Hacking SaaS - with Eric Mersch, author and Partner FLG Partners

**Ray Rike** (0:00)
Hello, I'm Ray Rike, Founder and CEO of RevOp Squared, and your host of the Metrics that Measure Up podcast. We talked to a wide variety of B2B SaaS and Cloud thought leaders, executives, investors, and people just like you to discuss the metrics and benchmarks they use to make metrics informed decisions. Now on to today's show.
welcome to today's episode of the Metrics that Measure Up podcast. Today, I am joined by Eric Mersch, the author of Hacking SaaS and a partner at FLG Partners. We'll be covering three main topic areas with Eric today. The first, the motivation and inspiration behind writing Hacking SaaS. second, the importance of segmenting the key concepts in Hacking SaaS by target market segments. And third, the top metrics calculation formula in explanation and discussion that is included in Hacking SaaS, Eric's book. So, Eric, please take a moment to give a brief overview of your journey to becoming a guest on the Metrics That Measure Up podcast.

**Eric Mersch** (1:21)
Oh, thank you, Ray, and thank you for having me. So my story goes back to 2014 after I served as my last full-time CFO job. I was at a tech-enabled services company, public company. We were trying to pivot to SaaS, and we wound up selling that year. And so I was going around silicon Valley, pitching myself as a SaaS CFO, but I didn't know key topics like the magic number, LTV to CAC, cohort analysis. So I started consulting as a CFO really to get the experience and get my hands on the data, right? And learn that way.
So fast forward to today, I've worked with nearly 40 SaaS companies, either as interim CFO or advisor. And I wrote the book because I hope to shorten that apprentice period for other people following the same journey.

**Ray Rike** (2:16)
I know everyone appreciates to doing that. And it's kind of the journey I've been on the last few years to help educate and inform people about how to use SaaS metrics and benchmarks to inform the decisions. And I'm going to, you know, Eric and I talked about this right before we started the episode, right? There was not 100% agreement on everything. Some of these metrics are, I wouldn't say ill defined, but maybe different calculation models and usage based upon whether you're a B2C SaaS company or enterprise. So I just wanted to make sure the audience was aware of that. But Eric, before this, before we get into the actual metrics, because you and I are going to geek out for a long time here. What was your kind of inspiration to actually take the time and put all of your knowledge and experience into a book?

**Eric Mersch** (3:02)
Yeah, that's a great question. So when I was consulting, I kept finding areas of disagreement of metrics, like you said. I mean, you and I are both in the SaaS Metrics Board, we're all trying to develop a common language here. And I kept finding gaps in knowledge. I kept experiencing different situations. And I would write about it to help my own knowledge and also I posted on blogs so others could learn. And I'll give you some examples. I was in a board meeting where an argument broke out over the math behind a certain calculation. I once took over from a CFO who was terminated because he couldn't figure out gross margin. He didn't know how to calculate for a SaaS company. I saw a CFO get fired because her accounting team or finance team did not know how to forecast deferred revenue. I kept finding these issues and then I would go and I would write blog posts about them. That's just my passion for understanding, learning, intellectual curiosity, if you will, and then passion for sharing it with business at large.

**Ray Rike** (4:11)
It's so funny. It's the same way I ended up doing benchmark it. I was at a board meeting. I was an operating role where I had marketing sales and success. And we were talking about the CAC ratio. And one of the board members said, Oh, your CAC ratio is way too high. And I'm like, and not to bore you to death, but it was like a $1.58. We had a 45 to 50 percent growth rate with a 50K product. And I'm like, based upon what benchmarks are you using? Because we should have a $1 or lower. And I'm like, for a 50% growth company at 20 million ARR with a 50K plus product, I said, I don't agree with you. So I call up a buddy of mine, Byron Dieter, at best, one of the fathers of SaaS Metrics, right? And I'm like, hey, Byron, if you get a portfolio company with these metrics, where would you be comfortable letting me get the new customer CAC ratio to? He's like, with those metrics, I'd start getting concerned if you come close to two, but I'm not concerned at $1.54.