This will truly be an intimate forum to discuss market trends, metrics and benchmarks that resulted from the CFO Metrics Survey launched earlier this year.
2. Summit Intro
“Share data, unblemished
and unbiased, in an effort to
provide transparency and
define best practices, but
also create a network for
ongoing collaboration that
lives on long past this
afternoon.”
@tylersloat#CFOsummit
4. of companies believe their customers
are switching to new consumption
models.
4 / 5 83%
73%
84%
@tylersloat#CFOsummit
5. Businesses are Responding
US 13%28%
AU 24%43%
UK 25%23%
Over half of companies are in the process
of changing or have changed the
way they price and deliver their goods and
services.
51%
@tylersloat#CFOsummit
6. “Innovation is the
hottest word in
business…
…but most of the discussion centers
around products and services. The
more profound challenge for most
companies now is imagining a new
business model, a new answer to the
fundamental question, how do we
make money?”
- Fortune Magazine
@tylersloat#CFOsummit
8. “…vast majority (81%) felt they worked at
companies that viewed their finance operation as
a ‘strategic business partner,’ involving the CFO in
top-level decision making as never before…”
- Fortune Magazine
@tylersloat#CFOsummit
9. 10%0% 5% 15% 20% 25% 30% 35% 40%
38%
26%
Traditional tasks
19%
20%
Directly assisting the board/audit committee
18%
24%
Business strategy and other commercial work
15%
16%
Market and shareholder information
10%
14%
Enhancing the efficiency of the finance function
Current
3 years time
How CFOs are allocating their tasks…
…today and tomorrow.
Survey
@tylersloat
10. “There’s been an evolution in America in terms of the
CFO. The CFO is increasingly being called upon to weigh
in on much more strategic decisions involving the
company, including everything from transactions to
providing assessments of emerging markets and
analyses that go far beyond looking at the books and
determining whether there will be enough cash to support
investment.”
- Fortune Magazine
@tylersloat#CFOsummit
11. “CFOs’ responsibilities go well beyond finance into
balancing compliance and risk management with
business-performance goals. They have an important role
to play in reading and understanding evolving business
drivers and helping their companies seize opportunities.
CFOs now spend more time on strategy and operating
issues and less on budgeting and accounting.”
- Business Week
@tylersloat#CFOsummit
12. o b s o l e t e .
Your business model is
everything you think you know
Assume this:
doesn’t work anymore.
about staying competitive
@tylersloat#CFOsummit
14. The old model
Build a widget. Sell the widget. Recognize your revenue.
simple.
@tylersloat#CFOsummit
15. The new model
Build a widget. Recognize your revenue.
complex.
Sell the widget.
Acquire customers
& monetize
relationships.
free trial
paid
subscriptio
ns
add on
upgrade
renewal
@tylersloat#CFOsummit
16. The new model
Build a widget. Recognize your revenue.Sell the widget.
Acquire customers
& monetize
relationships.
free trial
paid
subscriptio
ns
add on
upgrade
renewal
complex.
@tylersloat#CFOsummit
24. THIS DOESN’T
MEAN WE HAVE
A HALL PASS.
THERE STILL
NEEDS TO BE
AN OWNER.
“The benchmark for
these metrics don’t exist
in the public domain.
They are not GAAP.”
@tylersloat#CFOsummit
29. Growth is best measured by GEI.
$100M Growth Exp.
1.5 GEI
=
$65M ARR
Growth
Therefore, if GEI is 1.5 and $100M
is spent on growth:
Growth Expense
ARR Growth
=
Growth
Efficiency
Index (GEI)
Growth Expense
GEI
=ARR
Growth
@tylersloat#CFOsummit
30. • incurred to maximize ACV
• traditionally sales & marketing efforts
• sometimes customer success
• incurred to support the organization
• traditionally COGs, R&D, admin functions
GROWTH SPEND NON-GROWTH SPEND
@tylersloat#CFOsummit
31. The model interpreted…
COGS,
G&A,
R&D
50%
Recurring
Profit
Margin
Sales,
Marketing,
Customer
Success
BREAK EVEN
0%
100%
50%
ARR Non-Growth
Expense
Growth
Expense
BREAK EVEN INVEST IN
FIELD &
GROW
FASTER
Sales,
Marketing,
Customer
Success
OR
With a GEI of 1.0 and
churn at 15%, you’ll
have 35% growth while
maintaining break even.
But only if deals are
collected upfront and
you’re cash flow
positive.
But, if your GEI is 2.0
you’re growth will slow
to 10% to break event.
“
“
@tylersloat#CFOsummit
35. Lower
development,
support and
maintenance
costs
Predictability
allows longer-
term thinking
No quarter-end
pricing games
Oh yeah,
investors give
you a higher
valuation
Downside: longer
ramp to scale
from lack of up
front license fee
At scale,
subscription models
are superior in every
aspect
“Ultimate Software
will never make
money.”
- Competitor CEO in 2002 … just as ULTI stock price
was on the cusp of a 12 year, 14-fold advance
#CFOsummit
36. In 2008, a globally over levered world
collapses. US GDP falls 0.9%, the
S&P 500 drops >50% peak to trough.
Perpetual license companies saw
roughly 5-15% y-o-y declines in
quarterly revenues.
On average, subscription firms’
revenue growth decelerated to
~18% from 30%+.
Since the 2009 bottom, subscription
software revenues and stock prices
are up nearly 400% and 575%.
Perpetual and mixed models’
revenue growth and stock price:
70% and 280%
The Great Recession: Subscription wins
@tylersloat#CFOsummit
37. INTROSubscription goes mainstream…
• 30-50 subscription software IPO’s over
the next two years seems reasonable.
• Hottest areas:
• Vertical SaaS
• Security/Systems Software
• Analytics
• Next Generation Marketing
• Caution:
• High valuations allow features to
think they’re companies.
0
10
20
30
40
50
60
2005 2010 Today
Number of Public Saas Companies
@tylersloat#CFOsummit
38. • Bookings / New ARR
• Gross Customer Churn
• Mix of S&M spend that is growth oriented
• New ARR = forward year increase in subscription
revenue + gross dollars churned in current year
• Assume all S&M spend is driving new ARR
• S&M Efficiency = $ S&M Spend / $ New ARR
• Range of Public SaaS Companies: $0.67 - $2.30
DATA WE DON’T GET HOW WE THINK ABOUT IT
SLIDE HEADERS&M Efficiency: a challenge for public investors
Conclusion: the trend line is up
2012 2013 2014 2015E 2016E
Average S&M / $ARR $0.99 $1.02 $1.18 $1.27 $1.40
Based on Canaccord Genuity analysis of the 30 largest SaaS companies; leverages SEC filings, Capital IQ estimates, and Canaccord Genuity estimates
@tylersloat#CFOsummit
39. S&M
Efficiency
Best in Class 2015E
Veeva $0.67
Descartes $0.76
Q2 Holdings $0.80
Ultimate Software $0.94
Constant Contact $0.95
Analysis based on SEC filings, Capital IQ estimates, and Canaccord Genuity estimates
Best in class
@tylersloat#CFOsummit
40. The level to which operating
margins revert to if you were to cull
all growth spend.
2014A 2015E 2016E
Subscription Services Revenue $5,014 $6,055 $7,295
Growth 31% 21% 20%
Subscription Gross Margin 83.4% 83.7% 84.5%
Subscription Gross Proft $4,182 $5,068 $6,164
R&D Expense (672) (819) (997)
G&A Expense (577) (672) (780)
Recurring Gross Profit $2,933 $3,577 $4,388
Recurring Profit Margin 58.5% 59.1% 60.1%
* Based on Canaccord Genuity projections
Salesforce.com: Top of the Pack and Improving
C2015E
Sub Rev
Recurring
Profit Margin
1 CRM 6,055 3,577 59.1%
2 N 599 347 57.9%
3 PAYC 201 113 56.2%
4 CSOD 306 165 54.1%
5 NOW 830 428 51.5%
6 VEEV 308 158 51.2%
7 LOCK 560 279 49.8%
8 SPSC 142 69 48.3%
9 MKTO 182 87 48.1%
10 OPWR 133 64 48.0%
11 CVT 173 83 47.7%
12 ULTI 515 242 47.0%
13 CTCT 374 169 45.3%
14 HUBS 155 70 45.2%
15 SQI 102 45 43.8%
Recurring Proft Margin
Analysis based on SEC filings, Capital IQ consensus,
and Canaccord Genuity estimates
Recurring Profit Margin
@tylersloat#CFOsummit
42. It’s no wonder that investors
value net dollar retention.
• Most public companies don’t provide gross
customer retention
• Instead, they give net dollar retention, which is
inclusive of upsell
Ticker
Dollar-Based
Retention
1 VEEV 138%
2 BOX 126%
3 NOW 125%
4 HDP 125%
5 QTWO 122%
6 ZEN 120%
7 NEWR 120%
8 ULTI 110%
9 PAYC 110%
10 MKTO 109%
VEEV
BOX
NOWHDP
QTWO
ZEN NEWR
ULTI PAYC
MKTO
WK
CSLT
AMBR DWRE
OPWR
ECOM
FIVN
RNG
CVTMRIN
SQI
BNFT
CSOD SPSC HUBS
IL
CRM
LOCK
CARB
LOGM
CTCT
70%
80%
90%
100%
110%
120%
130%
140%
1.0x 3.0x 5.0x 7.0x 9.0x 11.0x
DollarBasedRetention
EV/C2015E Revenues
DBR is based on most recently available
publicly stated information
Valuation based on Capital IQ consensus and Canaccord Genuity estimates
@tylersloat#CFOsummit
43. • In March 2014, investors transitioned
from GAAP to GARP
– That means from “Growth at any Price” to
“Growth at a Reasonable Price”
• A quick trick we like to use: Revenue
Growth + FCF Margin
– Gold, Silver, Bronze: 50%, 40%, 30%
– Change in G+M is an important indicator as
well
Many trending down as growth rates decelerate
faster than margins ramp
An Easy Screen:
growth +
margin
@tylersloat#CFOsummit
55. Pipeline
• How do you drive pipe
• How much do you need
• Quality vs. Quantity
• How long does it last
@tylersloat#CFOsummit
56. Pipeline: What does your funnel look like?
Of those, 76% clarified that as
ORGANIC
(website, free trials)
INBOUND
is the largest individual source
of pipe (46% listed as primary
source)
40%
Investing in your website
pays off – more than 40%
of website visits were
unique for majority of
respondents
46%
76%
@tylersloat#CFOsummit
57. web visits
IB leads
new S1 pipeline
S2 accepted
bookings
ratios
total to unique
web to IB leads
IB lead to IB opp
S1 to S2
win ratio
%
%
%
%
%
%
%
Pipeline: What does your funnel look like?
@tylersloat#CFOsummit
63. Acquire
• How do you model
• How do you compensate
• How do you drive efficiency in
your sales org
• Accelerate, digest or pull back
64. 77%of respondents sell
primarily through a
direct sales approach 52%use a self
service model
65%offer their prospects a
free trial period
20%However, only 47% said less than
20% convert from free trial to
customer
Acquire: Selling Approach
@tylersloat#CFOsummit
65. Acquire: How do you organize
Sales team segmentation stack rank:
Industry
Verticals31%
Customer
Rev26%
#
Employees21%
@tylersloat#CFOsummit
67. Acquire
What percentage of your total sales opportunities close?
1-2% 3-5% 6-10% >10%
5%
37%
21%
36%
@tylersloat#CFOsummit
68. Acquire: How to model ramp?
30 days 60 days 90 days > 4 mos
21%
24%
41%
14%
@tylersloat#CFOsummit
69. Acquire: How to model sales cycle
10 days4%
30 days16%
60 days32%
120 days29%
19%
@tylersloat#CFOsummit
70. Acquire: How to model quota attainment
> 40 %
12% 10%
40 – 60%
39%
60 – 80%
31%
80 – 100%
7%
> 100%
@tylersloat#CFOsummit
71. Acquire: What’s your over-assign
100M
in quota on the
street
35% >$90MEXPECT
36% $80-90MEXPECT
25% $70-80MEXPECT
2% $50-70MEXPECT
2% < $50MEXPECT
@tylersloat#CFOsummit
72. ACQUIRE: What is OTE to quota?
16% < 150k
26% < 200k
35% < 250k
13% < 300k
10% > 300k
$1
M
@tylersloat#CFOsummit
73. Acquire: What’s your quota based on?
19%
18%
48%
15%
MRR
TCV
ACV
Other
@tylersloat#CFOsummit
74. Acquire: What are your commission rates?
9% 5%
35% 6- 10%
37% 11 - 15%
12% 20%
CHEAPSKATES
THE NORM
THE NORM
BREAKING THE BANK
@tylersloat#CFOsummit
75. ACQUIRE: Expose, communicate, align
Current Qtr (Current Week)
Current
Week
Capacity
Corporate
Street
Closed
#Deals $ACV
RVP / AVP
Commit Best
Case
Technical Buy Off
# Deals $ACV
In Contracts
# Deals $ACV
@tylersloat#CFOsummit
76. Deploy
• Profit or break even
• What KPIs should you hold
• the implementation team
accountable to
• Alignment between Sales
Professional Services
• When does subscription start
@tylersloat#CFOsummit
77. Deploy
Have an
implementation
component to their
solution
Charge less than 10%
of initial year ACV for
the implementation
75% commence the
subscription on contract
signing
Of customers go live
within 30 days of
contract signing
@tylersloat#CFOsummit
78. Run
• Churn is the Achilles heel of any
subscription business
• Who owns renewals
• Support verses customer
success
• SLAs and uptime commitments
• How does a company learn
from service tickets
@tylersloat#CFOsummit
79. Run: Are your customers committed?
15%Monthly
4%Semi-
Annual
73%1-2 years
> 2 years 7%
Contract Terms
81. Expand
• Who owns the upsell
• Sales efficiency depends on
farming the existing base
• New usage, new divisions, new
products…can all be leveraged
as upsell strategy
@tylersloat#CFOsummit
82. Expand
Upsells are important – over
40%
20%
>60%
14%
of respondents
generate more than
of their bookings from upsells
of companies are changing pricing
At least annually
Only every 3 years
Sales reps are the key – companies generating higher upsells assign reps to manage
@tylersloat#CFOsummit
84. Conclusion
“As CFOs we have an
opportunity and challenge.
Own the business model and
drive strategic decisions within
our organizations.”
@tylersloat#CFOsummit
85. Conclusion
“To be successful, we need
information and collaboration.
That is why we are here
today.”
@tylersloat#CFOsummit