 HubSpot is a software as a service company and a lot of you guys probably think that HubSpot may have a blog and that's why we teach people how to do marketing, actually that's like one of our core daily proposition but we don't just do that, we have a market automation platform but today is not a sales pitch, today is a session on software as a service metrics and how to think about uni economics when it comes to companies like that. So today's session will be a little bit more active and participatory than you would expect. So don't worry about asking like dumb questions, I don't think there are any dumb questions. Don't worry about like not knowing anything because that's what we are here for and hope that this is a safe space for everyone to just kind of contribute what you kind of know what questions you have and really I hope that I can get to learn as much from you guys as you can from me because definitely there will be some of you who are like really experienced product managers here, really experienced sales and marketing folks here that knows a little bit more about maybe acquiring a certain type of customers that I don't know about. So this session is a kind of brainstorming session as much as a learning session for you to like get to know the world of SaaS and potentially like my objective here is to get you guys excited for SaaS. I think SaaS is really exciting space to be in and the reason why I think that is so because you consistently get companies in the SaaS world SaaS kind of like space exiting at a five times price learning ratio. So for example, if they made like $20 million a year, you can find them like exceeding about like $100 million or even like $200 million getting acquired or IPO. So I think it is a very solid business. It helps you, you know, if you think about Uber and all those unicorns, those are very hard businesses to run because of certain market conditions. And typically what a lot of entrepreneurs do is that if they experience a B2B space, they'll start like a SaaS platform. So hopefully this session will get you guys kind of excited about the world of like B2C and B2B SaaS platform. And hopefully I develop a career in it, either in, sorry, I'm running cold. So either in like product or sales and marketing. So we can start off by maybe discussing a little bit about HubSpot. I want to like throw you guys back to the year of 2008. Imagine that HubSpot just got started two years after the founding of HubSpot in 2006. Right? So this article gave you a background of what HubSpot has been like facing and what HubSpot's customers are like the segments of those customers. Anyone can give me like a quick show of hands, you know, what the two segments are? Anyone knows? Maybe just shout it out. I wasn't hoping that anyone would do that, but anyway, I didn't do it. So first of all, we have kind of like owner allies, right? And second, we have the marketing marries. When you take a look at this two customer segment, quick show of hands, maybe how many of you are in the owner allies segment? You're working at a company that's owner allies. So you get to, you're in the team of like maybe less than 20 people. You know the founder of the company, the owner of the company pretty well and you are like pretty close to them. Who's in this company itself right now? Show of hands. Anyone in like a marketing married background where there's a bigger corporate, more than 200 employees, you kind of don't know the founder that you know. You have like multiple steps of hierarchy to like get to that space. Cool. By the way, I forgot to do this. Can I get a show of hands as well? Who's a product manager now or an expired product manager? And who is like a sales and marketing professional? Either you're a sales person or you're like doing marketing acquisition. Awesome. All right. Cool. So owner allies kind of defined that as like a very small company, employee size of more than, no more than like 20. So we say that it's like a small company. So a marketing married, we have a segment that is like more than 50 employees, right? And when you think about the world of B2B SaaS, you have a couple of ways to really segment up your target audience. And employee size is one of them. Anyone wants to give a quick shout out again. What is another metric they look at where you evaluate the customer segment of a SaaS company? Okay. Wasn't hoping that anyone would shout out. So I'll say that it's industry. But it's made a little bit more than. So we have like industry, for example, advertising, or like automobile is like one example. Anyone have any idea like other than this to call and I'll get to how this relates to the product itself and how this ties back to retention in a little bit. So if you think about, I just want to set a little bit of context as to how you manage and think about the different segments of a business. So other than employee size and industry, a couple of other key characteristics that we look at include like a very, very, very important thing that some of you like sales and marketing folks will probably know about the budget of a company, right? Or the, this is kind of like a, or a function of their annual revenue. Because you want to look at whether a company can afford your product. So this is like, these are the three main, I'll say, source of truth for anyone looking to build a B2B company. Your segments, your customer segments are mainly the three characteristics they look at for any customer segment or industry. Employee size determines how big the company is. You kind of get a sense of how much the company can make. So the budget they have, the advertising budget or any sort of like HR budget, as well as the industry they are in. And these are like the three main characteristics. Anyone can tell me what the problem about, a problem their hearts don't have at the start when we were just founded like, what problem do we have in terms of customer segmentation? Quick show of hands. I'm not going to give the answer so easily this time. Anyone else? Try it. So I'm just repeating your question. I would like to understand what is your question? Yeah, the question is, what was the problem that we had at the start in terms of identifying the right kind of customers? We have this two customer and you want to kind of like serve one of them. And what was the problem in trying to focus and choosing one of them? Do you guys get my question? So again, we have two segments at the start and with all companies focus is very important. We want to focus on one single customer. What were some of the challenges? What was that confusion and saying that, hey, we should choose one over the other instead of like, say we should choose owner or the instead of wanting to marry, to like focus on that. So you mentioned science. Maybe there's more owner or the instead of wanting to marry. So we can take a look at certain, I'll split that out into like two main categories. Give me a second. To make a category where we have the external forces and then we have the internal forces. Market size is one that you just mentioned. How many of them there are? Anyone wants to contribute more? Corporate culture. Corporate culture? Corporate culture is internal. Corporate culture of a, I assume that customer stuff. Customer, yeah. So you're like corporate culture or like hierarchy. That's better, right? Yeah, way of doing things. Anything else? Effectiveness of the environment. Effectiveness of environment. Adoption of the philosophy, right? What your company is trying to sell. Adoption of product and philosophy. Anything else? Acquisition cost. Acquisition cost? Not that. Acquisition cost. Anyone else? It's great. Keep it going. Let's talk now. Maintenance cost. Maintenance cost, yes. Servicing cost. You want to take a look at like how much you acquire those customers for and whether or not you can spend just enough to keep them paying at a rate where you're making money for your company, right? And then I'll give you a framework to tie all of these like different factors back in. But this session here right now is really just to like open your mind up to different possibilities, different things to think about at this stage. So we had a problem with like marketing Mary and owner Ollie at an early stage of our founding of the company. So we said that hey, owner Ollie's are easier to acquire. They cost cheaper because owner Ollie's kind of like come from a small company. They get very interested, very excited about new tactics to grow their company. They have a real stake in the game. So once they attract them, they tend to like be very easily onboarded onto the product itself. So the acquisition cost for that owner Ollie wins. And then marketing Mary, you know, not so easy. They're concerned about things that are not just like growing the company. They're concerned about some of their own metrics like regeneration, things like that about impressing the bosses. So they have all these like non-metric sort of operational challenges as well that they need to think about. So acquisition cost for marketing Mary tends to be a little bit higher. Now servicing cost is fit. You think about owner Ollie, when you try to service them, as small business you can get deceptively cheap to service them. Because it's easy, right? You get to talk to them, you get to like give them, teach them tactics and teach them how to use your product pretty easily. But the problem is there's so many things to do. They want to like get their admin solid right. They want to get their HR solid right. They want to learn about how to grow their sales team. They want to grow their marketing team. So it gets deceptively expensive. And in the early days when they just bought the product, it's easy to tell them, hey, use our product and you can grow a company. They'll be like, oh yeah, let's get it on. I'm really excited. But as time goes by, they have adoption of the product itself and we're going to talk about say retention drops. Simply because they don't have time to think about how to use a product. I actually use a product to grow their company. Marketing Mary, on the other hand, costs a lot to be acquired. But as time goes by, they're more targeted in what they want to achieve. If you tell them, hey, by using our product, you can generate this amount of needs. And then you can start impressing your boss because you're hitting all your KPIs. Marketing Mary will be like, oh yeah, I'm going to get on. I'm going to impress my boss because it's important to my job right. I want to keep my job. So as time goes by, the retention of marketing Mary's tend to outweigh the acquisition costs of acquiring all these. So that's the context that I want to set over here. Which is essentially, if you think about the lifecycle stage and the lifetime value of all your customers, you're only thinking about the acquisition costs, you're painting a very, very shallow picture of what your product is about or what your product can go into. And retention is hyper important for any sort of product manager. To determine product market fit, you want to get a solid retention value so that they continue to use your product. And if your boss is only telling you that, hey, you should acquire segment A of a customer because it's cheap to acquire them without looking at how much value or how much money this customer is bringing you throughout their contract value, you should get the hell out of the company because he is not thinking about it in a methodical way. Cool. So there are a couple of metrics here that we can talk about. We can talk about non-stop metrics all day, but in the world of sales, a couple of things are really important. Anyone wants to give a guess what those metrics are? We talk about acquisition costs. We talk about retention numbers. We talk about contract value. Any ideas? All right. All right is one. But how do you determine all right of anything? Your return of investment is a function of a couple of things. Your revenue. What else? The cost. Anything else? What's your value? Love it. Now, this tree are mainly the main components of how we calculate the return of investment of anything you do. So if you take a look at the revenue, it paints a very shallow picture. In the world of sales where the revenue is paid monthly, if you take a look at only monthly recurring revenue, which is like MRF, it gives you a very shallow picture. Cost of acquisition is like how much you spend in total for marketing for sales to acquire this customer into your product itself. So this is what we call customer acquisition costs. And then a lot of time value is a very interesting concept that is only applicable to lifetime, sorry, to subscription businesses because you're not asking the customer to pay you a lump sum at the start of the contract. You're actually asking them to pay on a subscription basis. So if you think about all your mobile plans and all that where you pay monthly, they're not just looking at you from a say $50 a month customer point of view. They're actually looking at $50 times 24 months, and that's the contract value of each mobile plan you pay for. So that's actually the reason why they're able to give you so much discount on your mobile plan or your mobile when you buy a mobile plan because you might be thinking, oh, yeah, I'm paying $50 a month but they're actually giving me $200 in discount. That makes a lot of sense, right? But don't fall into that trap because you've got to multiply it by your entire month that you're in with them, which is like 24 months, and calculate how much you're paying versus that with the actual discount that you get with your mobile plans. So the subscription business is not a new thing. It has been around for ages. And the software subscription business has really picked up based on those concepts. So lifetime value is hyper, hyper important. So these are the three main components of calculating with investment. All right, cool. So we'll get into the slides now, the boring slides. Can I ask a question? Sure, yeah, go ahead. Perhaps for itself, what was the, how does the product work and what's the switching cost for your customers? Is it easy for people to just switch around, like order all these to... You mean like getting out of the product and using them to better? Correct, because I make it as service and it's much easier for them to switch because it's all internet based. What was the history behind this? Yeah, so switching costs of a product depends on what the usage of the product has been like. For example, in HubSpot, we have five different apps within the single platform. We have a content management system, we have an email system, we have a social media analytics system, things like that. What we found is that anyone who has used a product like activated on more than three apps tend to stay a lot longer than someone who has not. The thing about it makes sense because the value proposition of the platform is to get on board, use all the app, consult data marketing strategy versus like a single point solution like MailChain. So if someone is using HubSpot just for email, it costs almost nothing to switch up to MailChain itself. And in fact, a lot of times people tend to do that if they don't find value and activate on multiple apps. So the switching cost becomes really, really high and you have to break up the platform into like multiple, multiple different point solutions that you've got to do with MailChain, you've got to do Google Analytics, things like that. So that prohibits someone from switching. And of course, we have a network effect sort of in the B2B space where we build a community of HubSpot users who share like best practices of marketing tips, things like that. They can only be executed on the platform itself. So these are like non-product retention strategies that people can use to build a mode which is what we call as like a protective layer for around your business. So probably it's one way to like increase retention, but there are also like customer marketing tactics that you can increase retention with. Great questions. Anyone else? Cool. I'll just go on there. So you have quite a dry, I'll say, but it's hard to get really, really exciting about it, but you have a couple of like metrics that we want to go through today on an agenda. First of all, if you determine the average selling price of a customer, you kind of know the total contract value of each customer. Second, we'll talk about retention, churn and lifetime value. How do you calculate some of these metrics? Third, we'll talk about like customer acquisition costs, how much it costs for you to acquire a single customer. Then fourth, we'll put a couple of metrics together, give you an idea of like the ratio between lifetime value and customer acquisition costs. Last but not least, we'll like put it all together and maybe we'll open up the floor for like some questions and think about how do we like make sense of all this different data, different metrics, different data points to paint a good, healthy picture of your business in session. Right, cool. Questions? No one, okay. So first of all, average selling price, what is it? Now, average selling price is defined as the total number of views, the due value, divided by the due sizes that you have. For example, again using the SingTel or Starhub mobile plan example, if you're paying $50 per month, and then you have like say a thousand, I'm trying to make the math easy to calculate for my end so I try to use whole numbers. Say 100 customers, right? And then you have like say another 50 customers paying you $100 a month. Can anyone tell me what the divider is? $150, yeah. This gives you a health check of what the total, I'm not going to calculate it because I messed up, $150. Anyway, so this gives you a health check of what your business is like and how much you're able to monetize out of each customer. So average selling price is also sometimes known as annual contract value, but this is calculated over the course of a year. So this is what people use interchangeably and sometimes it's known as like average revenue per user. So if you look at, if you come across all these like different jargons and different metrics, it means the same thing. It's telling you how much you can make out of each user, right? So this is pretty important. You must be thinking, well Justin, why are you telling me average selling price right now? I don't have any idea of how to track the right customers. You'll get that, alright? Now, if you look at the average revenue or average revenue per user or average selling price, why is it important for you to know about? It's because there are only a couple of ways you can get to a very, very big business, right? And this is what venture capitalists tend to call the elephant, the deer, the mouse, and the flies sort of like strategy. So elephants are big enterprises, huge enterprises that are very, very hard to acquire. Now deers are kind of like in between, sorry, let me go to flies first. Flies are like everyday folks like you and me, and typically MailChimp, they have optimized their acquisition strategy to attract a lot of flies. So you can get very, very small value of revenue, but we have a lot of users. Supposedly the holy grail of attracting the right customer for your sales business is in the deer space. So deers are kind of like customers who are not very, very big, and they're not small either. And you typically just have to strike a good balance between the size of the company and how much customers you want to attract into that market itself. So right here, I'll introduce another framework that you can think about or research more into. And this is what we call the market segment of a sales business. Typically when you look at the market segment of a sales business, you're looking at a pyramid, where it's like divided into three segments. Right here you have the enterprise, right here you have the mid-market, and then here you have the SMEs, or like SMEs, some people call it. And this right here is basically an illustration of this graph, where enterprises are like elephants, the mid-markets are like deers, and then SMEs and SMEs are like flies or mouse. And I love this analogy because if you think about it, it makes a lot of sense. SMEs are easy to capture, they're like flies, right? But they die pretty easily. So sometimes the business go out of business because they go out of business. That's out of your control. When you go to Uncle Tan's fruit store and try to onboard them to your software, Uncle Tan may choose to retire the next morning, or Uncle Tan may be down with illness, like he becomes sick and closes his business. Those are the kind of challenges you face when you try to acquire flies. When Uncle Tan goes out of business, you can't control it, it's not because your product sucks. It's because you have identified Uncle Tan as a group, and that is the biggest mistake. Now, when you go to elephants, how many of you know the CEO of Singdown? Obviously not, I don't either. So when you want to sell to enterprises, you're typically selling to big corporations, and you're trying to attract the executive C-suite level of all these companies, which is very, very difficult. If you don't have network into that space, it's almost impossible to sell into any one of those companies. The main market is where the magic is, because a lot of business owners, like marketing managers or different HR managers working in the company itself, might not be that close off to talking to you. You might get access to that pretty easily. And the business has gotten traction in the past like, say, five to ten years. They've been making money, so they won't be like Uncle Tan and go out of business the next day. So typically, we call the mid-market deals. But this, I know a lot of venture capitalists will disagree with me, but hopefully none of you are venture capitalists. Now, when we look at the SaaS business, there are a couple of important, really, really important metrics as well. In regards to calculating the revenue, those three are the retention numbers, the churn, as well as lifetime finish. Now, magic, right? Retention is one minus churn. Churn is one minus retention. What does it tell you? Basically nothing. Let me explain for that. So, retention value is like, for example, you have 100 customers in month one, and retention is at, say, they always throw a number. Ten percent. And you have like a month two, if let's say like retention number is to ten percent. Oh wait, how much is this? Do I want most? Yeah, oh sorry. Let me give you the most. Total customers. Yeah, month two, ten, right? And our churn rate is what? 90 percent. If you calculate it further, further, further, you become like 1.1 customer. I don't think so. So, this is how you calculate churn, retention, look at the lifetime value of a customer. Now, why is this important is because of the next thing. You calculate lifetime value. The number of months they are in. Anyone have a question? You calculate a lifetime value by taking one over the churn rate. So, say 9.9. You essentially get the number of months a customer is expected to stay. And I don't know what this number is. But basically, you give you like a say, the customer will stay with us for 13 months. You know that when you bring about Uncle Tan, or anyone else, you stay with your average of like 13 months. And because of the nature of subscription business, where they're paying you a monthly cost. Can anyone tell me why the lifetime value is important? Anyone? I think it helps with the revenue model. Exactly. So, you kind of get the idea of the total contract value you're having with each customer. So, for example, you say you will need to fly to Hong Kong to acquire a customer. And let's say you are the manager of like a salesperson. The salesperson tells you, hey boss, I need to say like fly over to Hong Kong to stay for a night, to spend $500 to acquire a customer which is like paying us monthly $400. Will you say yes? Or will you say no? Anyone? Who will say yes? Who will say go ahead, I'll pay $500 for you to spend a day to acquire this customer who is paying us every month $400. Anyone will say yes? Who will say no? Then what the rest of you will? Depends. Yeah, what does it depend on? It depends on the lifetime value of the customer, right? Because if your lifetime value is 13 months and you're just thinking about spending $500 is too much for a customer paying $400, you're taking a very shallow view of your business. You essentially, you need to calculate $400 multiplied by 13 months to determine what's the total contract value of each customer and see whether or not this investment is worthwhile for you. Right? So lifetime value is hyper-hyper important. Justin. Yeah. But I'll be determined if this current customer in Hong Kong is false under the legal average or at least in the other end of the average. Do you mean by average? That's the base of 100 customers on average in general. Yeah. But let's say for somebody who also is historical spending that they've done whatever criteria that you used to identify if this person happens to fall under the label of an average user who stays in 13 months. Yeah. So great question. Can I answer that later on? Yeah. Okay. Good question. Now, why churn matters is really, really, if you don't take a look at the numbers and calculate it beyond the surface level, it can give you a very difficult, okay, five minutes. You can give you a very, very difficult picture of the health of your company. Say, you have a churn rate between 1 to 6 percent. Right? Why is 1 to 6 percent such a big job? Does anyone spot a trend in this graph or this table itself? Yeah. So if you think about churn rate, if you are losing five customers more than you are now, the money you are making, essentially, is an exponential function. If you lose five customers out of your hundred customer base, instead of just one customer, the difference is almost $83,000. This exercise gives you a good reason as to why retention is that important. Right? Any small fluctuation in the churn numbers will wreck your financials and wreck the health of your business or your product into, you will fuck all, basically. Right? So once you know about the amount of money you are getting from your customer, the next step is to take a look at how much you are spending to acquire those customers. And the cash is usually calculated by cost of sales and marketing spend by the number of customers. Yeah. Pretty simple, right? But can anyone tell me what's the problem with that? Anyone? Just taking an overview of what average cap is a very, very shallow metric to look at. You don't think it's considerate about operations? Operation cost is kind of like classified under servicing cost or retaining the customer. Anyone? That's a good try. Anyone want to give another try? It differs by whether there are orders all these or marketing areas. You should take a look at the customer acquisition cost across different customers at you. Because the lifetime value of each customer is different and you just taking a very, very shallow view of how much it takes to acquire all customers, you will not calculate your metrics properly. There are other ways that you can calculate cap across different customer segment. First of all, it all boils down to defining who you're trying to target and you want to allocate marketing expenses to each segment and allocate sales expenses to each segment. It's not rocket science, it's like a recipe basically. Now, you want to combine those two together, lifetime value and the customer acquisition cost and give yourself a good idea of what the return of investment of customer acquisition is all about. This there's another exercise that perhaps I want to do with you before we end off. Let's say you have $100,000 to spend on sales and marketing and you can attract say 100 customer A and 25 customer B. Which one is more worthwhile investment? Do you want to attract 100 customer A or do you want to attract 25 customer B? And of course the answer is that it depends it depends on what the lifetime value of each customer is and once you are able to do that you can basically calculate a very good picture of what your ROI is like across the different channels across the different customer segment, right? Is the ROI only KPI to say whether you have a good deal or not the KPI ROI the only indicator to say whether you choose 25B or 108 or there are other indicators it depends if you are taking a look at the product usage that also matters as well like I would say product usage contributes to the lifetime value of the customer so the ROI when you calculate it it looks simple but there are different components to it when you take a look at retention numbers there are two strategies perhaps you can go for broadly within the product itself does it solve the customer's problem and second one is customer marketing, customer sales are you able to upsell that customer better are you able to retain that customer better through marketing strategies through engagement with them so those spend need to be taken into account to calculate ROI as well so this is a very simple overview I'll be happy to talk about more ways we can calculate ROI so just putting everything together we have a framework that if anyone of you heard of the R-matrix for Star-matrix for Pirates is basically acquisition of how many customers how many potential leads you can get into the system the activation of those leads when someone becomes a lead into a user the retention of those customers or those users every month are they staying with your product, are they using your product and then finally is the revenue that you can get out of each customer ideally you want to start making money how much money can you make out of each user so today's session actually focuses a lot about the retention and revenue figures there are different metrics you need to track for acquisition and activation as well which I'll be happy to share about if you guys want to know but very quickly tying everything back together customers in different segments they give you different value you want to calculate the ROI of each different segment retention is very very important it not only helps your business survive it's a sign of product market fit for your product and last but not least I hate to be that guy but everything depends on the situation what focus you should have on what metric depends on the growth stage of your company so if you come up and ask me for your business what metric you should focus on I'll give you the most hater answer of all time you know your business more than I do I'm just here to provide you a framework to evaluate some of those alright cool thank you guys alright thanks everybody if you have questions so I will cut it a bit short so you can approach him any time after our next talk here will be VR and AI technology marketing in about 5 minutes