SaaS Pricing & Churn Prediction - Amazon Web Servicesaws-de-media.s3. ISV BLF...¢  ¢â‚¬¢ Let churn happen

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  • © 2016, Amazon Web Services, Inc. or its Affiliates. All rights reserved.

    Philipp Behre, Solutions Architect AWS Florian Garlet, Account Manager AWS

    SaaS Pricing & Churn Prediction AWS Software Business Leader Forum

  • Is SaaS more complex than traditional businesses?

  • Is SaaS more complex than traditional businesses?

  • Standard Perpetual Software Model – Customer Acquisition Costs and Revenue are aligned

    Note: For simplification cost of capital is not reflected Source: EMEA ISV Team

  • SaaS Model – Customer Acquisition Costs and Revenue are decoupled

    Source: a16z.com

  • 0" 20" 40" 60" 80" 100"

    Year"1" Year"2"" Year"3" Year"4"" Year"5"

    Perpectual"model" SaaS"model"

    0" 50" 100" 150" 200" 250" 300"

    Year"1" Year"2"" Year"3" Year"4"" Year"5"

    Cumula9ve"revenue"Perpetual"model" Cumula9ve"revenue"SaaS"

    In the long Run the SaaS Model brings more Revenue

    Note: For simplification cost of capital is not reflected Source: EMEA ISV Team

    Break even period

    Lower entry barrier for customer

    Gain for service vendor

  • Customer Live Time Value – Churn is a major Influencer

    Customer)Churn 10% Interest)rate 10% LTV/CAC 2,5

    9200)

    9100)

    0)

    100)

    200)

    300)

    400)

    500)

    Y1) Y2) Y3) Y4) Y5) Y6) Y7) Y8) Y9) Y10) Y11) Y12) Y13) Y14) Y15)

    Gross)Margin) Live)Time)Value)(LTV)) Customer)AcquisiKon)Cost)(CAC))

    LTV=(Annual Recurring Revenue x Gross Margin) / (Customer Churn% + Discount Rate%) Source: AWS EMEA ISV Team, a16z.com

  • Managing Customer Churn is a leaky Bucket Problem

    Source: AWS EMEA ISV Team, a16z.com

    Price per liter: Customer Acquisition Cost

    Liters lost per hour: Customer Churn

    à In the early days of a SaaS business it is less costly to reduce churn than to acquire new customers

    à This is why SaaS companies invest in customer management functions ahead of revenue to retain and expand on existing customer base

  • Focus on Revenue Churn or Customer Churn?

    $0

    $500

    $1.000

    1 .. .. .. .. .. .. .. .. 50

    50 small accounts

    $0

    $500

    $1.000

    1 .. .. .. .. .. .. .. .. 50

    50 large accounts

    100 customers MRR of $55,000

    If 10 customers are lost: 10% Customer Churn

    If 9 out of 10 customers were small accounts: 3.4% Revenue Churn

    Source: forentrepreneurs.com

  • Maximize your Investment in Customer Success Management

    • You need to make a smart decision • Let churn happen – overall cost of retention is higher than

    acquisition of new customers (with similar potential)

    • Prevent churn – investing in measures to retain a customer provides the better value to the company (financial and/or other KPIs)

    • Start a mission to get even closer to your customers

  • Collection & Storage

    Analytics Take Action Measure Success

    Churn Prediction for SaaS Companies is a key and continuous Process

    Collect à Store à Analyze à Repeat

  • Collect Data for Churn Prediction

    Renewal Rate Monthly Recurring Revenue

    Number of active Users

    User Session Duration

    Number of active Jobs

    Transaction Value Gross Merchandizing Value

    Hours or Protection provided

    Metrics

    Relational NoSQL

    Web servers

    Mobile Apps

    3rd party feeds

    Sources

    Structured Unstructured

    Text

    Binary

    Near Real-time

    Batched

    Formats

    Machine Learning Reporting

    Dashboards

    Sentiment

    Clustering

    Optimization

    Analysis

  • Three Types of Data-Driven Decision Making

    Retrospective Analyze historical

    trends to know what's happening in

    the app

    Predictive Anticipate user

    behavior to enhance experience

    Inquisitive Discover latent user behavior to shape

    product or marketing decisions

  • Collect à Store à Analyze à Repeat

    0101011101

    collect data

    store data

    Aggregate /transform

    data

    Retain?

    Yes

    select measures

    No

    Keep /track

    deploy measuresTrack result

    probable churn Risk?

  • Collect à Store à Analyze à Repeat

    0101011101

    collect data

    store data

    aggregate/t ransform data

    probable churn Risk?

    Retain?

    Yes

    select measures

    deploy measures

    No

    Keep /track

    Track result

    probable best measures?

  • 0101011101

    collect data

    store data

    aggregate/t ransform data

    probable churn Risk?

    Retain?

    Yes

    select measures

    deploy measures

    No

    Keep /track

    Track result

    probable best measures?

    Collect à Store à Analyze à Repeat

  • 1. Understanding and managing churn is a crucial business process

    2. Integrating Machine Learning is easier than you think

    3. Continuously learn from your customer and from your actions

    4. Decrease cost and effectiveness of churn prevention via automation

    Start today!!

    Continue learning …

  • Key takeaways to manage your SaaS business

    1. Think big and acquire new customers fast – most tech markets follow a “winner takes it all logic”

    2. Measure a SaaS business with appropriate metrics and do not compare just revenue with your existing business in the first years!

    3. Start to collect „SaaS“ customer metrics now.

    4. Start with a simple churn prediction model and extend it over time.

    Source: AWS EMEA ISV Team