Breakout Session The Top Subscription Economy Metrics

top description economy metrics so it proves to be pretty exciting what I want to do is let’s go and get get started all right so we have an agenda today so obviously SendGrid and emma are going to come up and talk about their subscription metrics that they use how they use zora why that’s important to them and obviously broader topics about how that’s important to their ass ass business and love to be able to make this as interactive as possible for you to jump in with questions especially towards the end already so definitely don’t want to stand in the way let me go ahead and get started let me go introduce Jim Franklin CEO of SendGrid Jim thanks for inviting me here today I’m Jim Franklin of the CEO of San grid I come from a traditional finance background accounting undergrad passed the CPA but never actually practiced went on to law school did a jd/mba so I’m I’m used to thinking about things from a sort of a traditional point of view and having been a CFO and then a VP of Sales and now a CEO I look at it financial metrics made a little differently than some other people as far as what is sanguine it sometimes it’s hard to do describe and I want with all those words on there but rather it is those words think of your application and your the inbox of your customer and SendGrid is that connection point between the two are three founders had started the number of wet companies they found that all developers have this problem of getting mail from the application inbox no developers like to mess with the mail so sank when we say hey focus on your own awesomeness whatever is your application does and will take care of the mail we want to move the world’s wanted mail and to be that always on global default choice wherever people want to develop applications we’re just in the background whether it’s a hosting at Rackspace or if you’re developing an engine yard where there move the mail and it’s been quite as successful it’s been three years we launched this part of tech stars in boulder summer row nine we now scaled to 60,000 customers and we send over five at billion emails a month that’s something like 3,000 emails per second 24-7 so quite an operation and we built their own building system to start but we certainly didn’t didn’t end there some of our key goals are number one key goal is to maximize developer mojo now that sounds like a weird goal but he’s actually been the key to our success if we focus on that is our number one rule other good things happen our second key goal is growth and talk about the financial metrics around growth and then from that follows profitability now how to measure growth is a key is mr r you know monthly recurring revenue this can be i guess contrasted with CML are there’s a lot of things to learn in the subscription economy which is committed or contracted monthly recurring revenue it’s st. grid like many companies we’ve had a lot of success and make it very easy to onboard to our service there is no contract it’s just month to month so we don’t really have that cmrr concepts we just think about in terms of mr r i think the other thing is to keep an eye on is monthly measurement competitor to the broader economy where people have talked in terms of annual growth rates i think in the subscription business it’s important to focus on monthly growth rates so as a student of math you have to start converting those monthly growth ways to annual growth rates and think about how do those work i think of roughly five percent per month is doubling a year and ten percent the month is roughly roughly tripling per year and being somewhere in that range or even better is ideal and then you know counting customers so we do a whole set of metrics around revenue and whole set of metrics around customer count and one of the first base lines is are these paid customers or not paid customers and you think that’s a bright line and pretty easy to count but really there’s a there’s a middle group of customers which can be material which we call lightly paid customers specifically its angular we have a light product right and some of invoices might be ten cents or 48 cents or 72 cents now well do they really count as a paid customers they screw up all your metrics you start including those so it’s important to we segregate materially paid you know paid and then total customers and have kind of 33 cuts at the the numbers so having a framework to think about growth there’s really you know two pieces the equation sort of increases and decreases and then the net an increase is rather straightforward

and thinking about just a model right number of deal size for deal and then are they growing that and are we adding new things same grid actually announced a newsletter product September first so we asked the first time we’re having a sort of second service for a second revenue stream to attach so that really changes our metrics and how we think about things we want track that separately and then on the customer side as well the churn and the rate of reduction we’ll talk about in a minute so monthly recurring revenue now this is the sort of core metric I think in any kind of business intelligence system you know you have some kind of KPIs used to work at Oracle and the crystal ball business unit we talked a lot about you know putting the K in KPI and the hardest exercise is you just add one metric what would it be and that’s a very good exercise for management team to think about what is that one number when the board members say how’s business right and you can just look to one number for us it’s sequentially sequential monthly growth rate on an m RR basis and so when I look at this chart you think about what you’re you’re beginning mor and then you know new business you’ve signed up and then you have the increases for existing customers you know less your decreases from existing customers and then less actually you know companies that are completely churned out I think the most important thing to do when this chart is divided the two numbers the 1595 by the 1275 to look for that growth rate which is about twenty-five percent again a think about it monthly also as a general manager I look at each of those rows and I want to have specific goals and tactics say between now and your end I’ll say to our marking purse or some of our sales were say what should this number be at 1230-1 and what are we doing tactically to sort of move it and then we track that with our monthly board meetings against progress for all of those numbers there’s a couple of other interesting effects here one great thing about SendGrid is our sixty thousand customers are all you know I call cool kid startups and their business curves looks something like this but going straight up into the right a mask a lot of variation on the way up into the right so on an individual customer in a particular month they might drop their volume with us by quite a lot thirty percent or eighty percent so they’ll go up and then down and then they’ll go up and then down and the ups net out the downs but across 60 thousand customers at any one month a lot of them are going down so you look at the line decrease Mr are it’s a lot of money and so you really need to get underneath that understand what’s going on if it’s because you know people are you know on their way out there turning off your system they’re they’re using push notifications instead of email that’s bad right if it’s just you know no noise and what is otherwise a positive trend not so much to worry about but that’s why you have to kind of get underneath there really understand the data the other interesting thing I think with a lot of companies like segment is there is the concept of a base charge for a month kind of like a cell phone plan right you buy 100 minutes a month on your plan and then if you go over you pay at a heightened rate and the bass charges are paid a month in advance on the first of the month we built those bird base charges and at the end of the month that we then bill in arrears for the overages and you’re keeping that clears we’ll do a set of metrics around recurring revenue for base revenue and looking at that growth rate month over month versus total revenue that includes overages because if we have a good month and say it’s up fifteen percent month on month the first thing I board wants to know it was like well was that just overages right or if you were to go to the square one or something of a bank or something right they look at origin say oh that doesn’t count right we just want to look at base revenue for any kind of a our line or something that well you put on your cash flow hat which is most important how to wear and that’s real money right I think typically you might have you know 20 or 25 percentage of business in sort of that overages bucket and so you really need to keep your metrics separate you know whether it’s base revenue or total revenue including overage or usage based charges with that was a good customer account so this is a very insightful as well having startups as our customer base and we have a high degree of customer churn by account basis but on a revenue basis it’s a much much different story I think this is relatively straightforward again looking towards different segments so we want to look at a customer count if they’re in a free plan or a light plan or by marketing channel we used a like ad affiliate networks to do some marketing we looked at that that cohort and we found that they would churn out really fast you know they weren’t high quality customers weren’t they weren’t a good fit for our service and so doing customer count analysis by marketing channel is not easy because we have maybe you know 15 marketing channels running in a given

month but we’ll look at a global number and one that will jeez is that platinum customers that came from quantcast or those silver customers that came from our Facebook campaign right you want to be able to slice and dice that data looking at things on a cohort basis is very important so what we can see here is that by customer count than a given month you start off with a 100-percent and that number can never go up but over time some customers leave again we have so many startups quite a few of them you know or no longer business three months later six months later what have you and so that number will drift down over time and understanding what that curve looked like is important and it’s hard to come up with a benchmark because depending on your facts and circumstances it can be a fairly wide range what’s really interesting though is to look at dollar turn and so typically when you have customers turn out you’re thinking also that dollars are churning out of the business what is not unique to send great but is unusual and rare is that our dollar turn is negative which means that the dollars go up over time from our initial customer base so let’s just pick you know January of 2011 you know say we signed up a hundred customers and curative Lee they were paying us a hundred dollars across all hundred customers well over time that hundred customers would that just downright maybe there’s only 70 today that are still on the same good system but that hundred dollars didn’t fall to seventy dollars you know it went up and went to up to 130 180 dollars because those customers themselves are growing and so I sometimes get confused about what’s positive or negative churn so the way I’ll define it here today as positive churn is like when it goes down that’s the normal way a negative churn is when it goes up which is when it does what you wouldn’t expect is to have revenue go up while your customer account is falling again that’s because the portfolio of our customers are these high-growth companies and while a lot of them you flake out 20 a few of them grow up and become Foursquare or Pinterest and Spotify and customers like that one other question on sort of that negative churn is even as a general manager you oftentimes have to think about what projects do I find there a finance professional and you’re doing your budget hope you’re planning your 2013 we kick that off actually today or 2013 budgeting process for the fall and think about what are we going to fund next year and I think you know 99 times out of 100 is a good idea to fund any project designed to reduce churn but it’s just so compelling to keep existing customers and you think I just think about it’s filling a leaky bucket right you could spend money on sales and marketing all day long to keep putting more water in the bucket if you’re not plugging the holes you know you’re fighting a losing battle and that’s why whenever someone says hey we need to do this or that because it helps reduce churn that is almost always a winning argument so let’s talk about profitability so we talked about growth and profitability I’ll talk bottom up so you know counting revenue by employee cost per employee we have financial assistance for that the financial statements income statement statement of cash flows are a great on a focus on some of our customer metrics as their relates to zora specifically the CAC and lifetime value of a customer so customer acquisition cost this means a lot of different things to a lot of different people so the reason I’m smiling is I’m thinking about our CFO so when he thinks about customer acquisition costs he gets a big bucket of costs and divides by a small amount of deal to come up with a high number because I’m the CEO and a former salesperson I tend to think of a very small number of cost I have a narrow view of cost and I think of a broad view of the number of deals and come up with a very low number but we’ll talk about some commonalities but definitely understanding those there’s layers of cost and how they interrelate and then the key is what is the payback what is your sort of your average mor per customer and what does that look like in terms of payback so we’ll do a little do a little bit of math so if your organization your monthly sales costs or a hundred thousand dollars and you’re a monthly marketing costs or 150 and you close 600 deals then alcohol middle the road math you know your customer acquisition cost is just summing them in dividing which is for 16 in this example that’s the way our CFO Chad likes to think about it we have a self-serve model ninety-four percent of our transactions people just come to our website give us a credit card user api’s and we never talked to them so i say our cost is zero on the margin but somewhere between you know Chad’s numbers and my numbers gives gives some Kevin estimate there’s actually another related metric that are marking people use called CPA I think it’s cost per account and they just look at the variable marketing cost to acquire a particular account so again any particular month you might run 15 different marketing programs so you’re running an AdWords program right and so

you’ll say I’m gonna spend 25 thousand dollars this month on AdWords program and it generates you know 25 accounts that was a thousand dollars per account in what they call CPA which is a more narrow definition than the broader CAC I’ve also seen another company taking an even more broader view than our CFO they included not only sales and marketing costs but also support costs which is st. good are very material one of our big differentiators is you can call us 24-7 chatter email and we will we will help you solve your email deliverability problem and you don’t need to be a sendgrid customer so your company your friends company if your email is not getting in backs call us we’ll help you we’ve got a bunch of smart people that can help solve it the thing about email systems they tend to go down at the worst possible time you know right before the big announcement or something you have going on and that’s what we do to help people get out of jams and they realize that they shouldn’t be doing that and they’ll just let us take care of it going forward so that’s cec so let’s talk about the the payback so if the average mrro is a hundred dollars and your costs are for 16 to acquire then it’s you know 4.1 six months to pay back which is fantastic we did our latest round of funding a series be led by Bessemer and bessemer’s rule is if your math solves to 12 months or less you know call them they want to invest in you and the ascend grids is you know far below the 12 when they were very happy to lead our be round which is great I’ve also seen one twist on this where rather than using the the whole mr r is using your gross margin so if you have a 20-percent cost of sales in our business it’s hosting costs and support costs or our cost of goods sales we might net that out is another way to look at it but I think the key is to really compare the cost to the lifetime value and the big lesson there is you don’t want to be doing sharp math like you know thinking about the coast margin percentage you want to drive a truck between these two numbers and the real shortcut is you want to if you can keep your costs in the hundreds and your value in the thousands you know that’s an awesome business and whether you know how you do the math on lifetimes I have a customer so one of the key variable is is you get that hundred dollars a month how long does it go on well we’re a three year old business it’s hard to know what our churn rate looks like five years out hasn’t happened yet so Chad again being very conservative he’s like well we just don’t count anything past three years we truncate everybody at three years for a lifetime value calculation what I’m thinking mmm you know there’s real cash flows out there discounted present value there’s there’s a lot more value and so again reasonable people can disagree about how you might do some of that math but you just want to get a sense for the lifetime value if it’s you know a 36 month average duration or something longer you know if you have an older business you might have a real data to work with and then just net out the cost of revenue net out the cost of acquisition and you get that lifetime value of a customer again if you want to be fancy or you could use net present value concept in order as well but again I think if you have to think that closely about it you know red flags are everywhere that’s not a good business if it cost you forty thousand dollars to generate a forty five thousand dollar lifetime value that’s not good that’s that’s danger zone you want to be in the unit cost you for her dollars to get two thousand two thousand dollars so you have lots of lots of room for error with that just a few resources I wanted to put in the deck I’m happy to share that easy to reach I think that what’s great about all of this is it really helps you understand where to focus in the business any business has so many different things that can focus on lots of different opportunities to focus on and I think the whole value of reporting and analytics is to like all the you’re in the business of aha moments gonna be like aha this is a problem why is this sector you have a churn rate that’s too much higher than that one but it doesn’t tell you what to do if that’s why you need you know great teams and smart managers and people that get underneath those numbers and figure out oh well you know this has low churn and this is how churn how do we make this look like that and hopefully there are straightforward things and but they aren’t always which makes business and life very interesting again I’m Jim Franklin CEO at st. grid he will be taking questions after our second presenter thank you kind of preaching to the choir here today because everyone seems to be really on board with the subscription model here which is really nice I feel like I’m in a room of like-minded individuals it’s really really a pleasure to be here emma is a subscription-based email and communications platform specializing in creative design focused and brand centric small to medium sized businesses we were founded in in 2003 in Nashville Tennessee and we service and catered at nonprofits and

agencies and small and midsize businesses all across the country and even a couple of international clients as well one of our key different changers is also our award-winning customer service support team we want to Stevie this year we’re really really proud of that so we’re we’re happy to just like Jim it said earlier we’re happy to talk to anybody about anything and if you just want to call talk about your cat’s that’s totally fine we’re we’re pretty into that so in the subscription economy one of the key metrics to measure is the customer lifetime value Jim and alluded this earlier this is sort of to me the end-all be-all of the metrics in terms of what what you want to measure to get the effectiveness of your business it incorporates the entire life cycle of a customer modeling out the financial impact on your business knowing your customer lifetime value allows you to maximize your growth and profit potential it incorporates things like revenue the cost of acquisition and your churned out revenue the basic formulas you take that total value of your recurring revenue and then you reduce the cost to acquire the customer and then you take out your turn revenue from that time frame and then you drop out your cost of goods sold and you get you take it your hardware and your support costs and then basically end up with a final number that that value of that customer is using that number you can you can generate a lot of different operational metrics with your company you can you figure out exactly where you want to go and drive your business and figure out who is doing the right thing on your customer base and where you can go after and chase more of those businesses that being said let’s look at some of the specifics of the customer lifetime value metric and break it down some of its individual parts revenue growth being the number one sort of piece you look into where’s that top line growth you know let’s really figure out where where the top line is coming from you got our factoring things like net recurring revenue which is your inbound revenue not just number of counts but actual revenue that they’re driving you take that and then you take out the churn revenue from the accounts from that time period so you basically have net civ or subtracting out their earned revenue to get a final number for that time period the other opportunity you have in the revenue side of things is your eps l once you’ve got a big group of customers and accounts you can really start selling them other additional products and features to drive out either one time or recurring ARPU which is sort of the most unfortunate acronym thing in the business I wish we can come up with something better than RP but it’s it is what it is we’ve got to just say it um one of the good things about parting with a company like sawara for emma is the ability to quickly expose this kind of net recurring information in our business we’re able to quickly drive into all of our individual customer behaviors and see those those uptick revenues from a recurring standpoint as well as the the the churn revenue that happens on a monthly basis we’re able to expose that information pretty quickly in our Salesforce dashboards and really expose all that all that information to our operational team so that they can be driving forward the company and making sure that those revenues are increasing going up into the right so here’s an example of a dashboard that we use we have a couple of satellite cities in where we have some sales sales operations and one of them is in Texas this is our Texas dashboard we have a presence in Austin and San Antonio and we like to track it against some unmanned cities in Texas which are in Houston and in Dallas so we look at the number of accounts and the number of deals that we do as well as the overall revenue growth that we see over a month-over-month basis that we can kind of see the trending of the revenues over the course of time in in the cities for a quick quick look comparison it’s sort of a high level view of how this cities are doing and how our sales operations are doing in mandan unmanned cities so this war Salesforce connector really helps us accomplish this and make sure that we are tracking our business in the right way and thinking about it from an operational standpoint so the next piece is the cost of acquisition this is sort of a hairy beast it can you can look at it from an overall perspective but it really it’s not really clear what that means your business until you really get down to some of the specifics of the individual customers you take the sales and marketing costs overall and you simply divide it over the number of deals closed to get a pretty standard number that ideal number again is should be somewhere under 12 months otherwise if you have it actually more than 12 months the problem is you’re really putting a heavy burden on your retention and if you if you start slipping up on your retention efforts what you find is you’re actually using money on some of your customers important thing to remember here on these things that the averages can be very deceiving it’s an important overall gauge of your business

just look at the cost of acquisition on your overall business but it shouldn’t be applied directly to your operational marketing activities you really need to break it down into these subsets of customers and really drive in to all the operational things that you can do to drive more profitable revenue for instance so emma has a couple of advertising spots that we’ve that we found drive out higher revenue accounts and we’re able to spend more money to advertise in those areas to drive out more business even though it’s less it looks like it’s more cost on average for the customer we’re actually making more money on the bottom line because we’re we’re finding higher source revenues for those customer bases it bring back that old adage the half of the money you’re spending on advertising that you’re not really sure is working but you don’t know which half the cut we were able to look at our google adwords spend and really hone in on some of the sources of revenues and figure out that certain keywords performing better than others and we were able to cut our cut our marketing spend in that in that in that AdWords budget in half and we’re still able to drive the same amount of revenue in a monthly basis so it’s really important to really drive home all these specific cohorts of these customers are you coming into the last metric we’re going to talk about today is sure turn turn is the largest revenue multiplier in a subscription business you’re you really got to make sure that you’re maintaining your customers over the course of time because typically you’re spending more money there to acquire them on the front end then you’re actually driving out a revenue on our ongoing basis so you need to make sure that you’re keeping them around so then you can drive up more revenue you got a lot of revenue up side by maintaining churn it goes straight down to the bottom line lowering your churn rates means you have a higher allowable acquisition cost so you can go after them with a more aggressive pitch or you can pitch them with different pricing or you can spend more on the marketing costs to go out and acquire more customers because you know you’re keeping them for a longer time period you’re able to actually drive out more profit at the bottom line when your accounting for turn you have to make sure that you’re you’re looking at it both on a unit basis in terms of number of accounts and also from a net revenue perspective as you think there’s a whole swath of customers that can be average or below average or above-average if you’re if you’re turning out a bunch of the low revenue accounts it may not necessarily have a huge impact on your revenue but it still looks bad from a unit basis or it or you might be masking things by having your retaining all of your lower base clients and you’re losing some of your higher big whales as it were so one of the key key things to do too is to break it down into different cohorts as well here and really start looking at it by the different products that you serve the size of the customer and even by the age of the customer so you might not have three years worth of data where you can actually say we know what happens the customer after a certain period of time but you can you can you can project forward based on some monthly averages typically what happens is these curves start to sort of flattened out and you can really project for the for the whole term of the customer lifetime expectancy and you get a really good sense of what kind of revenues you’re driving out for the business so this is a little example of some turn reporting that that Emma does on a regular basis we looked at monthly turn on a month-over-month basis in terms of a particular cohort of customers we were comparing here and this 1 2010 versus 2011 seeing the differences between some of the programs that we were doing on an ongoing basis and we saw in 2011 that there was a significant increase in turn from a unit basis but when we looked at the term to average revenue on the outgoing perspective from a net revenue perspective it was actually not that much difference so while we were losing more customers than we were in 2010 we were actually not losing as much revenue so when you really start breaking it down into these component parts you get some really interesting information about your business and you might not have to raise red flags in certain or instances and you can really drill down into the customers that you want to keep versus the customers that you feel obligated to keep because you’re trying to keep a number artificially too high and so that’s pretty much the the big thing that we’re really we’re really doing in terms of measuring our subscription metrics we put everything together and do one giant ball of customer lifetime value and try and make sure that we’re operating against that number and that we’re hitting our targets and growing the business from not only a top-line revenue perspective but from a bottom-line perspective where you know keenly focused on driving all this stuff on it on a real time basis and having to wear as a partner really helps us achieve that goal by exposing all this revenue information is great upsell opportunities and incorporating new business models and pricing and having all that stuff at the ready and

being able to go out and sell any product that we really want to integrate with and layer on additional revenue so it’s a it’s been a wild ride and we really appreciate it thanks we’ve got a couple mics on the audience so now is a great time you know I’ve learned a lot about making data-driven decisions so incredible insight from from both SendGrid as well as Miami so let’s go and open up for any questions you it’s it’s something where I mean you kind of have to apply a little bit more art and science perhaps to it but seeing some of the trends for instance when we we did a program where we offered two months free for new customers and what we found was that our retention rates we had a huge sales bump right so we had this big bubble of new accounts that came on board and then after we started actually billing them and the regular billing cycle we saw a significant increase in churn and so we had to sort of account for that in the overall churn rate we didn’t really know how many of them would churn out over the course of time we knew it was going to be something more than what we normally had had seen because we were exposing a new customer base and so we had to sort of apply what we knew is existing turn rates and then put a sense check on top of it disabled if we increase our sales by 50% we’re probably going to see you know our hope is that we’re going to see some kind of a twenty-five and thirty percent churn or less above and beyond what our normal churn would be for that same time period and sort of just evaluated against that and then as the months progress we got to see more and more data and going out to calibrate that a little bit better to sort of understand how it would go so it’s all about just putting a number on the wall and trying to throw a dart at it and you know making sure that you’re you’re setting goals and you’re measuring performance and you’re checking back on it and you’re seeing what works and what doesn’t I don’t know what cohort analysis was back when I was an accountant you know doing receivables and whatnot but I was like oh that’s good word analysis right it’s just like you think about receivables right what was collected from a particular monthly billing period so i think we started very early with cohort analysis but then what happens is you you keep digging and adding more layers all right so that just having some very simple as we had a similar fact that you talked about we have a an 8x move and web traffic we had a big PR announcement so well how’s that going to affect our whole lead fun on the marketing conversions what turns out was maybe a 2x you know change in revenue with a a tax change in this and you see the how that changed over time then we want to look at all those cohorts as customers would come in on a on a free plan and how do they migrate up to paid plans over time and we just started doing that in the last six months so the business was maybe 30 months old when we started doing that and it just becomes a ongoing process is one answer baguettes you more questions and so on I’ll say this too it’s it’s pretty data-intensive to get into some of these cohort analyses without a program in place doing the stuff in Excel can be challenging time consuming and you might find your your finance guys actually tearing his hair out because of it unfortunately so it’s really important that when you start doing cohort analysis that you you take a healthy respect for it and then you have some kind of a plan for a program good because as Jim said before you’re really going to start digging into further and further cohorts and it’s it’s it’s almost like it gets more questions and you’re you’re really only going to understand your customers better by digging further and further into into the cohort hang on the technology that we used Excel to start and then literally the you know Excel and the even a pc with lots of ram and it would just sort of start to you know slow down and fries so when we switched to access and we’re just launching a good data projects really kind of going through a good data to automate all the Excel access processes we put in place is the five rows right as your new customers you know the more business from those customers the less business resisting customers the lost customers and then we look at that by all the different segments whether it’s by your customer count by dollars by geography so what’s happening UK vs the US or by marketing channel you know people come in from quantcast by product type should the free accounts the light accounts the maturely paid accounts so those are all the dimensions when we think about revenue we had to give there’s there’s so there’s a lot of dimensions that we think about it on the cost side I think you again I think about it from a marginal cost perspective which can be sort of zero on the kind of the CAC side to where some people use the full boat they do sales marketing and support costs you in the numerator divided by number of transactions in a month we’re

Chad I think the standard formula or CFO uses this sales and marketing costs you know VPS all in the whole travel while that’s divided by number of deals it comes up with that CAC I think the the managerial rule is to make sure that that CAC and the total lifetime value are very far apart I think lifetime value in early-stage SAS companies is hard but you don’t know how long that future cash flow is and again just reasonable people disagree if just whatever that ranges of numbers make sure the lifetime value is you know a lot bigger you know 3x 4x that that’s CAC so again you can calculate calculate the CAC we’ve gotta move the measure from the 0 0 to seven hundred let’s say but the lifetime value is somewhere between 1800 and 4000 right just look at those two ranges make sure there’s no chance of overlap engines presentation he did note differentiating churn by customer downgrading versus someone canceling and so a lot of metrics do actually combine churn all into one number and so being able to see that level differentiation as critical as well you you know I think that comes back into the sort of gross margin picture for for the sort of you know tech companies out there you have to expend some level of rd just to sort of maintain pay sort of to keep your customers happy it’s it’s it should all a matter of exactly how your qualifying your your cost of goods sold at some point and in some people we don’t necessarily do it this way but some people do include a team of rd people that are actually working on maintenance of the product as part of their cost of goods sold so that actually is incorporated into some people’s analysis which it depends on you know the Devils in the details of what that number it fully entails I think the theory of that is correctly but we should allocate some rd and five thank you maybe ten percent of our R&D sort of ftes are related to just your supporting that core product of the support function we actually in our agile process we categorize user stories with N and s and as new stuff and s is not new stuff that’s that s it just you know the things you’ve got to build to kind of keep the system working and that does seem like it should be how your netid out in that lifetime value I’ll spreadsheet so far yes so where I think we’re both serving the same bed here where we’re both heavy on spreadsheets at this point it’s incorporating a lot of disparate information together into one particular place and it’s some sense it’s kind of dangerous level information in the same place but I think we’re both looking for something that’s a little more automated and and can incorporate all those things to get that holistic picture and to get it now or yesterday instead of waiting until the end of the month and somebody has to turn all this data out and then do all this analysis and then you have a dead piece of paper that doesn’t mean anything anymore so I think I think we’re both sort of looking in that that automated tool process to make sure that we’re exposing that information on a regular basis that’s a very timely topic we just did our first annual plan last month so our initial target market was more less by default with all the startups and we’re moving towards enterprise and customers want Leo assurance of prices and SaaS and security and the whole different set of features and we sort of settled on the one year as we think there’s just so much uncertainty that we just sort of comfortable doing you know one year but not not like a three year that some customers like want to lock in pricing so we rather just sort of do it for a year and we’ll revisit it from there in today you offer a discount if someone signs up for a year versus a month or what is your price and discounts look like it’s a little hard to compare since it’s really it’s a different product right as regarding the service level and security and the dedicated account management custom building and all that so okay in the theory yes you would get a you’d get a break on that on an apples apples basis for the for the annual commitment but paid monthly it’s a we so we offer a sort of pay for the year up front model where it’s an annual subscription and we do offer a 10-percent discount for our customers that decide to go that route we find that it’s interesting that there’s a there’s actually a positive turn effect for people who do sign up for the year they typically Reese I’m at a higher rate than then we would over the course of a month two month period for that same sort of cohort of accounts so things like that are really good to evaluate and make sure that you’re reaching out to your customer and in maintaining that relationship and you’re not just taking the dollars and running for the next 12 months interesting finance implications right about how you handle that cash flow about sending people to pay upfront coming from a perpetual software world you know for 18

years it’s that was a that was our financing when I was getting a high-margin money upfront and so you have to take that hit for the dilution on the financing in this kind of business but then on the other hand these evaluations are very very high when you have that you’re really high quality you know pre paid monthly revenues is awesome clearly we have a large base of free accounts which is a much higher turn as you go to sort of these light or bronze accounts which are maybe ten dollars a month but you’re still kind of view those is like lead flow and then for eighty dollars a month is we’re sort of we call materially paid and that’s the we get your own IP address and so and then it goes up up from there and so certainly the sort of higher of the stack you go the the lower the churn rates to reach the very top of the stacks their top 250 customers that have dedicated account managers that type of thing whose turn is essentially zero because we pay a lot of tension to that I mean it’s a it would be on the board packet if one of those that come people left so they get that much attention so there’s a there’s a real difference depending on where you look at level equipment I think one you know key I think to make a subscription businesses work he was being easy on easy off I think of Netflix is a good example in this point where it’s easy to sign up it’s easy to suspend your account is easy to reactivate it and so if you do the same thing with sendgrid is they’re having these month a month contracts and if you know you run out of money for a while you want to suspend your business you can hit suspend but you keep all of your like your IP address and that kind of stuff will keep it around for you so you want to come back 60 days later nine days later you can reactivate it and not have to kind of start from scratch again with everything that being said we can’t be a little sneaky right so its CEO it’s easy to on board but then once you’re on board and you start using the api’s and start baking our stuff into your system you start using our reports to run your management meetings and things you know then it’s just it’s not contractually or legally hard to leave it’s just operationally you know unpleasant this is like oh we’re used to house and great does things and you know that’s how you kind of just get and once it’s in the infrastructure it just works and people move on to other priorities we’re taking care of the mail like other people take care of the payroll or the billing and you’re just part of the infrastructure of how business works we’re self-serve we don’t have a sales team which is awesome right so our sales team is our customers our net promoter score hit 50 last month so if you’re familiar with a net promoter score methodology right it’s really it’s our customers tell other developers hey don’t mess with me I’ll just let sangra do it that being said but you have like four people that will answer the phone if you call and say tell me what your pricing plans so that’s just something we’re doing right now is to looking at you know spooling up a sales team to actually call people and say hey use our stuff and whether its annual or monthly those are the issues were you’re looking at we’re looking forward to dealing with those in the coming year I can also say that because we have a sales team and we do some of the sales for the annual plans where it’s a more customized approach we find that there are certain customers who prefer to pay up front for the year who have that sort of annual budgeting process and they want to expend the money at the D onset of their of their fiscal year for instance like universities are a key a key user of that kind of philosophy so we find that it’s not a detractor at all it’s actually a benefit to the customer and it also allows us to get that revenue up front and it’s just a really it’s a good boon for for cash flow and you lock in the customer for a guaranteed 12 months at the very least so we find that it’s actually not pulling teeth necessarily it’s more of a collaborative sale meeting the customer where they want to be in terms of the billing system with the help of Zoar of course we’re incentive izing with a great service right we don’t great book is punished by rewards if you’ve ever read that one you’d be very careful about you know they do this get that mentality and that’s sort of dynamic and so really trying to just wow people with a with a great service is how that it’s incentive for one developers L&L developer you know something cool and awesome that they found and so we encourage that with you know alcohol and t-shirts we have five people on a developer relations team that travel the world go into hackathons and startup events and we still have the same good you know banner up places so that they just really creating awareness that you don’t have to spend your nights and weekends figuring out why some customers an AOL addressed isn’t getting your confirmation about it will take care of that problem and developers are happy to let us fool with that and they can focus on the mobile social game ified iphone 5 app they’re going to work on next I’m saying classic softwares you those are separate from you know hunting and farming all that stuff so if you if we pay maybe a seven percent commission and it’s a 12-percent variable on new

business we might pay five percent variable on maintenance business with the separate teams we haven’t had that at issue yet he rats in grid yeah we don’t have a formalized process even as that it’s it’s more that our product does the renewal for us and we we presume that there’s not a lot of hard selling to do the renewal if we find that our sales team has spent a lot of time in renewing the business then we’ll we’ll reward them with with a commission-based payout but for the most part are our product tends to be there were no for us okay I really think it would certainly be you know not just on the month a month business the few reps we do have you know they’re paid a percentage of the first month and it’s not one hundred percent it’s not half a percent it’s you know they’re not fifty percent either it’s it’s very modest compared to an enterprise sales plan where it’s substantial well thank you very much huge delivery that Jim thank you very much thank you everyone