📅 Events

maggiebutler
HubSpot Moderator
HubSpot Moderator

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

This AMA is now closed. However, the resources live on! See below for the presentation and check out the Q&A in the thread for more.

 

Resources: Click here for the live webinar recording and click here for the separate slide deck.

 

Big news: Our in-house expert on SaaS economics is taking our for-employees-only training on the unit economics of our business public for the first time ever! During the event, Isabelle Bensimon will explain the unit economics of a SaaS business model and how these fundamental metrics feed into setting HubSpot’s annual plan.

 

Resources: Click here for the live webinar recording and click here for the separate slide deck.

 

During September, you can upvote questions you want answered below or leave your own. Here are some topics you can ask Isabelle about:

 

  • SaaS business models
  • LTV
  • CAC
  • NNMRR
  • PPR
  • Churn
  • C$R
  • RR
  • Install base metrics
  • Annual Planning
42 Replies 42
GeorgeGabriel
Participant

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

Hi! Would it be possible to have all of the jargon defined? Maybe even a little glossary of terms: 

  • LTV
  • CAC
  • NNMRR
  • PPR
  • Churn
  • C$R
  • RR
0 Upvotes
ibensimon
HubSpot Employee
HubSpot Employee

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert


@GeorgeGabriel wrote:

Hi! Would it be possible to have all of the jargon defined? Maybe even a little glossary of terms: 

  • LTV
  • CAC
  • NNMRR
  • PPR
  • Churn
  • C$R
  • RR

@GeorgeGabriel Yes, check these out below - we'll also cover them next week. Hope to see you there.

 

- LTV = Lifetime Value= the total dollars that you expect to receive from a Customer over its entire "lifetime" as a paying Customer.
- CAC = Cost of Acquiring a Customer=Total Sales and Marketing cost to acquire one customer.
- NNMRR =Net New MRR= total amount by which the install base increases each month (netting our New/Upgrade MRR against our Downgrade/Cancellation MRR).
-PPR = Productivity per Rep=Average amount of MRR that each sales rep generates each month (more on this next week... we calculate this in a specific way at HubSpot)
- Churn = Lost MRR from customers who cancel (or downgrade, depending on how inclusive you are with your definition).
- C$R = Customer $ Retention = a metric you can use to measure churn. C$R tells you what percent of the install base retains each month (doesn't cancel). This rate is annualized (hence the 12 power). A C$R rate of 50% means that, for every $100 in our install base, we will retain $50 of those dollars at the end of one year.
- RR = Revenue Retention = Rate to evaluate whether or not MRR from existing customers has increased or decreased, if you compare the upgrades we received to the downgrades and cancels. If this rate is greater than 100%, it means that the MRR from our existing customers is increasing, on average.

 

Any questions about these metrics in particular? Let me know...

artruojain
Member

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

When are this unit economics a relevant metric for an early stage startup? First day? When should we consider them as a truth instead of a first guess?

0 Upvotes
ibensimon
HubSpot Employee
HubSpot Employee

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert


@artruojain wrote:

When are this unit economics a relevant metric for an early stage startup? First day? When should we consider them as a truth instead of a first guess?


@artruojain In terms of churn, you should have a sense of at what rate customers are leaving every month very early on. Even if your customers are on longer contracts, you should also install listening devices to understand likelihood to renew and customer sentiment. Are they regularly using the product/service and seeing value? Then, if you know the average spend, you can pretty quickly calculate your initial LTV. Cost of customer acquisition may be less instructive in the early days, since you're still figuring out what is working and will become more efficient over time in acquiring customers. However, you should still see a path to a healthy LTV:CAC ratio.

0 Upvotes
AndyCampbell
Member

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

What methods do you use to determing pricing for SaaS, especially when doing an initial launch?

ibensimon
HubSpot Employee
HubSpot Employee

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert


@AndyCampbell wrote:

What methods do you use to determing pricing for SaaS, especially when doing an initial launch?


@AndyCampbell For any product or service, you should aim to price your product/service based on the value you are delivering to customers (and their willingness to pay). While looking at your competitors is a good place to start to understand market value, you should also understand what incremental value your product/service provides over competitors that customers would be willing to pay for. Another good idea is to conduct market research and survey analysis when launching a new product. Depending on the complexity of the product, Conjoint Analysis or Van Westendorp surveys can be useful methods to gauge intial price points. Especially in a SaaS business, you should think early about what customer experience you want for your existing customers if you change your prices over time. Lastly, you want your product offerings to grow with your customers -- that is, as your customers see more value in your product, your business should be incrementally extracting some (not all) of that additional value.

0 Upvotes
AndyCampbell
Member

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

@ibensimon - thank you for the response. Yes, we started looking into the Van Westendorp survey and have had good initial results. Need to get a higher n to have more confidence still.  The basic initial market research of asking what customers think it was worth was all over the place prior to launching the product. 

0 Upvotes
MichalSchreiber
Participant

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

I would love to know which function within the company is responsible to present and go over these metrics and what's the cadence (monthly/ quarterly/ yearly) and why. 

ibensimon
HubSpot Employee
HubSpot Employee

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert


@MichalSchreiber wrote:

I would love to know which function within the company is responsible to present and go over these metrics and what's the cadence (monthly/ quarterly/ yearly) and why. 


@MichalSchreiber Generally, the leadership team reviews these metrics every month and the end of every quarter. Forecasts for these metrics are actually done weekly as we approach the end of the month. We try to keep a very strong pulse on the health of the business, so that we can make key decisions and pivots, if performance starts to trend differently than expected in any one segment. Responsibility to report out on these metrics is distributed across HubSpot. Generally, Sales Operations forecasts and reports out on PPR, New MRR, and Upgrade MRR. Customer Success Operations forecasts and reports out on C$R, RR, and downgrades, and FP&A is responsible for packaging this altogether to report out on Net New MRR and the ultimately revenue.

0 Upvotes
MonikaS
Contributor

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

I am curious about how do you handle the free plans and do you set up some goals to upgrade them into paid customers. 

ibensimon
HubSpot Employee
HubSpot Employee

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert


@MonikaS wrote:

I am curious about how do you handle the free plans and do you set up some goals to upgrade them into paid customers. 


@MonikaS We do plan for demand from our free plans, and one of those implied inputs is a free-to-paid conversion rate. This conversion rate is a great metric to track early on, so you can plan for MRR based on the volume of free plans.

0 Upvotes
ParkerShort
Contributor | Diamond Partner
Contributor | Diamond Partner

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

I'm excited to learn more about these. My question is one we run into with a lot of SaaS clients - when people upgrade, do you try to capture that in the CRM, to help with LTV calculations? Or is that purely a finance function and shows up in an accounting/ERP system? Especially with smaller SaaS firms, we're often trying to figure out how to track accounts that grow on their own. Maybe you do this via the recurring revenue module?

Thanks!

LynetteRadio
Participant

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

Thank you SO much for hosting this! There is so little info online or otherwise about SaaS financial structures. I'd like to hear more about churn rates and averages in different industries. 

0 Upvotes
SalesIsScience
Participant

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

Using Hubspot as our CRM we struggle to easily surface many of these data points.  Can you help us see where to add data so that we can report within Hubspot on things as simple as CAC, LTV, etc.

maggiebutler
HubSpot Moderator
HubSpot Moderator

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert


@SalesIsScience wrote:

Using Hubspot as our CRM we struggle to easily surface many of these data points.  Can you help us see where to add data so that we can report within Hubspot on things as simple as CAC, LTV, etc.


@SalesIsScience Yes, definitely. I wanted to wait until we announced all of our new Sales Hub features so we could talk about how these changes affect your reporting.

 

What does your system of record look like? What other inputs for data do you have into HubSpot's CRM, and do you use any data /reporting integrations?

 

https://www.hubspot.com/products/sales/enterprise

0 Upvotes
RafiPN
Contributor

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

I'd love to see CAC cost for channels that don't directly have a cost associated like organic, direct, and referral traffic. 

ibensimon
HubSpot Employee
HubSpot Employee

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert


@RafiPN wrote:

I'd love to see CAC cost for channels that don't directly have a cost associated like organic, direct, and referral traffic. 


@RafiPN When calculating the CAC for organic and direct traffic, you'll still include all the shared infrastructure costs that are split across all customers acquired. This likely includes the costs associated with your website development and hosting, the cost of content creation, for example the salaries of blog writers and graphic designers, and shared expenses such as project management tools. Also if a sales rep received credit on the sale, the salaries of the sales rep would also be attributed to those customers acquired. Allocating costs to different acquisition channels will definitely be a blend of art and science -- you just need to be reasonable and ask yourself whether that cost in some way directly or indirectly contributed to that new customer acquisition. The value of the exercise will be a directional sense of the LTV:CAC of each acquisition channel.

0 Upvotes
walterw
Contributor

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

I know of at least four ways to measure Churn...interested to see HubSpot's way

ibensimon
HubSpot Employee
HubSpot Employee

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert


@walterw wrote:

I know of at least four ways to measure Churn...interested to see HubSpot's way


@walterw Great, we're going to talk about how HubSpot does this next week. Come with questions! See you there

jeyso10
Member

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert

Thanks Isabelle for taking the time. Of all of the metrics you will cover, which one do you think is the "most important" or the one we should focus on the most?

ibensimon
HubSpot Employee
HubSpot Employee

[Now Closed] Ask Isabelle Anything: HubSpot's SaaS unit economics expert


@jeyso10 wrote:

Thanks Isabelle for taking the time. Of all of the metrics you will cover, which one do you think is the "most important" or the one we should focus on the most?


@jeyso10 If I absolutely had to pick just one it would be NNARR since this is directly tied to company growth. However, each and every one of these metrics in isolation serve their own purpose, and are important to track. RR, C$R, helps you diagnose *where* to look to improve your NNARR, and LTV:CAC and PPR helps you understand how efficienctly you're generating revenue. No one metric gives you a perfect view of the health of your business.

0 Upvotes