BEHIND UNDERSTANDING AND MANAGING

SaaS BUSINESSES

Recurly counts some of the worlds most successful subscription businesses as its customers

Subscription and Software-as-a-Service (SaaS) are commonly misused

words that often confuse rather than educate. The concepts behind
subscription and SaaS business models are relatively simple, but
having a clear understanding of critical variables and metrics can have
a significant impact. In every subscription-based business, there are
several critical variables, and they fall into three buckets related to the
various stages of the funnel.

Customer Acquisition
Metrics

Engagement / Loyalty
Metrics

Yield Business
Monetization Metrics

Account Sign-Ups

Customer Retention

Free Trials

Customer Churn

Average Revenue
Per User ARPU

Trial Conversion

Revenue Churn

Customer Acquisition
Cost CAC

Lifetime Value LTV

Margins, etc.

There are many important ratios describing the interactions between some of these
key metrics, but the most important measure of any subscription and SaaS business is
Subscriber Retention.
Subscriber Retention is the percentage measure of subscribers that remain paying subscribers
through a period of time (whether monthly, quarterly or annually). Subscriber Churn is the
percentage measure of subscribers that cancel or fail to renew their subscription during the
same period.

Importance of Measuring Subscriber Retention and Churn

Businesses with low Subscriber Retention (i.e., high Subscriber Churn) rates have underlying
problems which need to be understood and addressed quickly. Otherwise, every other area
of the business will suer. This is quite literally the most important single indicator of the
underlying health of a SaaS / Subscription business model.

Behind Understanding and Managing SaaS Businesses | page 1

Businesses oering a well-designed product or service at the right price point are perceived to
deliver real value to their customers over time. Customers gladly renew and remain loyal over
longer periods of time. The time period is the T in Lifetime Value (LTV).

Importance of Addressing Subscriber Churn

Subscriber Churn can be an indication of any number of dierent problems (or more likely a
combination of underlying issues). As noted above, high Subscriber Churn forces every part of
the business to work less eciently, which ultimately can be detrimental to the business as a
whole. Eventually, other critical business functions (i.e., Customer Support) will begin to suer
under the pressure.
Below is an example of the perils of letting high Subscriber Churn situation go unattended.

% of Subscriptions Active

80

60

40

20

Jul 2013

Jun 2013

May 2013

Apr 2013

Mar 2013

Feb 2013

Jan 2013

Dec 2012

Nov 2012

Oct 2012

Sep 2012

Sep 2012

Aug 2012

Jul 2012

Jun 2012

May 2012

Apr 2012

Mar 2012

Feb 2012

Jan 2012

Dec 2011

Nov 2011

(Youll note that the slope of the retention curves get progressively steeper with each month.)
This example demonstrates how churn can impact many other areas of the business. One
can assume in this example that Subscriber Churn was a multi-faceted problem. For example,
if it were simply a pricing problem, or a product problem, the slopes would have remained
concerning, but relatively constant.

Behind Understanding and Managing SaaS Businesses | page 2

What Can Be Done?

Speak with your departing customers
Exit Interviews are the most valuable source of information you can possibly gather.
When customers are leaving you, they are most inclined to provide direct feedback on
service. It is important to understand the context behind their decision to depart.
+ Why are they leaving?
+ Where are they going? What is their planned solution?
+ How/where did the service not meet their expectations?
+ Which aspects of the service worked well for them? (serves to isolate the issues)
While those comments can be less than pleasant to read or hear, they provide
extremely valuable intelligence for your business to act upon. These survey results will
also help to provide facts to support or debunk internal debates rather as opposed to
speculation.

Speak with your existing customers

This is one of the most often overlooked opportunities in all companiesbig and small.
These discussions provide a great opportunity to gauge the level of satisfaction, and
share plans for the roadmap ahead. This is also an opportunity
to gather requirements and to understand the need and importance of planned
features to ensure youre heading in the right direction.

Dont forget your customer support team

Customer support teams are often overlooked, but their interactions with customers
can provide a wealth of knowledge and data. For example, Recurly distributes weekly
This Week In Customer Support emails where the support team synthesizes a valuable
breakdown of feature requests, customer sentiment, emerging topical trends, and known
issues to prioritize along with valuable data. These data points help to inform our internal
discussions ranging from feature prioritization to technical debt.

Behind Understanding and Managing SaaS Businesses | page 3

One of the benefits of gathering internal data from your customer support team is
that it helps correct for sample bias. Often, happy customers wont take the time
to express their satisfaction, while unhappy customers tend to be more willing to
voice their displeasure. This can create an uneven, less than representative gauge of
customer satisfaction levels. Feedback from support teams minimizes this issue.

Know who you should listen to

Understand sources of feedback in relation to monetization. In addition to
understanding all of the sources of satisfaction and discontent, it is extremely
important to correlate those findings with the actual monetization of those customers.
This is why Revenue Churn is such an important metric to watch by showing whether
youre losing your most valued or least valued customers. Before taking any corrective
action, prioritize feedback in a way that will satisfy and therefore attract more of the
best kinds of customers for your business.

SaaS businesses can be optimized in many ways, which begins by

understanding your goals and establishing benchmarks. By doing so and
watching them as they change over time, businesses will develop a better
sense of what is working and areas that require improvement.
Contact our Team

ABOUT RECURLY
Recurly provides enterprise-class recurring billing management
for thousands of subscription-based businesses worldwide.
2014 Recurly, Inc. All Rights Reserved.

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