SaaS Pricing & Churn Prediction

Transcription

1 SaaS Pricing & Churn Prediction AWS Software Business Leader Forum Philipp Behre, Solutions Architect AWS Florian Garlet, Account Manager AWS 2016, Amazon Web Services, Inc. or its Affiliates. All rights reserved.

2 Is SaaS more complex than traditional businesses?

3 Is SaaS more complex than traditional businesses?

4 Standard Perpetual Software Model Customer Acquisition Costs and Revenue are aligned Note: For simplification cost of capital is not reflected Source: EMEA ISV Team

5 SaaS Model Customer Acquisition Costs and Revenue are decoupled Source: a16z.com

6 In the long Run the SaaS Model brings more Revenue 100" 80" 60" 40" 20" 0" Year"1" Year"2"" Year"3" Year"4"" Year"5" Perpectual"model" SaaS"model" Gain for service vendor 300" 250" 200" 150" 100" 50" 0" Lower entry barrier for customer Break even period Year"1" Year"2"" Year"3" Year"4"" Year"5" Cumula9ve"revenue"Perpetual"model" Cumula9ve"revenue"SaaS" Note: For simplification cost of capital is not reflected Source: EMEA ISV Team

7 Customer Live Time Value Churn is a major Influencer Customer)Churn 10% Interest)rate 10% LTV/CAC 2,5 500) 400) 300) 200) 100) 0) 9100) 9200) Y1) Y2) Y3) Y4) Y5) Y6) Y7) Y8) Y9) Y10) Y11) Y12) Y13) Y14) Y15) Gross)Margin) Live)Time)Value)(LTV)) Customer)AcquisiKon)Cost)(CAC)) LTV=(Annual Recurring Revenue x Gross Margin) / (Customer Churn% + Discount Rate%) Source: AWS EMEA ISV Team, a16z.com

8 Managing Customer Churn is a leaky Bucket Problem Source: AWS EMEA ISV Team, a16z.com Price per liter: Customer Acquisition Cost Liters lost per hour: Customer Churn à In the early days of a SaaS business it is less costly to reduce churn than to acquire new customers à This is why SaaS companies invest in customer management functions ahead of revenue to retain and expand on existing customer base

9 Focus on Revenue Churn or Customer Churn? $ small accounts $ customers MRR of $55, large accounts $500 If 10 customers are lost: $500 10% Customer Churn $0 If 9 out of 10 customers were small accounts: 3.4% Revenue Churn $ Source: forentrepreneurs.com

10 Maximize your Investment in Customer Success Management You need to make a smart decision Let churn happen overall cost of retention is higher than acquisition of new customers (with similar potential) Prevent churn investing in measures to retain a customer provides the better value to the company (financial and/or other KPIs) Start a mission to get even closer to your customers

11 Churn Prediction for SaaS Companies is a key and continuous Process Collection & Storage Analytics Take Action Measure Success Collect à Store à Analyze à Repeat

12 Collect Data for Churn Prediction Metrics Sources Formats Analysis Renewal Rate Monthly Recurring Revenue Relational Structured Machine Learning Number of active Users NoSQL Unstructured Reporting User Session Duration Web servers Text Dashboards Number of active Jobs Mobile Apps Binary Sentiment Transaction Value 3 rd party feeds Near Real-time Clustering Gross Merchandizing Value Batched Optimization Hours or Protection provided

13 Three Types of Data-Driven Decision Making Retrospective Analyze historical trends to know what's happening in the app Inquisitive Discover latent user behavior to shape product or marketing decisions Predictive Anticipate user behavior to enhance experience

14 Collect à Store à Analyze à Repeat Track result deploy measures select measures Yes Retain? No Keep /track collect data store data probable churn Risk? Aggregate /transform data

15 Collect à Store à Analyze à Repeat Track result deploy measures select measures Yes Retain? No Keep /track collect data store data aggregate/t ransform data probable best measures? probable churn Risk?

16 Collect à Store à Analyze à Repeat Track result deploy measures select measures Yes Retain? No Keep /track collect data store data aggregate/t ransform data probable best measures? probable churn Risk?

17 Continue learning 1. Understanding and managing churn is a crucial business process 2. Integrating Machine Learning is easier than you think 3. Continuously learn from your customer and from your actions 4. Decrease cost and effectiveness of churn prevention via automation Start today!!

18 Key takeaways to manage your SaaS business 1. Think big and acquire new customers fast most tech markets follow a winner takes it all logic 2. Measure a SaaS business with appropriate metrics and do not compare just revenue with your existing business in the first years! 3. Start to collect SaaS customer metrics now. 4. Start with a simple churn prediction model and extend it over time. Source: AWS EMEA ISV Team