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Growth Investing Mastery SaaS Metrics by Kelvestor, Kelvin Seetoh, Kelvin Soh, Jonathan Ang

The document outlines a tutorial on evaluating Software as a Service (SaaS) businesses, focusing on key metrics such as the Rule of 40, LTV/CAC ratio, churn rate, and time to recover customer acquisition cost (CAC). It provides exercises for calculating these metrics for a specific company, Altigen, and compares them against industry benchmarks. The summary also highlights the importance of understanding these metrics to predict the long-term viability and profitability of SaaS businesses.

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47 views42 pages

Growth Investing Mastery SaaS Metrics by Kelvestor, Kelvin Seetoh, Kelvin Soh, Jonathan Ang

The document outlines a tutorial on evaluating Software as a Service (SaaS) businesses, focusing on key metrics such as the Rule of 40, LTV/CAC ratio, churn rate, and time to recover customer acquisition cost (CAC). It provides exercises for calculating these metrics for a specific company, Altigen, and compares them against industry benchmarks. The summary also highlights the importance of understanding these metrics to predict the long-term viability and profitability of SaaS businesses.

Uploaded by

mondmond88
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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Software as a Service (SaaS)

A Process to Compound Ridiculous Wealth

Tutorial 2 (July)
Evaluating SaaS businesses
Giving Credit

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Legacy vs SaaS

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SaaS

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It is going to get worse before it gets better

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It is going to get worse before it gets better

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It is going to get worse before it gets better

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It is going to get worse before it gets better

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How do we know it will eventually work out?

Metric 1: Rule of 40

Revenue growth rate


+
FCF margin
or
EBIT margin
or
Gross margin

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How do we know it will eventually work out?

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Exercise Time

Find out the


Metric 1: Rule of 40
for Altigen

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Hands on: Find out the Rule of 40 for Altigen

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Hands on: Find out the Rule of 40 for Altigen

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How do we know it will eventually work out?

Metric 2: LTV / CAC = >3x

LTV = Lifetime Value


LTV=(ARPA x Gross Margin %) / (Churn Rate)

CAC = Customer Acquisition Cost


CAC = Sales and Marketing Expenses / New customers
added

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Exercise Time

Find out
Metric 2: LTV/CAC
for Altigen

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Hands on: Find out the LTV/CAC for Altigen

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Hands on: Find out the LTV/CAC for Altigen

Metric 2: LTV / CAC = >3x

LTV = Lifetime Value


LTV=(ARPA x Gross Margin %) / (Churn Rate)

(20.92*0.68*12)/0.045 = 3793

CAC = Customer Acquisition Cost


CAC = Sales and Marketing Expenses / New customers added

CAC = (2149)/(18799-13828) = 432.31

LTV/CAC = 3793/432.31 = 8.77

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How do we know it will eventually work out?

Metric 3: Churn Rate

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How do we know it will eventually work out?

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How do we know it will eventually work out?

Customer Concentration Risk!

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How do we know it will eventually work out?

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How do we know it will eventually work out?

Metric 3: Churn Rate

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Exercise Time

Find out
Metric 3: Churn Rate
for Altigen

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Altigen Churn Rate

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Exercise Time

Find out
Metric 3:Churn Rate
for Twilio (NASDAQ:TWLO)

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Find out Churn Rate for Twilio (NASDAQ:TWLO)

Churn Rate = 100% - 97% = 3%

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How do we know it will eventually work out?

Metric 4:
Or Dollar Base Net Expansion Rate

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How do we know it will eventually work out?

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How do we know it will eventually work out?

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How do we know it will eventually work out?

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How do we know it will eventually work out?

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How do we know it will eventually work out?

Metric 4: Negative Churn Rate happens when upsells


in the period is larger than revenue quit in period

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Exercise Time

Find out
Metric 4: Negative Churn/Dollar Base Net Expansion Rate
for Twilio (NASDAQ:TWLO)

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Find out Negative Churn/Dollar Base Expansion Rate for TWLO

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How do we know it will eventually work out?

Metric 5:

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How do we know it will eventually work out?

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How do we know it will eventually work out?

Metric 5:

Time to recover CAC= CAC/ARPU*12

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Exercise Time

Find out
Metric 5: Time to recover CAC
for Altigen

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Find out Time to recover CAC for Altigen

LTV/CAC = 15.7
CAC = (LTV/15.7)
CAC = (3905/15.7) = 248.72

Time to recover CAC = CAC / (ARPU * 12)


Time to recover CAC = 248.72 / (20.92*12) = 0.99 years = 11.8 months

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Find out Time to recover CAC for Altigen

CAC = (2149)/(18799-13828) = 432.31

Time to recover CAC = CAC / (ARPU * 12)


Time to recover CAC = 432.31 / (20.92*12) = 1.72 years = 20.66 months
Conservative

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Summary

Criteria Altigen

1. Rule of 40 >40 45.5 ✅

2. LTV/CAC >3 15.7 ✅


8.77 ✅

3. Churn Rate <5% 4.5% ✅

4. Negative Churn Rate <0% - -

5. Time to Recover CAC <12 months 11.8 months ✅


20.66 months ❌

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End
Thank You

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