission in period when renewal is due.
Can’t game compensation• Handling Late renewals
• Expected # & $ moved into the next period (no change in subscription period)
• 20% commission penalty for reps & no accelerators (e.g. 80%)
• Still working to separate up-sells/downgrades & price increases/decreases at line item.