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

SaaS Pricing & Churn PredictionAWS 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 customersMRR 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 SuccessManagement

• 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 MeasureSuccess

Churn Prediction for SaaS Companies is a key and continuous Process

Collect à Store à Analyze à Repeat

Collect Data for Churn Prediction

Renewal RateMonthly Recurring Revenue

Number of active Users

User Session Duration

Number of active Jobs

Transaction ValueGross Merchandizing Value

Hours or Protection provided

Metrics

RelationalNoSQL

Web servers

Mobile Apps

3rd party feeds

Sources

StructuredUnstructured

Text

Binary

Near Real-time

Batched

Formats

Machine LearningReporting

Dashboards

Sentiment

Clustering

Optimization

Analysis

Three Types of Data-Driven Decision Making

RetrospectiveAnalyze historical

trends to know what's happening in

the app

Predictive Anticipate user

behavior to enhance experience

InquisitiveDiscover latent user behavior to shape

product or marketing decisions


0101011101

collectdata

storedata

Aggregate/transform

data

Retain?

Yes

selectmeasures

No

Keep/track

deploymeasuresTrackresult

probablechurnRisk?


0101011101

collectdata

storedata

aggregate/transformdata

probablechurnRisk?

Retain?

Yes

selectmeasures

deploymeasures

No

Keep/track

Trackresult

probablebestmeasures?

0101011101

collectdata

storedata

aggregate/transformdata

probablechurnRisk?

Retain?

Yes

selectmeasures

deploymeasures

No

Keep/track

Trackresult

probablebestmeasures?


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