Saas Revenue Primer - Flux Analysis

SaaS Revenue Primer Flux Analysis January 2009

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Overview & Contents The traditional approaches to technology revenue analysis are different for SaaS solutions. This presentation covers one of several techniques that executives and investors should use to assess the relative health of SaaS revenues Contents 

SaaS Revenue Primer

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SaaS Revenue Flux Analysis

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Other SaaS Revenue Analysis Topics

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SaaS Revenue Primer •

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Fundamentally different than traditional licensed software / maintenance / professional services economic model Techniques for forecasting, analyzing, and assessing SaaS product line performance are different New analytical approaches are needed to get underneath the SaaS iceberg This is first of a multi-part presentation on SaaS Revenue Analysis

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SaaS Revenue Components

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License, maintenance, and PSO fees replaced with: • User fees – monthly $ / per user or seat • Usage fees – cost per transaction / activity (often sold in bundles) • Setup/ Customization fees (generally one time) • ‘Junk’ fees (archiving, private labeling, special connectivity, etc.)

Take Away: Understand the Components and Structure of SaaS Revenue Stream DevelopmentCorporate Copyright 2009 Development Corporate www.developmentcorporate.com

Flux Analysis

Typical SaaS monthly revenue analysis • Top 10 customers showing strong growth (50%+ YoY) • Rest of customers driving 20% of total growth • Total SaaS Service Line growing 8%+ • On the surface, all looks good •

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Flux Analysis •

Understanding changes in SaaS revenue streams is critical

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Always compare to another period (last month, last year, etc.)

Flux ‘categories’ are key: How many new customers & how much revenue did they contribute?

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How many customers quit/attritted & how much revenue did they contribute?

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How many existing customers grew revenue & how much revenue did they contribute?

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How many existing customers had flat revenues

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How many customers had declining revenues & how much revenue did they contribute? DevelopmentCorporate Copyright 2009 Development Corporate www.developmentcorporate.com

Flux Analysis Example

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Flux Analysis Interpretation Two major components: • Top 10 analysis • Flux category analysis • Provides real insight into SaaS product line behavior • In this example, you can see: •

The two top 10 new customers (#1 & #2) were responsible for the majority of the month’s revenue growth • Customer #3 and #10 has huge growth – what was responsible for it? • Why did Customer #8 attrit? And what is going on with #7 • Customers who grew revenue year over year and new customers drove the year over year change and covered the attritions and revenue declines • The customer count change showed that a net 483 left the business – is this a key trend for the future? •

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Copyright 2009 Development Corporate www.developmentcorporate.com

How Do You Implement Flux Analysis?

Simple Excel-based analysis • Extract data from current systems • Assemble base data • Customer identifier, customer name, SaaS product name, period #1 revenues, period #2 revenues • Calculate period over period changes • Classify into flux categories: new, attritted, existing growth, existing flat, existing decline • Use pivot tables to summarize tables and generate charts •

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Other SaaS Revenue Analysis Topics Here are some other topics that will be covered in this series: •

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Customer Tiering Analysis • How to segment/profile SaaS customers into significant tiers Pricing Analysis • Not all customers pay the same price. What customers are paying what rates and how does it relate to their tier / flux behavior MoneyWheel Analysis • What are the repeatable sales transactions exist in your current as well as prospective customer base?

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DevelopmentCorporate DevelopmentCorporate is a strategic corporate development advisory firm for enterprise and midmarket technology companies. We assist management teams, board of directors, and investors in updating their merger, acquisition, and divestiture strategies and then we provide tactical support for the implementation of those strategies. We also provide support for strategic initiatives such market assessments, competitive intelligence updates, product/service portfolio analysis, etc. Finally, we have significant experience in guiding large scale organizations through corporate restructurings to either take advantage of new market opportunities or respond to changes in market conditions. www.developmentcorporate.com

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