Tomasz Tunguz Explains Everything You Need to Know About SaaS Metrics in Under an Hour
We were blown away to see a record breaking number of attendees at our October New York Enterprise Tech Meetup (NYETM) this week (we even upgraded our Zoom account to accommodate everyone)! While it’s no secret that moving events online provides boundless reach, we’re excited to see that our enterprise tech community of Fortune 500 execs, enterprise startups, and investors is growing — including more NYC enterprise friends than before and those on the West Coast, Canada, Israel, Europe, and more.
We kicked off the event with a demo from DeVaris Brown, CEO & Co-Founder of real-time data platform Meroxa, and then headed into a special keynote presentation from Tomasz Tunguz, Managing Director at Redpoint Ventures on an essential (and his favorite) topic: SaaS metrics.
Watch Tomasz’s in-depth analysis on the top SaaS metrics founders need to measure in order to understand and optimize their business with the full webinar recording ➡️ here.
See Tomasz’s full keynote presentation below ⬇️ for metrics, real life case studies, templates, and more concrete takeaways.
His Main Takeaway?
SaaS company metrics are a CYCLE. While he originally thought SaaS companies were a series of funnels, after many recent conversations with modern leaders, he’s come to the conclusion the superior mental model is actually a cycle. The key difference is that funnels eventually end and drop customers into a new funnel, whereas cycles are a flywheel and build momentum.
5 Burning Questions, Answered
Q: Is it better to look at logo churn vs. revenue churn?
Both are important. Typically what you find in early-stage companies is that you’re really after velocity maximization — you want to capture as many customers as possible rather than a maximizing the value of an individual customer. When the renew period comes up at the one year mark, you don’t want to see a lot of churn. If you do, you have a leaky bucket and it’s time to take a step back. Revenue churn is also important, but likely the more important metric once a company scales.
Q: If there’s a leaky bucket, what’s a good strategy to diagnose and turn around SaaS products?
Once you have your high level metrics that you want to establish for your business, the next step is to figure out what their value ranges are. And that’s why benchmarks are important. Check out the Redpoint 2020 GTM survey here for 50+ slides on benchmarking metrics (span of control, sales quota, among others).
Q: Should you start tracking ARR growth rate once you get to a certain number in revenue?
Typically what we see is in the early days (sub 1 million in ARR), most companies are tracking on a monthly basis and a lot of companies target 10% to 20% growth per month (closer to 10%). Then after that, they start looking at ARR at an annual rate.
Q: Does customer marketing and prospect marketing have different goals and outcomes?
Yes! These are two different types of marketing. Prospect marketing is to someone who doesn’t know anything about a company and you need them to learn, understand and love the company. Customer marketing is when you’ve already engaged with someone, but want them to recommend you. Both of these exist on the customer lifecycle journey. This is one of the more important things we recommend startups to do and is key part to product marketing: Determine how do I get a customer from not knowing us to recommending us? The messages are going to differ meaningfully for both types of marketing.
Q: Can you share your calculation for net dollar retention (NDR)?
The standard NDR is: (Gross Profit in Q2 — Gross Profit in Q1) / Sales in Marketing in Q1. The idea is you want to calculate the marginal gross profit given the sales and marketing spend in Q1. The reason we do this is, for example, Twilio operates with 50% gross margins and GitHub operates with 90%+ gross margins, and you can’t treat those dollar retention figures the same for marketing spend. See more in the GTM survey is here.
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