December 18, 2014
A few weeks ago Xero released their latest interim report for the six months ended 30-Sept.
I thought it would be interesting to plug these results into Dr SaaS, to see what the diagnosis shows us about how they are tracking.
Most of the details we need are in the report which is available on the investor centre section of the Xero website.
There were 371,000 subscribers at 30-Sept, and total operating revenue of $54.295m. They report average monthly customer churn of 1.3%.
Starting with 284,000 subscribers at 31-Mar (from the previous annual report) they added 87,000 new subscribers net. So, if we assume a churn rate of 1.3% that works out to be ~109,200 new acquisitions offset by churn of ~22,200 subscribers.
Based on these values Dr SaaS calculates growth of 3.91% per month, and and ARPU of just over $27 per subscriber per month (which is slightly less than the $29 value they include in the report).
Dr SaaS also estimates the average tenure of a new subscriber to be approximately 53 months, or nearly 4.5 years, which is pretty sticky! If you’re interested there is more information available about how Dr SaaS estimates tenure.
Next, we split out the acquisition and service costs. This is all done for us in the report – the total “cost of revenue” was $18.016m and “sales and marketing” was $38.329m.
Based on these values Dr SaaS breaks that down as $165 per new subscriber and just over $19 per month to service each subscriber. The profit margin is calculated to be 17.86%, which is to be expected given the focus on investing in growth.
To calculate the runway we need to also include the other revenue and expenses that don’t relate directly to subscribers.
Again the report includes all of the details we need – “other income” was $1.48m (this is a combination of government grants and rent received), “interest” was $4.128m and “other expenses” were $27.35m (mostly the cost of software development etc). The cash balance at 30-Sept was $170.8m.
Based on these values Dr SaaS calculates the break-even point (based on the current burn rate) to be around 944,000 subscribers. The runway is just over 43 months (again, based on the current burn rate).
Based on all of this Dr SaaS gives Xero a pretty good diagnosis: “you’re bleeding a little, but you’ll survive”.
Overall the lifetime value per subscriber is positive – total revenue per subscriber of $1428 offset by acquisition costs of $165 and service costs of $1008, leaving a gross profit of $255 per subscriber.
This is obviously a pretty rough and inaccurate analysis. To do this properly you’d want to understand a lot more detail about growth and performance in each of the different markets where Xero operates, as well as the trends in terms of ARPU, churn, and acquisition costs for different channels etc. However, as a quick exercise it’s useful to give a high level overview.
You can try Dr SaaS for yourself, using either your own numbers, or (if you just want to have a play) using the public details from one of many listed SaaS companies. Hopefully going through the process will teach you a little about the SaaS business model.
We’d love to hear what you think.