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[Music] hello everyone welcome to insights Ali in the scenes about start-up basics we will try to understand and learn from insights shared by various phenomenal people around startups product growth sales strategy and everything in between my name is Arun Verma and let's get started in today's episode we will talk to Nick Franklin who is the founder and CEO of chat bubble chart Bogle is a subscription analytics tool for reporting on your most important SAS metrics we will talk about all the basics as metrics in this episode with Nick so here is the episode hello Nick welcome to insights Ali and thanks a lot for taking out some time for doing this really appreciate it oh thanks for having me Erin LA great to be on there so Nick would you like to start with telling us your story in brief from your early career to thin disc and then shot mogul and what are you doing these days sure yeah so I actually I mean early career I actually studied computer animation and then illustration in college but I was getting knots towards the end of my studies not so convinced that I want to go into a creative field but was getting more and more excited by software and the technology industry so I spent some of my college days creating like a social network for for for artists and illustrators when they could share that work and then as soon as I graduated I got a job at a company called true knowledge which became heavy which was a kind of artificial she was like 2007 artificial intelligence natural language question answering service that was eventually acquired by Amazon and became part of like the Amazon Alexa team oh that was that was in Cambridge UK so I was my first real job that wasn't you know washing dishes or working in a shop or something like that Papa's salaried office job after graduation and then while I was at true knowledge I was sort of in a knowledge engineer role and then a product management role and while I was in the product role I purchased Zendesk as part of my work than ever just fell in love with that software and after Zendesk in 2009 they raised their series a and they they began to hire more people I was one of the earlier hires of Zendesk and they hired me to run their European sort of sales and customer service I did that for nearly two years and then I moved to to Asia and ran the Zen desks asian asian expansion which was obviously we we opened up an office in Tokyo and then in Manila and the Philippines to service the Southeast Asian market mostly so that was really fun and exciting fine I was almost five five years at Zendesk you know growing from like nine person team to about I don't know exact number when I left it was I left about forty four years ago I was about seven hundred people and we'd gone public so that was an exciting journey and all that time my my heart was still kind of in product and building things and designing things and wanting to make things I guess you know for the I just kind of seen this need for something like cha mogul which is the business that I run today which was that you know we had built out using some sort of early cloud BI tools some kind of dashboard for measuring our subscription revenues rmr our growth but it was maybe not particularly the best user experience and was in real time and if I I couldn't really edit things myself so it was like you know I couldn't if I wanted to see you know what's the average revenue per customer in like Hong Kong versus Singapore or India something like that it was hard to like get that get those answers myself so I kind of felt like you know there's got to be something better that you you know working at a Zen desk whereas NS was really kind of like trying to bring the kind of consumerization of software into a new domain which was help you know helpdesk customer service software and I just felt like you know it hasn't it just hadn't happened yet in the BI business intelligence analytics space and it still is sort of opportunity to had to create something that brings that same those same values that Zendesk at around simplicity good design ease-of-use lower price lower barrier to entry into something that it hadn't really those values hadn't really made it into the into the domain of analytics yet so I just felt as that opportunity though and then so yeah four years ago made the made the decision to leave then desk and kind of go all-in on on chart mogul and move to Berlin here and and for the last four years have been your building charm ogle and and doing that ever since so let's start with a topic for today which is around understanding and decoding SAS metrics for startups so when one startup is in very early stage what type of metrics would you suggest founders key but tab on and how to think about it like what did you do in chat more hole itself in your very early stage just curious to know yeah I think I mean I guess what you're trying to get to or validate in the early stage is you know do you have something that people want yes I mean it's basically about engagement right like you know how many people are you know signing up for to try to your product maybe it's a beta version or just an early early version how many people are actually signing up is it significant and then others people able to onboard and are they able to and then they are they coming back and I think like if they're coming back that's like the number one thing like are they are they loading back in right and if they're logging and how often they log back in is it every day is it like you know is it just once they just log in and they leave and then come back since then that's a major problem right so I think the main thing is just are they coming back like you've got them to your website you've signed up for an account they've gone through the onboarding process so they don't all those things which proves that they're actually whatever you whatever the promise of your landing page or whatever was was saying that the thing was going to do was compelling enough to get them to I'll go through the onboarding process but is it somehow it's the value sticky enough that they actually come back and they want to keep getting that a value so that was the main thing how we measured it I think we just ran some manual reports off our database of like who you know who was coming back how frequently they had logged in they might have had intercom early days as well which tells you some basic stuff around around that but we were just validating with like okay so we had a you know a couple of honey I'm product hung totally beater and I how how often are they logged and back in have they invited their colleagues or their colleagues logging in every day we were fairly lucky in that we could see fairly early on pre-revenue that people seem to like what we've made and they were logging back in like frequently like sometimes several times a day they were checking back in on cha mobile to see like how the numbers had changed or to do some analysis makes sense okay one detour question so what is the difference between a KPI and a metric I mean I understand there could be many variations of interpretations but how would you like to use these terms KPI and a metric I mean you can turn you could anything you can measure or you can calculate you could call it a metric you know you could be but it might not be a key indicator of the performance of your company right key performance indicator is like all your department or whatever it is you're measuring right so it might be that you know you know you can measure something fairly arbitrary that might be a metric but you know like it just might not be meaningful so I think the idea of a key performance indicator is it's it is a metric but it's a metric that your organization has decided is is special right that has that has a special status of being something that shows has some you know indicates that some some part of your business is performing well or not well depending on it the metric is going in the right direction right right any examples well I mean you know something like number of free trial signups could be at the KPI or the number of the trial two paid conversion rate for example like are they converting from a trial to a to a paid account the onboarding rate you know what rate do they onboard that could be a KPI the churn rate you know so and then total metrics like you know you can have a metric for you know website the traffic right but I don't it doesn't really it's not really a KPI for us it might be a you know if you're a media outlet website traffic is probably really important but for us it doesn't it's not a really it doesn't move the needle in terms of like it's not something we look out regularly like how many what is the traffic on our website I couldn't tell you how much visitors that we get on our on our website because for us it's not really a KPI KPI for us it's more um how many leads do we get how many free trials sign up okay but it is still a metric right traffic is still big metric I think a lot of a lot of those things in Google Analytics of metrics but for us to be to be company that makes its money on selling subscriptions a lot of them heart really KPI is that we track super carefully right mixing Nick obviously when it comes to the entire start-up there are like multiple buckets of metric that needed to be tracked in analyzing we just discussed in very early stage it would be product usage related metrics right then later on you'll have to have some marketing related metrics also then overall financial or accounting related metrics then obviously all these buckets there are so that you that you guys also helped as businesses track all these mr ar-ar-ar so my question is how would you advise founders to think around this whole thing what are these different type of buckets in the first place and and which is which are the ones that are important in the early stage and how do you gradually move on to the including others as well yeah sure I mean I think there's a few different types right there's there's usage based metrics like health which generally is on measuring kind of like how are the users navigating around your website or inside your product right and that's usually using some sort of JavaScript embed or some sort of pixels or something to track usage and know the departments they care about those things mostly you know it's kind of traditionally marketing for the public facing stuff and then product for the for the in product stuff right and the things other things both of them care about tend to be a little bit different but quite similar like you might measure a funnel like people that go onto this landing page how many of them sign up and how many then completely steps etcetera or if it's in the product how many of them who you know activate this feature or you know create a new record or whatever do some complete some step in the product to get further onboard it and further invested in the product right and for that there's there's a ton of salt you know there's a ton of free and paid solutions out there and I think there's no I think as soon as you start having usage there's no reason not to embrace those so Google Analytics obviously the the obvious one it's free and everybody uses it on the paid side for engagement there's things like heap we use heap there's also Mixpanel and KISSmetrics and other things like that and then there's some that specialize more with mom in a more marketing focus and less product focus and there's some that are more product focus and less marketing focus like more product focus would be like amplitude in terms of like the sort of packaged bi prices there's a lot of things out there that cover the cover that you you know you might not need really early days one of these solutions I think we use heap for both the public from there and the in app I believe but and then then the other type of data you might be collecting is once you start getting trials or paying customers is revenue data and payment data which is where chart chart mogul and other products like chart mogul allow you to plug directly into your payment system be it stripe or Recurly or PayPal or iTunes Connect whatever you're using to build your customers import that revenue and payment data and get a ton of value you know will automatically measure em our our churn rate cash flows etc on top of the on top of the revenue data so and I don't there's any real reason not to start doing it right from the start because for example like our product is free up until you get past ten thousand dollars in MRO okay so it's there's no there's no downside really there to to using it was only upside you you get a ton of insight about your business for free and then if you talked about financial metrics I think I don't really think of finance financial metrics as metrics because they're kind of like almost you know the that they're kind of codified in like accounting principles and things like this like gap and ASAS see like 606 it's just like you kind of have to do this stuff to stay compliant as a business I think when you're very small and you have very slow revenues you can sort of do cash-based accounting and it becomes quite easy you can chart local can't do can show you that or you can pull a report directly from your for me even some people you your bank statement or whether how much or from stripe or some like this to allow you to do that but then yeah as you start to get it to a you know a million or the plus in in revenues you generally want to follow good accounting prep guidelines around you know how to recognize revenues and expenses and things like that we will offer a revenue recognition product but there's a ton of different products out there that allow you to do revenue recognition for for your finance financial financials but I think in the early days for the first year unless you're very successful usually most companies that we speak to end up just doing fairly basic accounting like cash-based accounting or some of that in the first year of business where they just they don't they're not worrying too much about you know getting like GAAP rev rec schedules set up right at UPS done I'm curious to know so all these MRA are our data what would be the upside in using like from the very first customer or like first ten customers when as you may suggested you should be using a tool like chart mogul from the very first group what could be the upside I'm introducing like a subscription analytics product right right like in the very like early stage when you are iterating your very first version of the product and you're just having like two digit customers what would be the upside I mean there's no I mean yeah like if you just have one or two customers it because there's there's not as much upside because you can kind of see that there in your billing system but once you start to get like maybe five 10 customers and you have a mix of annual and monthly you have to then do some calculation trying to calculate things like m RR and if maybe you get a customer cancel you start you know you then you can start to measure churn rate and it just done there's just a lot of you know average Rev so they're just a lot of different things that you kind of wanted once you start to get you know 10 20 30 customers it becomes at you either have to run exports okay and then every time you want to like real-time numbers you have to like update it with the latest data has a customer upgraded or downgraded or cancelled or have you got a new customer and they load their data in and why would you want to spend that time maintaining an Excel model to get your kind of you know main subscription metrics when you could simply plug in that's right and have it do it for you for free right so I think there's just time I guess the main upside is time saving I'm sure if you just have one or two customers maybe it's not like it's super valuable but you know it just just one of those things to not have to think about I suppose it's also fun to see your business grow in Shambala I think it's fun anyway actually I think it's a very nice pricing strategy also just hooking the user under what's your revenue number that you provide free product before ten thousand dollars and is nice so like you're just hooking your customers when they don't need that much but as and when they reach that stage when it's absolutely critical for them to be able to get these numbers they're already using genomic science mixing yeah and I mean it's aa otama people may never get there or take a long very long time to get there and that's completely fine to like perfect for me personally and for a lot of people at the company it's really fun to have like these thousands of people that I like just using the product digital nomads or just people are just starting out or just you know just people are doing just a smaller business or a side business or whatever it's just it's exciting it's exciting to have them and sometimes they share their stories with us or on Twitter and that's fun so it's a lot of it's about having some fun with giving back to startup community in yeah sure some of them do eventually upgrade to paid account and that's great in that supports our business model but if they'd ever do that's also totally so let's talk about these key metrics mrrreow kal TV and what not what is M are are any error and how what does it consists of its importance what does it say can you please elaborate sure I mean Mrs S stands for monthly recurring revenue it's sort of normalized version of your of your subscription revenues by normalized you might have some annual subscriptions in which case you'd divide them by 12 you know to get the mr r you might have some monthly subscriptions so that's just pretty much just a monthly price but their pet the customer is paying but you also might have some you know foreign currency subscriptions that you want to convert the current the current season to into a native into your primary currency your sell things like upgrades and downgrades and you want to sort of figure out like what is the you know and to normalize that and make it into a monthly recurring revenue number another way to think about is like if if you all your customer if all your customers were subscription customers and all of them were on the monthly billing and none of them had failed payments or anything like that and none of them cancelled and none of them upgraded or downgraded or you didn't get a new customer by either like it's a theoretical thing but if that was the case no failed payments the it's the amount of money that you would make next month in reality of course you get some change change you know your people down where the upgrade that you get new customers some customers cancel unfortunately you get you know lots of different stuff happened so this is why you you know it gets a bit you you need like a software like chop mobile or bi team or something to put together an accurate reading of your monthly recurring revenue but the the good thing about it the reason it's useful is it kind of shows like much more than cash flow for example you know the performance of your subscription business very very clearly it's like it's it's floored looking it shows you like where things are going where's cash flow it could go up and down but you might have a bunch annual deals one month and you get a really good amount of cash collection one month and then the next month they might go right back down again doesn't mean you're doing any worse as a business but and then ARR actually there's two meanings - ARR there's this B is the one I like to use Morris is the annual run rate or the annualized run rate which is basically the mr are times by 12 just so it's like 10k mr r that's 120 k of annualized run rate so you just calculate the MRI on you times by 12 the the other meaning is annual recurring revenue which is perhaps not used as much by the kind of high-volume transactional SAS businesses that most have a lot of monthly subscriptions but I traditionally the measure is that with annual recurring revenue kind of you only look at the annual revenue that is also recurring so you'd exclude monthly subscriptions from that that reason when the vast majority of SAS founders and products like chart mogul talk about AR are they're really talking about the annualized run rate which is just mrr mrr times twelve and not the annual recurring revenue which perhaps means something different and a lot of people what have you even heard of the second this like second meaning of the acronym so exist so I wanted to ask like how do you calculate it from like a very paper napkin Matt's point of view - how does chart mobile does it calculation of m RR yeah I mean it's that there is like you know thousands of lines of code because there's so many edge cases so like you know for example like a customer might upgrade their subscription halfway through a service period to a higher plan but they also might at the same time reduce the number of seats or licenses they're paying right or they might add a discount to their subscription at the same time as switching from a monthly to an annual plan or they might do a prorated downgrade to a lower plan while removing a disco or huh or switch from quarterly to annual billing while also getting a refund for the unused time on the quarterly this is like there are literally like hundreds and hundreds of scenarios right so it's easy to we have to solve for and each billing system has a different set of potential scenarios that they can generate so stripe Recurly charge be charged a files or they all have their own different ways of doing subscription billing that are slightly different so we have we have a dedicated integrations team of like five engineers and that job is just to build and maintain our billing system integrations to make sure that this we are at we are accurately calculating MRO for these different systems so I mean I back of a napkin you can do it like if if it's just like you know you have a monthly subscription paying $50 a month then it's and you have another month another subscription it's paying you know 120 dollars a year then you can say okay well with the 124 the annual subscription by 12 so we have $10 and we'll add it to the $50 I have $60 so your mor $60 so that's how you would calculate it with two very simple subscriptions but then you have to take into account you get like a lot of proration all these adjustments and discounts that you have to also solve for so that's just yeah we have to listen to all the events and payment data like the invoices as well as the subscription events that are coming from the billing systems and basically use that data to build the picture sure can you elaborate on your thoughts on a metric of number of customers accounts and average revenue per customer which is called ARPA ARPU so like what does it consists its importance and what does it say how to calculate in all yeah I mean it's pretty we call it aa per a virtue or company you can call it average revenue per user or average revenue per customer the way we calculate it is just so let me think actually let me let me just get it right so yeah I mean it okay it's that it's the sum of all your customers m are divided by the total number of active customers so so so see it's the average m RR of your paying customers of your payoff you're paying subscribers and it's significance I mean it's it's significance is that in a way you probably want it always to be drifting upwards and things like that and make by itself it might not have a lot of meaning but but you know it depends what you're trying to discover or find out what what context you're talking about it in how does it reflect like veneer then you have like multiple tiers so like let's say one plan is $9.99 and then you have an enterprise plan also so does it make sense to just take everything under the bucket or just segment that okay for enterprise customer or are poor is this and then for our like single base user are our two would be this how would you think around this yeah I think you can do both I mean you can easily you know it's good to look at both right and it's good to see ya like SEC segmentation is one of the big focuses of our product and also just our philosophy in general is like high-level met it's that just combine everything together are often not that meaningful right like it's meaningful to say okay you're are poor is like you know two hundred dollars or hundred dollars for the company but it but if there's a huge spread you know like you have like exactly exactly the consumer the concert you know if it's like Dropbox or something well they have a consumer thing where they probably have an opera of like $2 or $3 or something I don't know that current prices of Dropbox but then they have also an enterprise plan where the opera might be you know 500 or a thousand dollars depending on or maybe more I don't know then looking at the average all lump together doesn't tell us one story but it's not a not a meaningful story doesn't tell it doesn't tell you really what's going on inside the business so definitely segmenting out the plans and showing okay here's the oppor in for the enterprise versus the consumer the consumer plan or whatever and they might be a vastly different and then you can kind of think about it differently and measure them differently and trying to drive them up differently you know so you might try to get job but from your consumer business from you know $2 to $3 or something but from your enterprise you might want to get it from a thousand to 2,000 some of that so definitely segmentation is vital there's other things you can do I mean you can you can second if you could sacrament by country right which which region you know house you know is it worth investing more into Europe or France or Latin America or Brazil's I'm like that what is the average revenue per customer better right if it's really high and you have long and there's enough customers there for it to be stickiness you know statistically relevant you know it's not just like one big customer right with a higher it's just one might want to have like more a bit more to start using it for those kind of decisions but I think I think that's also interesting make sense so Nick let's move to cap so like I feel Jack so many times it becomes too vague of a number so I wanted to know first of all what is CAC and what are the different types of measurement could be there I mean you could just calculate it by per channel basis right or or you could just also count in the overall salaries of the team etcetera I mean so how would you suggest founders navigate through this and how to calculate and everything yeah I think when I'm not so wrong the best person to give advice that because we don't we don't always measure cack we we do we measure you know if we do acquire leads from a Google AdWords campaign we do measure like the cost per click and the cost per trial signup and we can also measure it through the paid as well so we can then measure the we can more or less measure the cost of acquisition but it's not always super accurate because you don't know if they're clicking on the AdWords thing always so how do you guys like for your your startup as like how do you think through around cat wins customer acquisition cost for people who don't know we don't always think think about it super hard because the vast majority you know 90% of our needs which are mostly coming in the form of trial signups on our website they're coming from word of mouth and yeah word of mouth like so so it's like the best marketing is just building a really great product and having people like shout about it right that's like you know that's like Tesla's like Elon Musk talks about how like that Tesla I mean they don't really do much advertising right say look other car companies they're like advertising and maybe recently there's been some slightly more that started you know Tesla's was getting a lot of height because the people that drive testers they just love Tesla's like they think they're awesome and they tell everyone about them so they have buzz around them they don't need to like spend money on TV ads like you know Ford and Chevy and all these companies are constantly creating TV it's and like but so so our thing has always been like trying to just have the best product the we can build on the best part in the market and people tell other people about it and so that's men yeah we I guess we've been a little bit lazy up until now about measuring our archaic we we do one thing that we do kind of do is a rule of thumb because we do spend you know money on on paid marketing right on Google ads a bit and there's some retargeting and I think some other other forms of display ads when we we try to think that we want the payback period to be like you know around nine months something like this okay so you on average right some people some of the paid some of the the customers that we paid to acquire might be smaller or larger but on average would like to be able to pay back the paid cost in about nine months it's not fanatics not including our people's time yeah but our marketing team is really small since it's not like a large organization where you'd really factor that in okay let's talk about LPB lifetime value of a customer it's kind of my favorite so could you explain us like what is it what does it consist is its importance what does it say how to calculate and all yeah absolutely I mean customer lifetime value is is basically what you're trying to do is estimate you know someone what you're usually trying to do anyway there's a lot of different meanings but if someone if someone signs up today and by is a by is one of your paid plans what is the average amount of revenue you can expect to receive from that customer over the course until they churn eventually so of course traditionally value has meant actually it's like the revenue minus the cogs or caught the basically times the gross margin so minus the cost of goods sold in SAS because the the kind of incremental margins tend to be very good because you're selling software or not you know you know you're not selling them exactly you know selling pizza or something where you have to like buy ingredients and sell it although pizza does have good margins apparently but you know it's not like it's not like you're selling iPods and you you know you have to like buy them and sell them and you have a margin so in SAS we often just measure lifetime value is really sort of lifetime revenue and and so what you're trying to is create an estimate and the simplest format but like formula sorry that everybody goes with is like sorry let me look it up but it's it's like average cost yeah average cost per account divided by the customer churn rate so say you haven't you know average m RR per customer divided by customer churn rate so if you have a $10 per month subscription on average and your customer churn rate is 10% then on average your lifetime will be 10 months and therefore you'll make $100 of lifetime value or lifetime revenue from that customer so this is the idea and then I think you're gonna make $100 from your customer then maybe you kinda to spend $50 or $60 or $80 or whatever it is on customer acquisition cost so lifetime value is really there to help you understand how much you should like spend on a lot a big part of it anyways to help you understand how much you should spend on a customer acquisition and of course like just just just having LTV as just a single number isn't so helpful because it uniquely need to know that the lifetime like how long it's a customer actually gonna stay with you like if you have a super low churn rate it might be like that your have a really high lifetime value but it might take you ten years to on average to because your customers just don't try so there might be a steady rate theoretical ten years before we can actually acquire that revenue so you have to think about like how long you how long does it take you to get that right here and therefore can you actually afford to spend you probably call it you know if it's gonna take you like ten years to get the revenues that you can't afford to spend 80% kak because you can't wait eight years to get a payback so you also need to know your lifetime so you can calculate the payback period the this the simplistic lifetime value formula then we also have actually in chart Mogollon where we are planning to create something more sophisticated this is fine if if you're SAS businesses is it's kind of a finger in the air a little bit like um calculation for LTV because it doesn't you know it doesn't take into account that you know the dynamics which is often that you know the reality is that some customers basically never turn or you know they're really really embedded and a lot of the churn that does happen happens in the first like two or three months because it was a bad fit or they never really got into the product so the distribution of churn and then the customers that do stay with you basically sort of forever they tend to upgrade an upgrade over time so that this simplistic formula doesn't really take into account like all the different dynamics as to your company gets bigger usually you'll create a more tailored formula for your business that works for your business you might also have non recurring revenues in there as well you might have setup fees I don't support it it's a mandatory stuff and then you that's still revenue that you want to count right as part of it or as part of the lifetime value of customer you might have an annual service fee or something like or an annual training fee so really like you kind of want to create a that would sort of tailored to your business model so one of the things we've been thinking about is how a child mogul for the future is how how can we build a sort of flexible lifetime value sort of modeler into our product where we can have a very flexible thing that gives a really accurate reading no matter how complex your business's industry looking out for that feature let's move on to churn and so like what is churn and I mean as an overall concept and then exact numeric metric also because since it's an a very important thing for success failure of his as business right excited to know your thoughts yeah so churn is sort of like one of the unpleasant parts about running a subscription business everyone every company has some of it once they you know get a certain volume of customers and you know what sure is I mean churn is just another word like subscription cancellation what people usually talk about is the churn rate which is the rate at which customers are canceling like if you have a hundred customers and one of them cancels then in a given month and your churn rate is 1% for that month because you'll also want to be around me that's one of your customers what different what else different type of churn could be there so like one would be way to look at is this customer churn then it could be a merit dollar churn anything else exactly yeah like you have customer churn also called local chair and that's just a number like a number of subscribers and one of them cancels you lost want to see any revenue there's two types of revenue churn that's interesting one one is net revenue churn or net MRRR churn and that is basically yeah like the it's the sort of the sum of all the the churn and the downgrades in revenue so to some of the m RR that you lost okay in a given month minus the sum of all of the m RR from the upgrades this is offset for the upgrades so then it's to say you say you have an m RR of $100,000 and you lost you know ten thousand dollars in in revenue so you lost ten percent in revenue in a given month but the customers you kept also upgraded five thousand dollars so that's that offsets it net you net it out so then your actual churn your net mr our churn rate was only five percent not 10% and say you have ten maybe you had $10,000 upgrades from then you have a net mr.chen rate of 0% or you can even have negative net shown which is really also because even if you're losing customers your revenue is still growing something like that maybe doesn't work if your if the numbers are 10% because eventually you run out of customers upsell to but like the the idea there being like you know you might lose you know say you got a hundred thousand dollars in revenue and you lose a thousand dollars in revenue due to churn but you upsell your existing customers the customers that you retain happened to be paying $2,000 more across the board like maybe it's like a few of them upgraded by ten dollars here and there and added up to two thousand dollars MRO and therefore your your net MRI churn rate is actually minus one percent because you had a you had a one percent upsell on your existing customer base so that that's fine but it also it's fine for knowing how you have a healthy business right you know you you've almost kind of created a business that's not as you know susceptible to the damaging effects of churn that's another business might be but it doesn't really help you solve it kind of hides the underlying problem which is that you know a thousand dollars one percent of the customer base is actually cancelling so there's another metric called gross mr our churn rate which basically just takes the sum of all the churn and that all the downgrades in revenue and divides it by the EMR at the start of the period and therefore you know if you're a it would give you a 1-1 percent revenue churn or whatever it doesn't offset it for the upgrades and therefore you can say okay that's the real trend that's actually okay but I think this concept of negative showed kind of makes sense and SAS business should be striving for that because it's like your expansion revenue is offsetting the churn that you're having right oh it's great and like when you tell people your churn rate like just tell them that number like because it's gonna sound but and especially if you're pitching for investment and VC's absolutely show you a net your net mr.chen rate because it's going to be way better and sometimes it's if it's negative just show it off but internally when you're talking with your team your management okay and you actually want to solve the problems that your company has them definitely look at the gross sure number because that's where the actual problems lie right absolutely it makes sense so they cup I think asking you for a benchmark number for all these metrics that we just discussed would be silly because you know every industry is completely different but I wanted to ask you like how as a founder you should be thinking about these benchmark numbers so let's assume I am building daily planner SAS tool for single users so now my monthly churn is let's say 15% so is it good is it bad like what about 30% how do I know how do I find out these benchmark numbers for all these metrics yeah I mean there are some resources out there and trying to think this matrix partners does a really good one code like their annual SAS set called matrix partners and you'll think just called like annual SAS survey or something and I think David scope is involved there as well it's one of like the people that really codified and bended a lot of these these SAS metrics I along with along with our investor crystal christophe gans as well so like you know he has that great blog post like for entrepreneurs it's really popular but yeah as a they do something called the private SAS company survey so they do that it used to be I guess it they they work with formally Pacific Crest and now it's KBC M Technology Group but basically yeah David's Koch and matrix partners they work with them on basically surveying the CEOs of private SATs companies to try and get to some to try and basically get those benchmarks and they publish them once a year so that's probably I think the most robust public place may they survey over 400 private SAS companies to come up with those those metrics so that's that's a great resource to find out how you know how load-in but but generally yeah 15 to 30 percent would be really high for b2b product yeah generally for b2b you know you want to have the churn rate maybe below five or six percent most to cut the logo to the logo chart and of the best like the the highest-performing SAS companies they will have like a negative churn or zero churn like like Zendesk or New Relic or these kind of companies that really perform well on the stock market they tend have negative revenue trend of course they have logo the logo chunk can't be really negative and yeah in consumer it's different and there are some types of products where they're kind of like frequent use where you might cancel and then we you you know reactivate a few months later when your use case keeps coming going away and coming back again but generally speaking of it if it's if the use case for the SAS part is an ongoing use case where you go on a stop using it like like project management for example you know if it's like that might have a lot of turn because the project might finish and they might cancel right now okay things like an electing if they're using it for like an election cycle or something and that the election is finished therefore the cancel a subscription right but in general if it's an ongoing use case like our product you you know you don't stop met you want to measure your revenues then you you want to just you don't want to you just want to continually lower the trend but yeah I can consumer they might you might see another fifteen thirty percent isn't abnormal and consume a lot but you know once you get into thirty percent you know in three months you're losing most your customers so it's at that point is it's kind of like should you be doing a subscription business at all maybe it's maybe it's better if it just charge them a one-time fee right you know say ideally right like like Netflix all the secret would just go out of business if people just stayed for three months right they think they need people to stay for a long time much longer than than three months makes it also for the listeners I think to VC firms have very good content around this one is point nine capital and one is the open view capital I think open open view venture partners right oh yeah open you venture partners endpoint areas yeah I both of them have really great really great content and there's a ton of others - yeah matrix partners David's coke and red point Thomas Tongass discuss some metrics which are good proxy for health of your SAS business so like could you give in you also discussed earlier also could you give us a glimpse of what is CAC payback period and what is CAC - LTV ratio like what is it empower was it important how to calculate a not so the payback period is just like you know how long are you prepared to how long does it take you to pay back the cost of acquiring the customer if it's a paid acquisition like if it was pay if it was a court quiet bar Google or a paid ad campaign I think it depends like how much funding you have and so like how you know how much you want to press the gas as they say right thank you some yeah you know some how some telcos will wait like a year and a half before they like start to make profit on some some of the subscribers knowing that their long-term LTV young people's don't usually switch telco we're gonna mobile phone provider very often right like if you're with AT&T or Oh two in here in Germany then you generally just stay for years and years so that they and they know that they measure that and therefore they'll they'll pay quite quite a lot to in sales and marketing to acquire you ought to get you to switch over from another provider so I think yeah just it just depends if your bootstraps ask company you probably don't want to you probably want your payback period to be fairly fast it's better like I generally accepted heli number you were mentioning you had some nine months right yeah nine to ten months I I think a lot of companies do go for that like even if like we're we're vc-backed company not not like tens of millions like not yet anyway like some of the some SAS companies but I think generally like most SAS companies would like to start making a profit within the first year of a subscription what about CAC to LTV ratio if you have any thoughts I don't I don't as I'd have to I I guess I know what it is you know it's like the you know it's the rate like if you spent $100 on that position and there's $1,000 LTP then it's a 1 to 10 ratio or something I I suppose I can't be useful to measure I think there's a good lecture by David's only around this these two metrics I'll link that in the description it's okay it's not something we have like focused on internally so Meno the reason why because I like ah I've seen startups like very fairly early stage startups like obsessing over cat and cat 20 region all this and I know the like a specific reason why you kind of delayed on this or have not been able to do this it just hasn't been such a like such a major focus paid acquisition okay like we spend someone paid acquisition but we get we get a lot of we get probably more inbound free well sort of free you know they show up on our website from word of mouth or from interesting I'll call our content marketing maybe they maybe they saw what read one of our blog posts or something and found out about us that way but we get enough volume that way that we haven't needed yet we're still trying to focus on improving our conversion rates in the people that sign up people that sign up from the non paid channels that we doesn't really even we have just haven't needed yet to really focus on scaling paid and therefore you know when you do start to scale paid and you do start to do that you obviously do want to measure these things much more carefully but for us and I think it's also important for if you don't help balance sales but we don't do outbound right building a okay PDRs where you want a you know measure whose job it is just to generate leads you know make phone calls send out emails their campaigns and then you measure them and then you have like a your account exec whose job it is to closer to girls you kind of want to measure that cost and that's quite a real cost is you know it's some people selling stuff so but we're not doing our bound with and we're not doing significant amounts of paid acquisition either so it just hasn't this is for us it hasn't been a major focus we've more focused on trying to make it so that the people that do show up for free or just show up on our website and sign up that we give them a great experience they're able to get it started to on board and then Tobias has really been where with the focus today so how to understand and gauge overall health and sustainability viability of your startup like by looking at which of SAS metrics and how to think around this I think obvious it depends I mean you got to make sure you don't go out of business right and and try going out of business basically means like you know you rather cash so you have to you know also calculate your your burn rate and your run rate and how much cash you know how much cash you've got in the bank versus your spending plan right and how much you're actually how much you're actually spending and what's in the plan what in reality you spend each month and how does that affect your your runway and how much revenue do you collect each month and have us and how is that growing so you have to build out that financial model actually where I think we're about to publish a core piece of content even even about yeah like cash flow planning for stats dollops so that's something that's coming I think very soon on our if you go to our blog make its blog channel mobile comm just to plug it week or two we'll be publishing some pretty cool resources around cash flow planning and financial management for SAS startups I think will be exciting and yeah so I was gonna make sure you don't run out of cash you know so don't overspend if you can't afford to and obviously a help healthy there are some revenue SAS metrics that really tell you how healthy your business is one of them's like you or your churn rate that's obviously like you know if customers are are canceling they're leaving they're leaving then then there's a problem you need to fix that you to address that was hard to grow after a while if you have a churn rate like there's something called the SAS ceiling which you might have heard of where as your customer base expands you have to and you have a churn rate have to add like more and more customers in order justice just to cancel out the churn in order to like just before you can actually start growing so that as your customer get customer base gets bigger and bigger you know 10% of a hundred is only ten customers but like 10% of a thousand is a hundred customers it's like you have to add a thousand you know a hundred customers just to stay just to stay breakeven before you can even start growing so it becomes harder and harder to grow if you have a high Chunn rate so in the early days maybe you know it's what it's worth to focus on turn really early even if even if it's not that much of a big deal because obviously in in the very early days 10% churn rate that's just one customer at a customer's right but so it might actually be easier to add five more customers but when you're at a thousand customers or ten thousand customers much much harder to to after the churn rate is much more important because it's much harder to grow by such a break this is why I turn it's worth focusing on the reasons for churn and the underlying reasons for churn really early in the life cycle of your business even if it doesn't really you know it's a bit like a disease or something it's just like the universe doesn't seem that bad early on better go get it fixed before it before it becomes a big problem that's really really hard to fix so um turns upon growth rates and pouring profitably I mean you know just yet you know even if you're not you know actually profitable because you see that but just generally the kind of profitability of the enterprise even if you're not in a technically profitable you know are you are you spending you know too much to do you know other dynamics rather is the business model grounded in most SAS it is because most SAS doesn't have to worry about that problem but like Groupon had that issue right where you know you are buying Groupons and maybe an expert but seemed like they were you know they were selling a dollar for less than a dollar you know in a way SAS doesn't usually have that point so let's move forward with your experience building chart mogul and seeing your own journey from zero to X and your own customers have you guys been able to find any metric that are like completely overlooked in the whole SAS startup community in general if we find those we usually we usually try and add them to our product like like gross mor churn rate was one of them luck didn't seem to be much written about that everyone's just looking at the net I'm thinking how great it is to have negative chunk but we kind of realized that actually what's more useful to a management team internally is to look at the gross mo Archer turn rate or everybody is looking at the average revenue per customer or they are poo when it's like yeah but the our puja tends to move very slowly because it because you're you're looking at it it's like yeah it's yeah exactly so so we baked a different metric called average sale price or ASP okay into the into our product where you can measure the average mr are at the time the customer converted so the average sale price and it changes every month like at the start every month it resets it's like because so you might get a honey you might get a massive customer the start of month no he'll leap up and it will kind of normalized rather months so this is much more because you're much more like up to date like view of actually like what is your what is the average revenue per customer from new customers I mean you can you can also achieve the same thing with the old metric using our our segmentation features you know but anyway that's another that's another point so it's like a cohort analysis for each of the cohort that you have defined and you're seeing MRI on based on that but it's also just looking at the the mr at the time of purchase so it doesn't even it's not even taking into account upgrades or downgrades it's just taking the the snapshot of a time they purchased for a cohort exactly that they the ASP yeah so I mean those are two I can tell right now that's probably more I think customer lifetime is one that we're actually working on adding that to the product that's one that I think so they want us our lifetime value it's like everyone's heard of lifetime value right but not make everything about lifetimes like if it's gonna take you five ten years to get the value then is it really is that meaningful and also like distribution as well like you know you might have a huge lifetime value but most of its gonna come in the third and fourth year of the subscription or something on average and therefore you know so looking at not just lifetime value but also average lifespan of a subscription and also how the revenue that you collect from your customer is distributed over time as well I think like these things are important to look at when you actually think about it's fine that you know kak to LTV sounds good but kind of bit more nuanced than that mixing so the we discussed earlier so there are obviously multiple buckets for metrics depicting different parts of your business so the metric that we just discussed how to connect or relate those metrics like all these metrics MRI character TV and everything with product related metrics so make what do I mean by this is M are archaic L TV etc pitted against product metrics like user attributes da you Mau or whatever the Northstar metric of the product team is using so how to think around this yeah I think I'm not I'm not sure if it's if it's always easy to do that you know especially I think I think it I think it really depends on the business if like w8 you know weekly active users monthly active use if it does I mean at some point it's gonna correlate probably with revenue but if you're going for a freemium model it might be that you're seeing great growth in your freemium business but you're not seeing the same growth in your so your weekly active user I was seeing your product also that card for you and I think you guys do this on many fronts so like any key learning or pairings that you find there yeah I think I think that's all the things you can do around around segmentation like you can look at if you can type in custom attributes into Tommo will say things like what features have been activated or how many users the customer has on their account or something like that some like some meaningful things like have they use this feature how many you know if it's as if it's a CRM how many opportunities have they created or just anything about product usage or like that and then you can start a segment on those metrics you call most user attributes you started saying okay show me my churn rate sliced by whether or not this feature was activated or showing my churn rate for people that have added more than three users or less than three versus less than three users so and then you might be able to see actually you know what once we get one of our customers to activate this feature of this feature and they have more than three customers in their account the churn rate is like crazy crazy low and all the churn is happening for the customers that haven't got that far invested into the product and then that can help you to kind of focus a team around an effort to like okay let's him let's improve the visibility and the onboarding of these specific features let's make it super easy for them to add more team members to their account things like that things that might help more of their customers get that much invested and then hopefully you'll see that you know that will drive the trend down so this is a way of helping you understand causing churn I think I think that's probably I'll top of my head like the most insightful one I could think of right now I mean we also we also do trial to paid conversion rate track we do track leads and free trials in mogul and we do a trial two paid conversion rate metric as well and so slicing the trial to paid conversion rate by some of those same attributes could be really helpful as well to see like okay do I have bigger don't have better conversion rates when you know this feature has been activated or what one of the things that can happen in the product that could lead to a better conversion rate so so that's some of the stuff I think second segmentation tools can really help you cut custom attributes and segmentation tools can really help you any advice would you like to give founders in like how should they think about taz metrics and any key fundamental mental models I'm not sure I think I I think basically like early stage founders you know you know usually they know that the main thing to focus on is is their product or service and making that customers happy and those are the main things to focus on early days and companies like Chama will can help them have almost like have one less thing to think about in a way by abstracting that part away right you you should build versus by I suppose sorry totally wrong by by versus build focus on the core competency of your business not not reinventing stuff has already been done out there so obviously some you know some basic one thing we try to do with up right it's kind of make it so that it kind of here as you use the product you kind of it also educates you about how to measure subscription business in a way so it's kind of like it's kind of curates in a way and educates while you use the products you don't you know have to go away and read like a ton of blog posts and materials it's good if you do but you don't have to do either any resource you suggest to listeners like books people courses blogs newsletter anything yeah I mean tons of stuff about metrics specifically 0.9 David scopes for entrepreneurs blog SAS tur is really good not as heavy on the metrics but just great materials about just being a SAS founder at Jason Lemkin materials books um I was reading play bigger recently which is a great book around category creation it's an awesome book and yeah like I was reading the founder of Zoras book subscribed which is pretty cool as well anything you would like to your Twitter Linkedin and how can people reach out to you sure yeah twitter.com lick ni ck underscore Franklin so Nick underscore Franklin is my twitter handle and a log is your mobile comm John mobile comm to find out more my email is Nick and I see ka-chow mobile comm if you wanna send me an e-mail directly well Nick I had liked you so much for all the insights it was a pleasure having you on the show thank you have a great evening bye bye bye bye that's it folks thanks for tuning in show notes would be available in the link below or you can just go to insights alikom slash notes please rate will you subscribe in whichever app you are listening to this episode and most importantly give feedback in comments reviews or you can just email me at aaron at insights ally calm you can also follow and connect with me on instagram to tell etc my handle everywhere is a ru n one one one nine two and remember always be learning pi