The document discusses how the shift to subscription and SaaS revenue models impacts marketing strategies for B2B software companies. It notes that SaaS revenues are expected to grow significantly as a percentage of total software revenues by 2016. This changes the focus from acquiring individual customers to growing lifetime customer value through retention and upselling. The key metrics for SaaS companies are now customer acquisition cost, lifetime value, and churn rate rather than one-time sales. Marketers must focus on reducing customer acquisition costs, increasing lifetime value through retention and advocacy, and decreasing churn in order to improve profitability and drive sustainable revenue growth.

1. NumberOne in a Series
SaaS and the
New Revenue
Imperative for
B2B Software
Companies
eDynamic, Friday, February 21, 2014
0

2. 1
2
NEW REVENUE
IMPERATIVE
LIFETIME CUSTOMER
VALUE
3
THE COST OF CHURN
4
MARKETER‟S
IMPERATIVE
eDynamic, Friday, February 21, 2014
1

3. 24%
SUBSCRIPTION REVENUE
(INCLUDING SAAS) TO GROW
AT A 17.5% COMPOUNDED
ANNUAL RATE, REACHING
24% OF TOTAL SOFTWARE
REVENUE BY 2016
IDC, 2013
eDynamic, Friday, February 21, 2014
2

4. The Business of Software is Changing
Annual Growth
Although SaaS software
revenues represented only
4.9 % of total revenue in
2011, it will reach 24% of
total revenue by 2016.
20%
18%
17.5%
16%
14%
12%
10%
8%
6%
4%
2%
4%
3
0%
License
Growth
eDynamic, Friday, February 21, 2014
PwC Global 100 Software Leaders, May 2013
Subscription
Growth

5. How Accounting Impacts How We Market
„Classic‟ software revenue
recognition
„New‟ software
revenue
recognition
Evolving SaaS-based Revenue Models
Licensing
SaaS
Upfront Recognition
Subscription / Ratable
Services Delivery
Subscription / Ratable
e.g. Computer Associate
e.g. Microsoft
e.g. Saleforce.com
ASC 985-605
(SOP 97-2)
ASC 985-605
(SOP 97-2)
ASC 985-25, ASC 985-10-S99
(EITFs 00-21/08-1) (SAB 104)
FASB Accounting Standards Codification (ASC)
BDO, SaaS Revenue Generation Models, June 2010
eDynamic, Friday, February 21, 2014
4

6. How Accounting Impacts How We Market
„New‟ software
„Classic‟ software revenue
revenue
This is
recognition
recognition
where 24%
Evolving SaaS-based Revenue Models
of your
Licensing
SaaS
revenue will
Services Delivery
Upfront Recognition
Subscription / Ratable
be coming
Subscription / Ratable
from by
e.g. Computer Associate
e.g. Microsoft
e.g. Saleforce.com
2016
ASC 985-605
ASC 985-605
ASC 985-25, ASC 985-10-S99
(SOP 97-2)
(SOP 97-2)
(EITFs 00-21/08-1) (SAB 104)
FASB Accounting Standards Codification (ASC)
BDO, SaaS Revenue Generation Models, June 2010
eDynamic, Friday, February 21, 2014
5

7. Thinking About Marketing Differently
Acquisition
Retention
1
2
3
4
5
6
Awareness
Search
Evaluate
Commit
Value
Advocate
The customer
recognizes a
need and
looks for a
solution
The customer
looks for a
solution to
satisfy their
needs
The customer
weighs the
alternative
solutions
available
The customer
commercially
commits to
the solution
and vendor
The customer
realizes the
value the
vendor
provides
The customer
communicate
s the value to
their industry
peers
 Has a
problem to
solve
 Goes to a
tradeshow
 Reads an
article
 Searches
Google for
solutions
 Visits a store
 Accumulates
knowledge of
options
 Researches
vendors
 Talks to
peers
 Engages a
discussion
forum
 Compares
pricing
 Talks to
references
 Commits to
the vendor
 Value is
realized
 Differentiatio
n is
appreciated
 Talks to
peers
 Engages in a
discussion
forum
 Further
commits to
the brand
eDynamic, Friday, February 21, 2014
6

8. Thinking About Marketing Differently
Acquisition
1
Awareness
2
Retention
3
Search
Evaluate
Marketing was
focused on influencing
and
The measuring a
The
single
customer large event—
customer
the sale
looks for a weighs the
The
customer
recognizes
a need and solution to
looks for a satisfy their
solution
needs
 Has a
problem to
solve
 Goes to a
tradeshow
 Reads an
article
 Searches
Google for
solutions
 Visits a store
 Accumulates
knowledge of
options
eDynamic, Friday, February 21, 2014
alternative
solutions
available
 Researches
vendors
 Talks to
peers
 Engages a
discussion
forum
4
5
6
Commit
Value
Advocate
The
The
The
customer
customer
customer
commercial realizes the communicat
ly commits
value the es the value
to their
to the
vendor
industry
solution
provides
peers
and vendor  Value is
 Compares
pricing
 Talks to
references
 Commits to
the vendor
realized
 Differentiatio
n is
appreciated
 Talks to
peers
 Engages in a
discussion
forum
 Further
commits to
the brand
7

9. Thinking About Marketing Differently
Acquisition
1
Awareness
2
Retention
3
Search
Evaluate
Marketing was
focused on influencing
and
The measuring a
The
single
customer large event—
customer
the sale
looks for a weighs the
The
customer
recognizes
a need and solution to
looks for a satisfy their
solution
needs
 Has a
problem to
solve
 Goes to a
tradeshow
 Reads an
article
 Searches
Google for
solutions
 Visits a store
 Accumulates
knowledge of
options
eDynamic, Friday, February 21, 2014
alternative
solutions
available
 Researches
vendors
 Talks to
peers
 Engages a
discussion
forum
4
5
6
Value
Commit Now it must Advocate
influence a series of
The
The
The
small events— customer
customer
customer
ongoing sales communicat
commercial realizes the
ly commits
value the es the value
to their
to the
vendor
industry
solution
provides
peers
and vendor  Value is
 Compares
pricing
 Talks to
references
 Commits to
the vendor
realized
 Differentiatio
n is
appreciated
 Talks to
peers
 Engages in a
discussion
forum
 Further
commits to
the brand
8

10. Marketing in a SaaS World
Revenue Generation
Revenue Generation
Customer Acquisition
Pre-sales
Demand
Generation
Pre-sales
Sales
Engagemen Enablement
t
eDynamic, Friday, February 21, 2014
Customer Value creation
Support
Facilitation
After-sales
Engagemen
t
After-sales
Demand
Generation
9

11. Marketing in a SaaS World
Revenue Generation
Customer Acquisition
Our measure of
success was in
Customer Value
influencing the
creation
„big sale‟
Pre-sales
Demand
Generation
Pre-sales
Sales
Engagemen Enablement
t
eDynamic, Friday, February 21, 2014
Our familiar
marketing activities
After-sales
Support
focused on
Facilitation Engagemen
t
acquiring new
customers
After-sales
Demand
Generation
10

12. Marketing in a SaaS World
Revenue Generation
Customer Acquisition
Pre-sales
Demand
Generation
Pre-sales
Sales
Engagemen Enablement
t
eDynamic, Friday, February 21, 2014
Customer Value creation
Support
Facilitation
After-sales
Engagemen
t
After-sales
Demand
Generation
11

13. Marketing in a SaaS World
Revenue Generation
Our measure of
success is now in
Customer Acquisition
growing the
Customer Value creation
„lifetime value‟
Pre-sales
Demand
Generation
Our broadened
marketing
Pre-sales activities
Sales
Engagemen Enablement
focused on
t
customer value
creation
eDynamic, Friday, February 21, 2014
Support
Facilitation
After-sales
Engagemen
t
After-sales
Demand
Generation
12

14. Marketing in a SaaS World
Revenue Generation
Revenue Generation
(Customer Lifetime Value)
Our measure of
success is now in
Customer Acquisition
growing the
Customer Value creation
„lifetime value‟
Pre-sales
Demand
Generation
Our broadened
marketing
Pre-sales activities
Sales
Engagemen Enablement
focused on
t
customer value
creation
eDynamic, Friday, February 21, 2014
Support
Facilitation
After-sales
Engagemen
t
After-sales
Demand
Generation
13

15. Measuring Success in the SaaS World
Acquire
Customers
Retain
Customer
eDynamic, Friday, February 21, 2014
We know
how to do
this
Customer
Lifetime
Value
(LTV)
We will
learn how to
do this
We
measure
our
success
with this
14

16. 1
2
NEW REVENUE
IMPERATIVE
LIFETIME CUSTOMER
VALUE
3
THE COST OF CHURN
4
MARKETER‟S
IMPERATIVE
eDynamic, Friday, February 21, 2014
15

17. Understanding Customer Lifetime Value (LTV)
LTV can be simple or complex, but it is
foundational
Annual variable contribution per
customer
 Share of wallet
 Cost to serve
 Customer acquisition cost (CAC)
16
Bain & Company, Net Promoter System
eDynamic, Friday, February 21, 2014

18. Understanding Customer Acquisition Costs
(CAC)
“A deep understanding of your Sales and
Marketing investment is critical to the success
of an OnDemand (SaaS) business, and
requires the use of new metrics that were not
part of the traditional software scorecard”
Bessemer Venture Partners, Winter 2009
17
eDynamic, Friday, February 21, 2014

19. How Much Are People Spending on CAC?
(Annual Contract Value)
It takes over a
year to recoup
your CAC
18
eDynamic, Friday, February 21, 2014
Pacific Crest 2013 SaaS Survey

20. Time to Success Determined by CAC and LTV
19
SaaS Metrics 2.0
A Guide to Measuring and Improving what Matters,
January 2013, David Skok
eDynamic, Friday, February 21, 2014

21. Time to Success Determined by CAC and LTV
20
SaaS Metrics 2.0
A Guide to Measuring and Improving what Matters,
January 2013, David Skok
eDynamic, Friday, February 21, 2014

22. Time to Success Determined by CAC and LTV
If the customer
leaves before
month 14, we lose
money
If we lose more customers
than we keep by month
14, the companies loses
money on each customer
eDynamic, Friday, February 21, 2014
Recouping
customer
acquisition and
support costs
21
SaaS Metrics 2.0
A Guide to Measuring and Improving what Matters,
January 2013, David Skok

23. Field Sales is Still the Most Expensive
22
eDynamic, Friday, February 21, 2014
Pacific Crest 2013 SaaS Survey

24. Field Sales is Still the Most Expensive
>$1
<$.7
5
More Digital Engagement Reduce CAC
eDynamic, Friday, February 21, 2014
Pacific Crest 2013 SaaS Survey
23

25. How Marketers Can Affect Success
1
2
Reduce the
CAC!
 Customer break
even
 Revenue growth
 Profitability
Increase LTV
duration!
 Guaranteeing
customer break even
 Increasing MRR
(Monthly Recurring
Revenue)
 Increasing
profitability per LTV
eDynamic, Friday, February 21, 2014
24

26. How Marketers Can Affect Success
Drive break
even sooner
1
2
Reduce the
CAC!
 Customer break
even
 Revenue growth
 Profitability
Increase LTV
duration!
 Guaranteeing
customer break even
 Increasing MRR
(Monthly Recurring
Revenue)
 Increasing
profitability per LTV
eDynamic, Friday, February 21, 2014
25

27. 1
2
NEW REVENUE
IMPERATIVE
LIFETIME CUSTOMER
VALUE
3
THE COST OF CHURN
4
MARKETER‟S
IMPERATIVE
eDynamic, Friday, February 21, 2014
26

28. Understanding Churn
In a SaaS business, churn is
the opposition to growth
Churn can prevent growth
as the customers increase
27
SaaS Metrics FAQ, Joel York, Sept. 2012
eDynamic, Friday, February 21, 2014
SaaS Metrics, Joel York, Feb. 2010

29. Churn is Primary Metric Tracked by
Companies
28
2013 Totango Annual SaaS Metrics Survey
eDynamic, Friday, February 21, 2014

30. Churn is Primary Metric Tracked by
Companies
For existing
customers, c
hurn is the
primary
metric
29
2013 Totango Annual SaaS Metrics Survey
eDynamic, Friday, February 21, 2014

31. Why is the Focus Churn So Important?
Churn is the primary component of the revenue
equation that constantly works against you!
The „ideal‟ is to have
no churn
Manageable churn
can still lead to profit
Break-even cannot
be attained with
unmanageable
churn
SaaS Profitability, Joel York, Feb. 2010
eDynamic, Friday, February 21, 2014
30

32. Churn is So Dangerous, But…
31
2013 Totango Annual SaaS Metrics Survey
eDynamic, Friday, February 21, 2014

33. Churn is So Dangerous, But…
Executive priorities
diminish the
Marketer‟s focus
on reducing churn
32
2013 Totango Annual SaaS Metrics Survey
eDynamic, Friday, February 21, 2014

34. Low Churn + High Upsell = Revenue Growth
33
2013 Totango Annual SaaS Metrics Survey
eDynamic, Friday, February 21, 2014

35. Low Churn + High Upsell = Revenue Growth
Companies with
the greatest
growth
rates, also have
the lowest
churn…
34
2013 Totango Annual SaaS Metrics Survey
eDynamic, Friday, February 21, 2014

36. Low Churn + High Upsell = Revenue Growth
…while
combined with
upselling to
create the
strongest
growth
35
2013 Totango Annual SaaS Metrics Survey
eDynamic, Friday, February 21, 2014

37. 1
2
NEW REVENUE
IMPERATIVE
LIFETIME CUSTOMER
VALUE
3
THE COST OF CHURN
4
MARKETER‟S
IMPERATIVE
eDynamic, Friday, February 21, 2014
36

38. The Marketers Imperative
Acquisition
Retention
1
2
3
4
5
6
Awareness
Search
Evaluate
Commit
Value
Advocate
The
customer
recognizes a
need and
looks for a
solution
The
customer
looks for a
solution to
satisfy their
needs
The
customer
weighs the
alternative
solutions
available
The
customer
commerciall
y commits to
the solution
and vendor
The
customer
realizes the
value the
vendor
provides
 Researches
vendors
 Talks to peers
 Engages a
discussion
forum
 Compares
pricing
 Talks to
references
 Commits to the
vendor
 Value is
realized
 Differentiation
is appreciated
The
customer
communicat
es the value
to their
industry
peers
 Has a problem
to solve
 Goes to a
tradeshow
 Reads an
article
 Searches
Google for
solutions
 Visits a store
 Accumulates
knowledge of
options
eDynamic, Friday, February 21, 2014
 Talks to peers
 Engages in a
discussion
forum
 Further
commits to the
brand
37

39. The Marketers Imperative
Acquisition
Retention
1
2
3
4
5
6
Awareness
Search
Evaluate
Commit
Value
Advocate
The
customer
recognizes a
need and
looks for a
solution
The
customer
looks for a
solution to
satisfy their
needs
The
customer
weighs the
alternative
solutions
available
The
customer
commerciall
y commits to
the solution
and vendor
The
customer
realizes the
value the
vendor
provides
 Researches
vendors
 Talks to peers
 Engages a
discussion
forum
 Compares
pricing
 Talks to
references
 Commits to the
vendor
 Value is
realized
 Differentiation
is appreciated
The
customer
communicat
es the value
to their
industry
peers
 Has a problem
to solve
 Goes to a
tradeshow
 Reads an
article
 Searches
Google for
solutions
 Visits a store
 Accumulates
knowledge of
options
eDynamic, Friday, February 21, 2014
 Talks to peers
 Engages in a
discussion
forum
 Further
commits to the
brand
38

40. The Marketers Imperative
Acquisition
Retention
1
2
3
4
5
6
Awareness
Search
Evaluate
Commit
Value
Advocate
The
The
The
customer
customer
customer
recognizes a
looks for a
weighs the
need and
solution to
alternative
looks for a
satisfy their
solutions
solution
Getting to needs „sale‟
the big available
The
customer
commerciall
y commits to
the solution
and vendor
The
customer
realizes the
value the
vendor
provides
 Has a
problem to
solve
 Goes to a
tradeshow
 Reads an
article
 Compares
pricing
 Talks to
references
 Commits to
the vendor
The
customer
communicat
es the value
to their
industry
peers
 Searches
Google for
solutions
 Visits a store
 Accumulates
knowledge of
options
eDynamic, Friday, February 21, 2014
 Researches
vendors
 Talks to
peers
 Engages a
discussion
forum
 Value is
realized
 Differentiatio
n is
appreciated
 Talks to peers
 Engages in a
discussion
forum
 Further
commits to the
brand
39

41. The Marketers Imperative
Acquisition
Retention
1
2
3
4
5
6
Awareness
Search
Evaluate
Commit
Value
Advocate
The
The
The
customer
customer
customer
recognizes a
looks for a
weighs the
need and
solution to
alternative
looks for a
satisfy their
solutions
solution
available
Getting to needsbig „sale‟
the
The
customer
commerciall
y commits to
the solution
and vendor
The
customer
realizes the
value the
vendor
provides
 Has a
problem to
solve
 Compares
pricing
 Talks to
references
 Commits to the
vendor
 Value is
realized
 Differentiation
is appreciated
The
customer
communicat
es the value
to their
industry
peers
 Goes to a
tradeshow
 Reads an
article
 Searches
Google for
solutions
 Visits a store
 Accumulates
knowledge of
options
eDynamic, Friday, February 21, 2014
 Researches
vendors
 Talks to peers
 Engages a
discussion
forum
 Talks to peers
 Engages in a
discussion
forum
 Further
commits to the
brand
40

42. The Marketers Imperative
Acquisition
Retention
1
2
3
4
5
6
Awareness
Search
Evaluate
Commit
Value
Advocate
The
The
The
customer
customer
customer
recognizes a
looks for a
weighs the
need and
solution to
alternative
looks for a
satisfy their
solutions
solution
Getting to needs „sale‟
the big available
The
customer
commerciall
y commits to
the solution
and vendor
The
customer
realizes the
value the
vendor
provides
 Has a
problem to
solve
 Compares
pricing
 Talks to
references
 Commits to the
vendor
 Value is
realized
 Differentiation
is appreciated
The
customer
communicat
es the value
to their
industry
peers
 Goes to a
tradeshow
 Reads an
article
 Searches
Google for
solutions
 Visits a store
 Accumulates
knowledge of
options
 Researches
vendors
 Talks to peers
 Engages a
discussion
Make the „sale‟ forum
eDynamic, Friday, February 21, 2014
 Talks to peers
 Engages in a
discussion
forum
 Further
commits to the
brand
Continue the „selling‟
41

43. Where is the Marketing in All These
Number?
Understand Marketing‟s „levers‟ to deliver
profitability
Customer acquisition
continues its
important—reducing
CAC is now a focus
Upsell and cross-sell
add value to existing
customers
Monthly Recurring
Revenue or Annual
Contract Value drive
revenue, but
duration drives LTV
eDynamic, Friday, February 21, 2014
Managing churn
affects profitability and
break-even
42
Why Churn is SO critical to success in SaaS, David Skok, May 2012

44. In the next
presentation, we will dive
into and explore how
marketing can
influence, and even
control, these levers of
profitability
43
eDynamic, Friday, February 21, 2014

45. Connect with us
www.edynamic.net
twitter.com/edynamic
contact@edynamic.net
youtube.com/1999dynamic
1-877-339-6264
facebook.com/edynamic.net
44
eDynamic, Friday, February 21, 2014