March 10, 2017
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Redpoint Ventures partner and former Google Product Manager, Tomasz Tunguz specializes in benchmarking software/platform-as-a-service companies. The celebrated investor and blogger once credited with Google’s social media monetization, including the Google-MySpace partnership, now works with Expensify, Axial, Looker and a slew of other startups, ensuring they’re on track for revenue growth.
In a recent Forbes article he admitted that the way he learned about trends and companies was to “get [his] hands dirty with data, process it in R, and see how the numbers of a company compare to others.” Tunguz presented his thoughts on As-a-Service Benchmarks to Heavybit members along with some practical advice about growth.
COMMON TRAITS IN PUBLICLY TRADED *AAS COMPANIES
In his presentation Tunguz offers,”There are about 46 publicly traded as-a-service businesses and there’s a strong correlation between revenue growth and the value of the business. In order to be a strong business, you have to grow really fast. The most valuable businesses have grown 200% in the last year. If you look at them by number of years since founding…they started at $0 and within five years they had about $75M dollars on average”.
These are the patterns that both investors and founders strive for. Tunguz goes on to differentiate between different sales strategies, pricing models, and perhaps most importantly, the value of mitigating customer churn.
TIME TO RECOUP CUSTOMER ACQUISITION COST
In one of his last slides he offers a look at when SaaS companies should aim to recoup their marketing and sales. Based on a 24 month customer cycle, the green segments represent contribution margin or profit, and the blue “CS” represents customer success/support spending.
Tunguz explains that rather than simply waiting for a customer’s 24-month cycle to end, it’s best to spend 3 months of each customer’s incoming revenue on retaining them. That’s where the “CS” spend comes in.
If executed well, the result should be an increase in the length of the customer relationship, in addition to an increase in pure revenue.
For a look at Tunguz’s full 22-minute presentation, check out the Heavybit library.