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Operating Metrics

On this page

Monthly KPI and OKR Review

Purpose

For each executive we have a monthly call to discuss the metrics of that department in order to:

  1. Makes it much easier to stay up to date for everyone.
  2. Be accountable to the rest of the company.
  3. Understand month to month variances.
  4. Understand against the plan, forecast and operating model.
  5. Ensure there is tight connection between OKRs and KPIs.

Some executives will have additional calls in areas that report to them based on the number and importance of metrics associated with the function.

Metric

  1. KPIs of that department
  2. OKRs that are assigned to this executive.
  3. Corporate metrics sheet (need link)
  4. Operating Model (need link)

Agenda

  1. Review KPIs and conclude on implications for operating model.
  2. Review status of current quarter OKRs.
  3. Discuss proposals for different measurement.
  4. Determine if external benchmarks are required.
  5. Discuss proposals for addition of new KPIs.
  6. Discuss proposals for deprecation of existing KPIs.
  7. Review decisions & action items.

Timing

Meetings are monthly starting on the 10th day after month end.

Invitees

Required invites are the executive and the CFO. Optional attendees are the rest of the e-team and anyone who has an interest in the metric.

Meeting Format

  1. The functional owner will prepare a google slide presentation with the content to be reviewed.
  2. The finance business partner assigned to the functional area will meet with the owner at least one week in advance and ensure that follow-ups from last meeting have been completed and that data to be presented has proper definitions and is derived from a Single Source of Truth.
  3. The title of every slide should be the key takeaway
  4. A label on the slide should convey whether the metric result is "on-track" (green), "needs improvement" (yellow), or is an "urgent concern" (red).
  5. A google doc will also be linked from the calendar invite for participants to log questions or comments for discussion, and to any additional track decisions & action items.
  6. Wherever possible the metric being reviewed should be compared to Plan, OKR target, KPI target, or industry benchmark.
  7. The functional owner is expected to present a summary of highlights which should not last more than three minutes. A pre-recorded video can be an efficient way to do this.
  8. The functional owner is responsible for preparing the document 24 hours advance of the meeting. The owner should update the meeting invite and send to all guests so they know the materials are ready for review.
  9. A blank template still needs labels

Future

We want to get from Google Sheets to reviewing a live dashboard.

We are actively working to move away from the methodology of maintaining one Operating Metrics page.

Please do not update this section. Instead, please define a metric in-place, where it would make the most sense for that metrics to live in the handbook. For example, the Average Days to Hire metrics should live within the recruiting section of the Handbook.

For more details, see Emilie Schario, Data Analyst, and Sid Sijbrandij, CEO, discuss the best way to organize metrics definitions in the company handbook. Progress updates can be found in gitlab-data#1241.

Here's another follow up discussion that includes Joe Davidson, SDR, and brings additional clarity around addressing the ownership question.

Defined Metrics

Finance

Calculated Billings

Calculated billings is defined as revenue plus the sequential change in total deferred revenue as presented on the balance sheet.

We do not believe that calculated billings provides a meaningful indicator of financial performance as billings can be impacted by timing volatility of renewals, co-terming upgrades and multi year prepayment of subscriptions.

Capital Consumption

TCV less Total Operating Expenses. This metric tracks net cash consumed excluding changes in working capital (i.e. burn due to balance sheet growth). Since the growth in receivables can be financed with using cheap debt instead of equity is a better measure of capital efficiency than cash burn.

Cash

Defined as cash in the bank. Also counts short term securities that are readily convertable into cash within the next 90 days.

Cash Burn, Average Cash Burn and Runway

The change in cash balance from period to period excluding equity or debt financing. Average cash burn is measured over the prior three months. Runway is defined as the number of months based on cash balance plus available credit divided by average cash burn. Our target is that this metric is always greater than 12 months.

Credit

Lost or lowered contract value that occurs before a subscription renewal or subscription cancellation

Customers

We define customers in the following categorical level of detail:

  1. Subscription: A unique subscription contract with GitLab for which the term has not ended. As customers become more sophisticated users of GitLab the number of subscriptions may decline over time as Accounts and Parents consolidate subscriptions to gain more productivity.
  2. Account: An organization that controls multiple subscriptions that have been purchased under a group with common leadership. In the case of the U.S. government, we count U.S. government departments and major agencies as a unique account.
  3. Parent: An accumulation of Accounts under an organization with common ownership. In the case of the U.S. government, we count U.S. government major agencies as a unique parent account. (In Salesforce this is the Ultimate Parent Account field)

Because "customer" can have three different meanings whenever customer is used in presenting data it must be qualified by the type of customer. The default description is parent. When the default is used no further description is required. When account or subscription is being reported then the title or field description on the chart must be added to call out the basis for reporting. Metrics that are based on customer data should also carry a clarifying description.

Customer Segmentation

Customer segmentation follows the segmentation as laid out in the Business Operations Handbook at the Parent Account level.

Customer Counts

  1. Subscriptions: Given that subscriptions can consolidate, fan out, be renewed, and experience other kinds of transformations over time, counting subscriptions are less straightforward than counting accounts. The core principle is: if a subscription was active at any point in time in the proposed timeframe, it is counted as active.

  2. Accounts and Parents: If an account was active at any point in time during the proposed timeframe it is counted as active. For example, an account that is active from March 2019 to May 2019 but is inactive from June 2019-on is counted for CY2019, FY2020 (which runs from February 2019-January 2020), 2020-Q1, and 2020-Q2; it is not counted in 2020-Q3 or 2020-Q4.

Specific Examples of Subscription Counts (Click to expand)
  • Non-renewal: A subscription that is active from March 2019 to May 2019 but is inactive from June 2019-on is counted for CY19, FY20 (which runs from February 2019-January 2020), FY20-Q1 (Feb-April 2019), and FY20-Q3 (May-July 2019); it is not counted in FY20-Q3 or FY20-Q4.
  • Standard renewal: A subscription that is active from March 2019 to May 2019 and is renewed in June 2019 with a single subscription will have a total number of 1 subscriptions at all points in which it is counted.
  • Consolidation: Two subscriptions are active under one account from March 2019 to May 2019. In June 2019, they are consolidated into one subscription. (The use of "consolidation" does not imply a smaller subscription, just that there are now fewer subscriptions.) In April 2019, the count of active subscriptions for that month will be 2 subscriptions. In July 2019, the count of active subscriptions for that month with be 1 subscription; at the same time, in July 2019, the count of active subscriptions for the month of April 2019 will be updated to reflect 1 given the consolidation. Once subscriptions are consolidated, they will count as 1. The historical count of subscriptions will go down as subscriptions are consolidated.
  • Fan out: One subscription is active under one account from March 2019 to May 2019. In June 2019, these are cancelled and renewed to two new subscriptions. In April 2019, the count of active subscriptions for that month will be 1 subscription. In July 2019, the count of active subscriptions for that month with be also be 1 subscription. For all periods of time, these subscriptions will count as one.
This method of counting subscriptions may understate the number of active subscriptions active at any given point in time. This approach to counting reduces complexity and scale, makes clear we are never overstating subscriptions, and makes the counting process straightforward.

Days Sales Outstanding (DSO)

Average Accounts Receivable balance over prior 3 months divided by Total Contract Value (TCV) bookings over the same period multipied by 90 that provides an average number of days that customers pay their invoices. Link to a good definition and Industry guidance suggests the median DSO for SAAS companies is 76 days. Our target at GitLab is 45 days.

Line of Credit (LOC) Available

The amount of contractually committee line of credit extended by the bank that is not in default status.

Free Cash Flow (FCF)

Cash flow from operations as defined by GAAP less Capital Expenditures.

Gross Burn Rate

Total operating expenses plus capital expenditures.

Gross Margin

Gross margin is defined as Revenue minus Cost of Sales divided by Revenue.

Non GAAP Revenue (Ratable Recognition)

The amount of subscription revenue recognized using ratable accounting treatment as calculated by the subscription amount divided equally over the subscription term. Note that other GAAP adjustments such as non-delivery, performance obligations are not accounted for in this metric.

Revenue

Annual Recurring Revenue (ARR)

MRR times 12

ARR by Annual Cohort

ARR can be sliced many different ways for analysis. In the ARR by Cohort analyses, we look at ARR (as defined above) by the Fiscal Year Cohort. That analysis can be found on the Retention Dashboard.

Monthly Recurring Revenue (MRR)

Monthly recurring revenue from subscriptions that are active on the last day of the month plus (true-ups/12).

Subscription data from Zuora is the sole source of tracked MRR. The MRR value for a given month is based on the rate plan charge that is active on the last day of the month. True-up revenue is divided by twelve and added to the subscription MRR for the month it was charged.

Note that MRR values can change on a regular basis. The primary causes are customers updating, renewing, or canceling their subscriptions in a month different from when the original subscription ended. Updates increase and decrease the MRR values for all previous months of a subscription. Renewals increase MRR for all months since the start of the subscription. Cancellations decrease MRR for all months the subscription was active.

Marketing

Cost per MQL

Marketing expense divided by the number of MQLs

Marketing efficiency ratio

IACV / marketing spend

Social Response Time

Community Response Channels

Product

Operating and product metrics for self-managed and GitLab.com instances can be found here.

Sales

Average Sales Price (ASP)

IACV per won deal. This metric can be reported against various dimensions (e.g. ASP by customer segment, cohort, sales channel, territory, etc.)

Contract Value

Annual Contract Value (ACV)

Current Period subscription bookings which will result in revenue over next 12 months. For multiple year deals with contracted ramps, the ACV will be the average annual booking per year.

Incremental Annual Contract Value (IACV)

Value of new bookings from new and existing customers that will result in recurring revenue over the next 12 months less any credits, lost renewals, downgrades or any other decrease to annual recurring revenue. Excluded from IACV are bookings that are non-recurring such as professional services, training and non-recurring engineering fees (PCV). Also equals ACV less renewals. However, bookings related to true-up licenses, although non-recurring, are included in IACV because the source of the true-ups are additional users which will result in recurring revenue. IACV may relate to future periods (within twelve months).

Beg ARR + IACV may not equal ending ARR due to the following reasons:

  1. Timing difference due to IACV that will not start until a later period.
  2. ARR will be reduced by subscriptions that have expired but which may be recorded as a reduction to IACV in a different period (either earlier or later).

Gross Incremental Annual Contract Value (Gross IACV)

Value of new bookings from new and existing customers that will result in recurring revenue over the next 12 months. Gross IACV includes true-ups and refunds.

Growth Incremental Annual Contract Value (Growth IACV)

Contract value that increases at the time of subscription renewal

New Incremental Annual Contract Value (New IACV)

Contract value from a new subscription customer

ProServe Contract Value (PCV)

Contract value that is not considered a subscription and the work is performed by the Professional Services team

Total Contract Value (TCV)

The total value of the contract that the customer will pay up front (i.e. within 90 days from close of deal)

Customer Acquisition Cost (CAC)

Total Sales & Marketing Expense/Number of New Customers Acquired

Customer Acquisition Cost (CAC) Ratio

Total Sales & Marketing Expense/ACV from new customers (excludes growth from existing). Industry guidance reports that median performance is 1.15 with anything less than 1.0 being considered very good. All bookings in period (including multiyear); bookings is equal to billings with standard payment terms.

Downgrade

Contract value that results in a lower value than the previous contract value. Downgrade examples include seat reductions, product downgrades, discounts, and customers switching to Reseller at time of renewal.

Field efficiency ratio

IACV / sales spend

Licensed Users

Number of contracted users on active paid subscriptions. Excludes OSS, Education, Core and other non-paid users. Data source is Zuora.

Life-Time Value (LTV)

Customer Life-Time Value = Average Revenue per Year x Gross Margin% x 1/(1-K) + GxK/(1-K)^2; K = (1-Net Churn) x (1-Discount Rate). GitLab assumes a 10% cost of capital based on current cash usage and borrowing costs.

Life-Time Value to Customer Acquisition Cost Ratio (LTV:CAC)

The customer Life-Time Value to Customer Acquisition Cost ratio (LTV:CAC) measures the relationship between the lifetime value of a customer and the cost of acquiring that customer. A good LTV to CAC ratio is considered to be > 3.0.

Lost Renewal

Contract value that is lost at the time of subscription renewals. Lost Renewals examples include cancellations at or before the subscription renewal date.

Magic Number

IACV for trailing three months / Sales and marketing Spend over trailing months -6 to months -4 (one quarter lag) (see the details of this spend, as defined in the Sales Efficiency Ratio). Industry guidance suggests a good Magic Number is > 1.0. GitLab's target is to be at 1.1.

New ACV / New Customers

Net IACV that come from New Customers divided by the number of net closed deals in the current month.

New ACV / New Customers by Sales Assisted

Net IACV that come from New Customers and sold by the field sales team divided by the number of net closed deals in the current month.

Revenue per Licensed User (also known as ARPU)

ARR divided by number of Licensed Users

Sales Efficiency Ratio

IACV / sales and marketing spend. Sales and marketing spend comes from Netsuite; it is all expenses from accounts between 6000 and 6999, inclusive. Industry guidance suggests that average performance is 0.8 with anything greater than 1.0 being considered very good. GitLab's target is greater than 1.

Sales Qualified Lead (SQL)

Sales Qualified Lead

Rep Productivity

Monthly IACV * 12 / number of native quota-carrying sales reps

Late Stage Pipeline

The IACV of all open opportunities currently in the stages of 4-Proposal, 5-Negotiating, and 6-Awaiting Signature.

Total Pipeline

The IACV of all open opportunities.

Renewals (ACV)

The value of previously closed Won ACV that is up for renewal. Renewal ACV should not include ACV from Professional Services or True-Ups.

Renewals + Existing Growth

Renewal ACV plus Growth IACV minus (Lost Renewals + Credits + Downgrades)

Upsells/Cross sells and Extensions (IACV)

The value of the first twelve (12) months of any mid-term upgrade.

Closed Deal - Won

An unique deal that is set to Closed Won in SalesForce.