SaaS companies generated huge returns for shareholders despite showing net losses.
98.8% of investors use the wrong metrics to evaluate these companies.
Here are 5 metrics to capture the potential of a SaaS company.
98.8% of investors use the wrong metrics to evaluate these companies.
Here are 5 metrics to capture the potential of a SaaS company.
Time to value
The time it takes a customer to realize the value of your product.
The faster value is realized, the less likely a customer will churn and the more they love your product.
Crowdstrike Falcon can be fully deployed in a large enterprise in a day.
The time it takes a customer to realize the value of your product.
The faster value is realized, the less likely a customer will churn and the more they love your product.
Crowdstrike Falcon can be fully deployed in a large enterprise in a day.
Sales Efficiency Ratio
For every S&M dollar spent, how much revenue is generated?
A low ratio means more capital is required to grow, and less FCF left for shareholders.
Zoom requires little to no cost to onboard customers, look at its FCF exploding as revenue grows!
For every S&M dollar spent, how much revenue is generated?
A low ratio means more capital is required to grow, and less FCF left for shareholders.
Zoom requires little to no cost to onboard customers, look at its FCF exploding as revenue grows!
Payback Period
How long does it take to earn back its CAC?
Fun fact: The payback period for a Starbucks store is 2 years.
Crowdstrike payback period is under 1 year.
With good economics and a long runway, it makes sense to reinvest heavily.
How long does it take to earn back its CAC?
Fun fact: The payback period for a Starbucks store is 2 years.
Crowdstrike payback period is under 1 year.
With good economics and a long runway, it makes sense to reinvest heavily.
Retention Rates
What % of your existing customers stick with you?
High retention of above 90% suggests a good product-market fit.
Offers the opportunity to cross-sell and upsell existing customers.
Increases customer lifetime value.
What % of your existing customers stick with you?
High retention of above 90% suggests a good product-market fit.
Offers the opportunity to cross-sell and upsell existing customers.
Increases customer lifetime value.
Customer Lifetime Value (LTV)
How much sales does a customer bring over its entire r/s with the company?
Helps evaluate unit economics.
Rule of thumb: LTV/CAC ratio of at least 3.
If LTV/CAC < 1, the company should stop acquiring customers and find why customers are churning.
How much sales does a customer bring over its entire r/s with the company?
Helps evaluate unit economics.
Rule of thumb: LTV/CAC ratio of at least 3.
If LTV/CAC < 1, the company should stop acquiring customers and find why customers are churning.
If too low, it may suggest:
- poor product-market fit
- high churn
- ineffective sales team
- poor product-market fit
- high churn
- ineffective sales team
If you loved this, check out my other threads on investing to level up your research process:
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I will be breaking down Crowdstrike $CRWD in my upcoming deep-dive.
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